Denny's Corp (DENN) 2003 Q4 法說會逐字稿

Good afternoon, my name is Chastity and I will be your conference facilitator today. At this time I would like to welcome everyone to the Denny's Corporation fourth-quarter 2003 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS) During that time, we ask that you please limit questions to one plus one follow-up question. I will now turn the conference over to Mr. Ken Jones, Vice President and Treasurer of Denny's.

Thank you and good afternoon. As usual, I'm speaking first today will be Andrew Green, Denny's Chief Financial Officer who will provide our financial review from our fourth quarter's results. I will then provide a liquidity update followed by a few words from Nelson Marchioli, Denny's President and CEO. After Nelson's remarks we will open it up for a Q&A period. Let me remind you that a telephone replay call will be available later today or you can also hear the call on the Denny's Web site.

Before we begin here is the Safe Harbor disclosure. In accordance with the Safe Harbor provisions of the Private Security 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 risks and factors are set forth in the Company's annual report on Form 10k for the year ended December 25, 2002, and in any subsequent quarterly reports on Form 10-Q.

With that I will turn it over to Andrew Green, Denny's CFO.

Good afternoon, this is Andrew Green, and thank you for joining us for our fourth quarter 2003 investor conference call. Let me start by reviewing our same-store sales results for the quarter. I'm very pleased to report that the positive sales momentum we achieved back in the third quarter has continued on through the fourth quarter.

Our company restaurant same-store sales were up three percent for the quarter, on the strength of a two percent increase in average guest check combined with a one percent increase in guest counts. During this time, we continue to promote our $4.99 breakfast which we believe contributed heavily to our positive sales.

I'm also pleased to report that the sales momentum carried over into 2004 as shown in our January sales results released earlier this month. We reported same-store sales up 5.7 percent with average check up 3.3 percent and guest counts up 2.3 percent. This marked the fifth consecutive month of positive sales and the fourth consecutive month of positive guest traffic.

Now let me turn to an update on the Denny's restaurant portfolio. Our Company earned unit count at quarter end was 561 compared with 566 units at the same time last year. During 2003, our Company restaurant portfolio remained relatively stable as we closed only one restaurant during the fourth quarter for a total of 7 closures during the year. Further, we did not sell any restaurants to franchisees in 2003. We expect a similar trend in 2004 with only a minimal number of Company unit closures or sales.

One point of note is that we plan to resume limited new company store development this year. We have one unit scheduled to open in 2004. Over the next few years we plan to ratchet up company store development depending of course upon our cash flow constraints and the availability of prime development sites.

On the franchise side of the business restaurant closures were in line with our expectations. During the fourth quarter our franchisees closed nine units while opening two new units. For the year there were 49 franchise closures and 17 openings.

As far as expectations for 2004, I do think our franchisees will continue to close underperforming restaurants, offsetting some of these closures we project an increased number of franchise openings during the year.

We are placing increased focus on franchise development in 2004 in order to attract new franchisees as well as continue to promote growth among the strong franchisees already in the system. Our current positive sales trends are the best development tool we have to help us expand the Denny's brand.

Before I comment on our financial results for the quarter, let me remind you that our fourth-quarter results included 14 weeks of operations rather than our standard thirteen week quarter as in the prior year. This also carried over to the annual numbers where we had 53 weeks of operations rather than our standard 52.

Now turning to the P&L. Sales of Denny's company-owned restaurants increased 23 million to 228 million in the fourth quarter. We estimate that the 14th week accounted for approximately 20 million of this increase. Setting aside the additional week, same-store sales increase of three percent more than offset a five unit decline in company restaurants.

Operating income in the fourth-quarter increased roughly $9 million compared with the same period last year due in part to the additional week but also to improved operating margins and a reduction in depreciation and amortization. We estimate that the additional week of operations contributed approximately 5 million in operating income to the quarter. Also, operating income in the fourth quarter benefited from a scheduled $5 million decrease in depreciation and amortization expense.

More importantly our operating margins began to rebound in the fourth quarter as shown in the margin analysis table in our press release. Our company restaurant operating margin increased 2.2 percentage points compared with last year's quarter.

The largest contributor to this margin improvement was a 2.4 percentage point decline in payroll and benefits costs. After the rise in our labor costs earlier this year, we put a lot of emphasis on efficient labor scheduling and this seems to be paying off. Also, our health benefits expense was especially high in the fourth quarter of 2002. With 2004, we have restructured our health benefits program which should contribute to lower costs compared with 2003.

Regarding other cost items, we benefited from a one percentage point decline in repairs and maintenance costs as our expense in 2002 ran higher than our normalized run rate of approximately 2 percent of sales. Our advertising expense was also higher in 2002 as we spent a fixed budget amount for the year. Beginning in 2003, our advertising budget was tied to our sales performance and consequently we reported a much more consistent margin this year.

Partially offsetting these cost improvements was a 1.8 percentage point increase in product costs excluding a .9 percentage point increase due to lower non-cash deferred gain amortization in this year's quarter. The product cost increase is attributable primarily to higher commodity prices as I'm sure you have heard from many others, the restaurant industry has been hit hard by rising commodity prices over the last two quarters.

At Denny's, we are impacted primarily by rising pork and beef prices but also by higher cost for eggs and cheese. In an effort to offset these higher costs, we did take a 2 percent menu price increase in December.

Our fourth-quarter GNA expenses increased approximately $2 million from last year, partially as a result of fees and expenses associated with our ongoing review of alternatives to improve our capital structure. Also last year's quarter benefited from a larger credit to the bonus expense accrual.

Franchise and licensing revenue in the fourth quarter increased by $1.7 million to 23 million as the additional operating week along with a 2.8 percent increase in same-store sales more than offset a 33 unit decline in franchise restaurants. The additional franchise revenue contributed to a $1.3 million increase in franchise operating income for the quarter.

Regarding bottom-line net income, we reported a net loss of 11 million for the fourth quarter compared with net income of 500,000 in a same period last year. Last year's fourth-quarter results included 14 million of nonoperating income attributable to debt exchange transactions as well as a $4 million gain on discontinued operations.

Let's move now to capital expenditures. Cash capital spending for the fourth-quarter was approximately 9 million bringing the full year total to 32 million. This was approximately $8 million lower than we anticipated at the beginning of the year because we pulled back on our spending around midyear in light of our liquidity pressures at that time. Of the 32 million, approximately 6 million was spent on remodels with the remainder being spent on general facilities improvements.

For 2004, we expect to spend from 35 to $40 million on CAPEX, the majority of which will be spent on basic needs such as parking lots, lighting, refrigeration, heating and cooling equipment. Also we expect to remodel approximately 60 units in 2004 at an aggregate cost of around $9 million.

Looking ahead for the remainder of '04, we are hopeful that the sales momentum we have now will continue. In addition to benefiting from an industrywide increase in sales, we are beginning to see a return on the operational and capital improvements in which we have invested over the last three years. Our results in the first half of last year were rather soft so we expect to achieve strong comp sales through July of this year. After that we will be rolling over positive sales which may our sales comparison in the second half of the year more challenging.

Obviously a lot depends on external factors particularly the economy and consumer confidence. Even with our recent positive sales trends, we expect our free cash flow under our current capital structure to remain negative during 2004. In 2003 our cash flow was relatively flat, however, this included 13 million in property sales and 5 million in sale leaseback proceeds. For 2004 we expect our asset sale proceeds to be much lower, in a range of maybe 5 to $6 million. Also we are planning to spend approximately 5 million more on capital expenditures in 2004.

Our closed store lease payments which are part of our balance sheet runoff and not reflected in our income statement are expected to be approximately 3 to $4 million in '04. We also expect approximately 5 to $10 million in other balance sheets for working capital uses of cash.

While we are very pleased with our current sales trends we remain cautious on our operating margins for the year. We expect product costs for 2004 will be relatively flat with the higher levels of 2003 due to continued commodity cost pressures. Regarding labor and benefits we expect these costs to improve slightly in 2004. We hope that with continued positive sales, we will post a modest overall margin improvement but we'll need to see commodity stabilized before we'll see any significant margin increases.

Now I'm going to turn the telephone back to Ken Jones, our Treasurer for a liquidity update.

Thank you Andrew. Our liquidity position has improved considerably over the last few months with the 40 million term loan we obtained back in September as well as with our improved operating performance. At the end of December we had net availability under our credit facility of 75 million. This consisted of revolver advances of 11 million, letters of credit of 35 million, as well as the 40 million term loan.

At the end of December commitments under the facility stepped down by $2 million to $161 million as scheduled in the credit agreement. As of this morning, outstanding term loans remained at 40 million and letters of credit remained at 35 million. However, the revolver advances have increased to 24 million after making our scheduled $21 million senior net interest payment in January leaving a current net availability of 62 million.

Regarding bank covenants, we did meet all of our financial covenants for the quarter and under the most restrictive covenant we maintained an EBITDA cushion of approximately 14 million. Since I expect someone will ask this question, as for an update on our ongoing capital structure evaluation, we continue to work with our financial adviser, UBS, to explore various capital structure options that could add flexibility for future growth.

At this time we have nothing specific to report. We will update the process as appropriate but will not comment on rumors or speculation. If and when any developments warrant disclosure, we will certainly make those public through a press release or SEC filing.

Let me now turn the program over to Nelson Marchioli, the CEO of Denny's.

Thank you Ken, and good afternoon everyone. Going into 2003 we held high expectations for the year and believed it would be viewed as the beginning of a turnaround at Denny's. Fortunately by the end of the year we saw evidence of that turnaround. When developing our plans for 2003 we counted on the significant investments made in the Denny's brand over the previous two years to bring to an end our historical guest count decline and to put the Denny's brand back on a growth track. These investments included millions in capital improvements, new and improved many offerings, increased restaurant staffing, and a focused national media campaign.

What we didn't plan for was a war, some of the worst customer count months the foodservice industry has experienced in 25 years, and also in 2003 we learned that it was too soon to shift our media strategy away from breakfast, our most credible day part. Then in August we returned our promotions to a breakfast value message as we unveiled our $4.99 featured breakfasts. The success of these items began to immediately lessen the traffic declines we had experienced year-to-date.

Since then we have stayed with our $4.99 breakfast and have seen sales and in particular guest traffic steadily improve. As Andrew mentioned earlier with the release of our January sales results, we have now posted five consecutive months of positive same-store sales and even more importantly four consecutive months of positive guest counts.

In the last ten years this is only the second time that Denny's has enjoyed a positive traffic trend of that duration.

While we know that sustaining these trends will be challenging, we feel all the steps we've taken and the investments we've made are starting to come together. Now we must turn positive sales into higher profits. Like other restaurant companies we face margin pressures in our business from rising costs of food, natural gas, health benefits and Workman's Comp. But even with those considerations the opportunity for significant sales leverage remains as we continue to push for more efficient operations.

In addition to turning our increased sales into greater profitability, we need to take advantage of our positive sales momentum and increasing confidence in the Denny's brand in order to energize our franchise development efforts. Clearly, our franchise partners are the foundation for Denny's growth.

Why am I optimistic? I'm optimistic about 2004 because I believe we've done all the right things. It certainly has taken a lot longer than I thought it would, I've now been here for three years this month. But we've had to address quality, service and facilities. We have now put in place new methods of personnel selection to assure ourselves that we are getting a consistent quality applicant in our restaurants to consider for hiring.

We continued to be relentless about reducing our GNA wherever possible, and we're particularly encouraged that our franchisees are enjoying similar sales results as we are. Which means growing the Denny's brand through franchising is even more profitable. And in fact we plan on it this year. As Andrew already said we do plan on opening at least one restaurant this year on the Company side, so Denny's is growing again.

Our employees and our franchisees are excited about the prospects going forward. We're off to a great start in 2004. As always, thank you for your interest in Denny's. I'm sure it's going to become even more interesting.

Back to you, Ken.

Thank you Nelson. We will now begin the Q&A portion of our program.

(OPERATOR INSTRUCTIONS) Again we ask that you please limit your questions to one plus one follow-up question. Andrew Ebersole with KGB Investment.

You'd mentioned that in the fourth-quarter of this year you had a lower reversal I think you indicated of a salary bonus accruals. I was wondering what that reversal was this year as compared to last year and whether or not there are any other non-recurring types of charges are gains in the fourth quarter?

That was, I think the big item that was different from 2002 to 2003. And the variance was about $2 million. The accrual was reversed in 2002 by 2 million whereas last year to be honest with you, we had not been accruing at that level during the year for bonuses so we didn't have to take that reversal.

You mentioned the $2 million in 2002, did you mean 2003?

No I meant 2002. See the fourth quarter of 2002 benefited from a $2 million reversal of a bonus accrual that would have been set up earlier in the year. But by the fourth quarter realizing that we weren't going to make bonus, the accrual was reversed into income in the fourth quarter of '02. In '03, we knew going into the fourth quarter where we stood and therefore didn't have any of that activity.

I see. Okay.

Are you with me?

Yes I am with you.

And that is within GNA

Also, you did note that you had a lower run rate in the fourth quarter for your marketing expenses. And I was just hoping to get an update as to what you think the run rate is going to be in 2004, whether or not there is going to be any change?

The percentage, let me pull that, percentage for the fourth quarter was 3.2 percent. That's what you're referring to? That's a good range of where were going to run.

Okay. Thank you.

Julie Lerner (ph) with Metropolitan Capital.

Good morning. First congratulations on what looks like a positive trend. I wanted to ask a question -- I know you guys can't talk much about it but what point will you give us a better sense of the timing of the possible restructuring or not and could you share your thoughts about how management looks at what the equity holders role if a restructuring were to occur? And just kind of your philosophy there?

We can barely hear your question but I think we get the gist of it. We really cannot comment on the timing. Unfortunately we are in the middle of a process and it would not be appropriate to speculate on the timing. All we can say is that at this time we hope there is a win-win situation for all of our stakeholders and investors, but until we're ready to provide more details it would not be appropriate to speculate.

Thank you.

Karen Eltrich with Goldman Sachs.

You mentioned you took pricing. Are you finding in general that your competition is following the same suit and that it's relatively stable competitively out there?

Based on what we're saying and press releases from other companies and just observing the market I think, Karen the answer is yes. The reality is all restaurant companies have faced in particular the rise in beef prices. We're trying to be careful, we have watched our pricing very carefully over the last several years and we don't want to take more than we have to but on the other hand we and we think our competitors have had to take some pricing to cover those increased costs.

Great and in your press release you mentioned you are seeing traffic increases across the board, not just for breakfast with the advertising. What do you think is driving that? Is it in part increase in tourism, consumer spending, do you think it is the execution of what you been doing and how much has weather been impacting your traffic?

As far as weather impacting the traffic, the Northeast part of the country has had some bad weather this year. That has hurt sales in that region. But overall, if you'll recall, last year's weather was especially difficult. So I think overall the weather has been a little bit better this year. As far as the question as to why we are seeing improvement at all day parts given that we have really focused on breakfast products and breakfast media, is a good question and frankly we've thought a lot about ourselves.

And with that I'm going to ask Margaret Jenkins, our Chief Marketing Officer who is on the phone with us if she would maybe comment on the fact that we have seen improvement in all day parts.

Well I would attribute that to be growth of the brand and, certainly our breakfast messages have been -- breakfast has been the cornerstone of our messages but there's a certain amount of brand awareness that goes along with the advertising that we've been doing. And I believe that the consumer is being reminded of Denny's, not only during the breakfast day parts but at other times of the day. The good news about what we have been experiencing is that as people are coming in during those other day parts they are buying food that's appropriate to eat in those day parts. So it isn't that we're selling breakfast meals at lunch and dinner time, we are really seeing the relationship between the entree and the time of day to be very appropriate. I believe that really it's because of the brand building and the brand awareness that we're able to achieve through the breakfast messages.

Thank you very much.

John Thomas (ph) with (indiscernible).

I have a quick question on your CAPEX. You mentioned 9 million for your remodeling in 2004. Does that complete your remodeling program or will there be additional remodeling in 2005?

It will not complete our remodeling program. This phase of our remodel program we began in 99, so we're well into it but we still have a couple more years and to be honest with you once we get through that couple of years then we have to start over again. I think we see this kind of remodel effort is really an ongoing thing to keep the brand fresh.

I would also add that hopefully as Andrew indicated, when we restart the process it's just an ongoing cycle in this business that we won't have to address so many infrastructure issues that have been neglected over the years, refrigeration, roofs, HV/AC, not that we won't have to address those things but not in the wholesale effort we've had to do over the last three years.

Are you ready for the next question? Mary Gilbert with Imperial Capital.

I wanted to find out on the -- I just wanted to make sure I caught this number right, but you said the change in other balance sheet items would be 5 to 10 million, is that correct?

Yes.

So we have 3 to 4 million plus the 5 10, right, in total cash expense from the change in working capital potentially in fiscal '04?

Mary, you are actually breaking up and I'm having a hard time quite following the question. Would you start over?

I was saying that you expect to have a total change in working capital of about 8 to 15 million you know with those two components, correct?

Let me try to answer your question. The 3 to 4 million was the typical runoff we're expecting for closed stores making the lease payments that I believe you are familiar with. We try to give you a little guidance on other balance sheet runoff. I wouldn't specifically call it working capital, I think we use that term a lot. But its return to give you a little bit of a guidance on what other cash flow items might flow out the door that's not a component of EBITDA. An example might be pension payments, we have -- we're scheduling a $3 million pension payment this year. It may not be exactly that but that's something that will roll off the balance sheet, it's not typically working capital but it's certainly a cash use.

And then also, comp, could you please give us what comps were for the fourth quarter and the year adjusted for the week?

Ken Jones. Mary, I'm sorry you've broken up again and we couldn't hear the question. You were saying what were comps for the fourth quarter?

Adjusted for the extra week?

There should be no adjustment for the 53rd week in comps.

So that is factoring that in?

Yes.

What about repair and maintenance expense? That number was lower in the fourth quarter. Can you talk about what that trend will look like for fiscal '04 and was it -- why was it lower in the fourth quarter?

One thing that happens, see there you get a bit of an impact of the 53rd week because you've got 14 weeks of revenue and the R&M (ph) may or may not go up because of the extra week. So when you divide it by a larger revenue base it was a little bit low in the quarter at 1.8. I think in the range of 2.0 to 2.2 is about where we feel we should run. If you go back a year or two commenting on Nelson's prior reference to CAPEX, we were spending above that level for a couple of years, we were up in the I want to say 2.7, 2.8 range. I'm pretty comfortable, Mary, the 2.0 to 2.2 is the right range, something like that.

Okay, great. Thank you.

Barrett Ian (ph) with Banc of America Securities.

Can you quantify what you think same-store sales growth is going to be in the first half of '04?

No, I really can't.

Just a range -- like it's not going to high as it has in the January month period, but it should be two to three percent. Does that sound fair?

I really would be hesitant to project out over the first half of the year.

For the full year, can you?

Gosh, you know. If I could project what sales would be -- I'm really hesitant.

And then I know you said you wouldn't comment on the restructuring but do you think if you decided not to pursue that avenue, you would have a problem rolling over the facility when it matures in '04?

It's important to keep in mind that our present situation is not distressed. We have strong liquidity and what we have said publicly is this is looking in the long-term. And taking the time now to look if there's a potential situation that's a win-win. So we are not going to predict what may happen down the road but our situation is not distressed at this point and we don't have to do anything right now.

Last question. Can you comment on the impairment and restructuring charges during the quarter? Is that from you expect going forward or is that a more one-time item?

I'm sorry you're talking about the -- ?

The impairment charges of about 2.1 and then restructuring charges of about 1.5?

I'm looking here, hold on one second. Okay, the 1.5 million under restructuring really relates to a reduction in work force and severance payments related to the workforce reduction that we did here in the fourth quarter at our headquarters. The 2.1 million is a just sort of the normal quarterly review of our units. And any impairment on units, you know that we have are still operating which should be written down. That's something we do every quarter and that's what that is.

Okay. Thanks.

Jeetil Patel with Deutsche Bank.

Good afternoon guys and congratulations on a great quarter. Just a couple of things that I think I might have missed. Did I hear correctly that there was a small amount of amortization of deferred gains because I thought that rolled off basically in August of '03? The .9 million, I can't recall if I maybe just misheard that.

You are correct there was no deferred gain amortization this year. I think the .9 that I referenced, that was last year's number, so I was giving you the variance from '02 to '03. But in '03, you are correct, that has rolled off.

And then could you tell me what cash taxes and cash interest were and then if you could maybe give an idea in '04 of what you expect your rent expense to be?

Ken, I couldn't hear the question.

Can you hear me better now? I will just repeat it. If you could just give me maybe what cash taxes and cash interest were for the year? And then if you could give maybe an idea of what you expect her '04 rent expense to be.

Tax expense will be?

No. Rent.

Cash interest is in the 70 million range. As it relates to taxes we have very small amount of taxes for '03. Rent expense -- give us a minute and we may be able to come up with something.

Sure. Thank you.

Ken Bann with Jefferies and Company.

Could you talk about marketing this year, do you plan to continue marketing the breakfast items? Last year I think you pulled back on that and hurt sales during the summer months.

Did you hear the question, I'm sorry -- you're question was are we going to continue marketing breakfast items and what?

Last year during the summer you pulled back on that and that had a negative impact on sales. So are you going to continue to promote the breakfast through the rest of the year like you normally do?

I am going to let Margaret Jenkins, our Chief Marketing Officer respond.

It is our plan to stay with the breakfast message given the success that we've had with that during different periods of the year. Late summer as well as the fall and winter -- it certainly makes sense to stay the course.

On labor expenses, last year you made an effort to increase the in-store labor in order to try to improve service. Are you cutting back on that or are you finding ways to be more efficient at getting better labor and better service in the restaurants at a lower cost?

We are finding ways to be more efficient. We are not cutting back, we made an investment last year, we continue to invest in our labor and our hospitality values. But we are becoming more efficient and more prudent and putting processes and place that offer a check and balance to our lead management people in the field to make sure that we have the labor on when we need it and thus becoming more efficient.

So labor as a percent of sales should be lower than it was during '04 as of last year? Is that correct?

During the comparable period of last year?

Right.

As you look across the four quarters of '03, the first two quarters were higher than the second two quarters. I think we now have our labor at about the right level as a percentage of sales. I think the fourth quarter is representative of what things should run over the balance of '04 now.

Great. Thanks.

Regarding -- I think I have guidance on the rent expense. If you look at our occupancy expense line which is a little bit more than rent and it includes some property taxes and some other items but that has been running around 5.8 percent of sales at least that is what it was for the full year and that's a pretty good -- that's a pretty good percentage as a percentage of sales to expect for next year.

Next question?

Jeff Cavarcas (ph) Geoff Vargas with SG Cowan.

I believe you mentioned you were cash neutral over the course of '03. I was wondering if you could walk us through the components of how you come to that number?

There are too many components. If you can target your question a little more specifically, maybe we can help you.

I believe you mentioned you had roughly 70 million of interest expense. And CAPEX was 32 million, and are you including -- there was 13 million -- are you including 13 in from property sales, there was another 5 million figure you mentioned?

Yes, sale leasebacks. Roughly 18 million of asset sales, including sale leasebacks.

What was working capital?

The cash restructuring charge run off that we said would be 3 to 4 million, that number was roughly 9 million for the full year, 2003. And we also had principle payments of about 7.5 million in addition to the cash interest.

OK. And then given your no longer -- you're going to be growing stores, what do you anticipate the working capital requirements would be?

Working capital when you add stores, working capital actually runs negative. So it doesn't utilize working capital to add a store.

OK. All right, thank you.

Ruth Upton (ph) with (indiscernible).

My questions have been answered, thanks.

Julie Lerner with Metropolitan Capital.

One follow-up question. Would it appear that you guys should be on a run rate to do an '04 somewhere around the 2001 EBITDA level? I just want to get management's thoughts assuming trends continue to do well if this is doable or not?

We're having trouble. You broke up toward the last couple of sentences. You're talking about the 2001 -- ?

If management believes they will be able to return this year to an EBITDA level approaching that of 2001? Assuming trends continue.

To be honest with you, I'd have to go pull 2001, I can't remember --

It was about $120 million.

I -- we're really not projecting our levels so while were optimistic about the year and think it will be an improvement, I'm hesitant to tie you into any particular level.

Is there a point at which you will give guidance?

We're trying to give relative guidance but I think we feel that it's not appropriate to give specific EBITDA guidance. As Andrew mentioned, so far sales have exceeded our expectations for the first part of the year and we hope to do better and we expect to do better than last year or '03 but to start providing EBITDA numbers, we're not prepared to do.

OK.

Paul Lucadusci (ph) with Barclays.

Just wondering if you could give your cash balance as of today?

I'm sorry, you'll have to repeat question.

What is your cash balance today?

Ken Jones Are you talking about our cash balance or -- you probably want to ask what our revolver balance is. Because we run --

You have disclosed the revolver availability. I'd just like to know how much cash you also have on the balance sheet?

Whatever cash we have is really trapped (ph) operating cash. We had 7 million at the end of the year which was a little bit higher than normal because of the timing of Christmas and the holidays. It runs 4 to $5 million. But that is not cash we can really get to.

I understand. Thank you.

(OPERATOR INSTRUCTIONS) John Thomas with RW Presperit.

A quick follow up question concerning the nature of your pork and beef contracts. I know you had locked in some pricing on those earlier. Could you just speak a little bit about that?

I don't think I actually I said we were locked into it, if that is what you were repeating.

No, I think it was last quarter you mentioned for beef pricing that you had -- ?

Okay.

We continue to monitor the market closely with the advent of BFE and what ever the impact the Atkins diet has had on the consumers in general has caused the markets to run up. We typically, we have a terrific purchasing team here that monitors it closely and whenever we can want can lock in, we do but right now it's been on a quarter by quarter basis thus far this year. So we have been very careful not to go too far out but continue to look for opportunities. This is not going to be a normal year in commodities for anyone. It's going to be a tough year. So it's a lot of gas break at this particular time and we’re being very careful not to extend in case there are opportunities in the market.

Thank you.

Kiki Lee with (indiscernible).

Hi, can you hear me?

Yes. Thank you.

You mentioned -- first congratulations on the quarter. You mentioned that your CAPEX for 2004 will be in the 35 to $40 million range which includes around 9 million of CAPEX. I was hoping you could just elaborate a little bit more about what's included in your CAPEX? And as a follow-up, I recall that you indicated that you might be considering an upgrade in your cash register systems and where you are in that process?

I did mention that is our capital spending for 2004 is projected in the 35 to $40 million range of which 9 million would be for remodels of restaurants. If I understand your question correctly, is sort of what is everything else, if 9 million is remodels? The reality is that there is a significant capital expenditure required to keep up I think any restaurant and it goes for seemingly mundane things like new parking lots and new roofs and new equipment in the kitchen, when you have old buildings the sewer line may have to be dug up and redone, Nelson what else? We go on and on because we approve these all the time and it is the cost of doing business.

It's a lot of infrastructure as we've talked about, we spend about $10 million a year since I've been here just on upgrading refrigeration, which is just a cost of doing business and we're replacing or have been replacing, I should say, units that are 25 to 35 years old. So we are having to replace entire rooftop our refrigeration packages and that's been a plan to make sure that were serving safe quality food and we are. But we probably got another year of that kind of expenditure so when we talk about this number, there's a lot of infrastructure issues, roofs that had frankly been patched, or having to remove and replace the parking lots, frankly some of them have turned into craters and cracked so we are having to deal with all of that just to provide a basic comfortable experience for our guest.

This isn't about remodels, I assure you, this is just about bringing the infrastructure up to what we believe is standard.

And we've come an incredibly long way in the last three years in regards to our infrastructure. But there is still some more to do.

In terms of the remodeling then, that doesn't include any of the CAPEX on your equipment or your the roofs or the refrigeration?

That is correct. When we say remodel, we're really talking about the dining room, the front of house. So it's the carpet, the booth package, seating and tables, new lights, wallpaper, picture package as well as the outside, painting the outside. But it is nothing sort of from an infrastructure standpoint, it's just sort of front of house we call it.

And then in terms of your point of service cash register system? Something that has just kind of been put aside?

We had deferred it, we were working on it last year, we are again working on it in 2004, we deferred it for about six months but our information system department is working on it as we speak and we will be piloting some systems this year. It's not a project that will roll in 2004, but I'm hopeful that sometime in 2005 we would do it.

Do you have an estimate of how much that might cost? Is that within your $40 million plan?

No it would not be within there because we haven't selected a system yet. I mean in general from the numbers we talked about and what I've seen from other systems you're looking probably at 30 to $40,000 a unit. I mean that's a rough ballpark but it will give you an idea.

Okay. Thank you.

Philip Schaefer (ph) with Scotts Cove Capital (ph).

Two questions regarding comp store sales. For the fourth quarter did you see a difference in geographic areas of the country? In comps? And the second question, did the January comp store trends continue? Have you seen them continue into February?

I can't comment on February. As far as the fourth quarter and geographic spread, it has been interesting to watch because as we went through 2003 there were clearly parts of the country that were weaker. Really the Central part of the country in general, from the Midwest down through Texas through the first parts of '03 were the difficult areas of the country for us.

Really as we headed into the fourth quarter and even as we started out this year, we've seen a broader span of improvements. So with the exception maybe of some bad weather in the Northeast, our Northeast stores got hit some, from that we're encouraged that the spread has been broader than we experienced in the earlier and middle parts of '03.

Thank you.

Karen Eltrich of Goldman Sachs.

If you renew a new store program, what kind of average unit volumes are you talking for new stores and how has access to financing been for your French (indiscernible) ?

As far as new stores -- our strategy on the company side is we are going to target key opportunity areas with frankly large sales volume opportunities. So I think Nelson mentioned we're looking at Las Vegas right now as an example, Orlando, outside of Disney because those are strong Denny's territories now. So we're looking at 2 million plus as we target company store developments. Which at this point Karen is going to be pretty limited a small number of stores. So we're going to go for those high-volume big opportunities which are obviously beyond our normal normalized level of volume which is about a million five right now.

And there was another part to that?

How is access to financing for your franchisees? For building new stores?

Financing for franchisees? In general over the last couple of years franchise lending has gone through a very difficult period. With the improving economy and improving sales trends I'm starting to feel a little more encouraged about franchise lending. It's still early though and I'm not saying that it's opened up full-scale. But I feel like over the last six months I've seen some openings -- some other people willing to lend that haven't been willing to do so. So it's not what it used to be it probably never will be where it was four or five years ago. But I'm encouraged that it's improving.

Great, thank you very much.

At this time there are no further questions. Mr. Jones are there any closing remarks?

No, I think we just want to thank everyone for joining us this afternoon and we hope to hear from you after our first-quarter results.

Thank you for joining today's Denny's Corporation fourth-quarter 2003 earnings release conference call. You may now disconnect.