Dine Brands Global Inc (DIN) 2003 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2003 IHOP earnings conference call. My name is David and I will be your coordinator for today. At this time all participants are in a listen only mode. We will be conducting a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would like to now turn the presentation over to your host for today's call, Miss Stacey (inaudible)[indiscernible]

Good morning. And thank you for participating on IHOP's fourth-quarter and fiscal 2003 conference call. Today with us from management are Julia Stewart, President and CEO, and Tom Conforti, CFO. Before I turn the call over to Julia and Tom I would like to remind you that today's conference call contains forward-looking statements. These forward-looking statements include such words as may, will, expect, believe, plan or other similar terminology. These statements involve known and unknown risks and certainties and other factors which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include but are not limited to risks associated with the implementation of the Company's new strategic growth plan, the availability of suitable locations and terms of the sites designated for development, legislation and government regulations, including the ability to obtain satisfactory regulatory approval, conditions beyond IHOP's control such as weather, natural disasters or acts of wars or terrorism, availability and cost of materials and labor, costs in availability of capital, competition, continuing acceptance of the International House of Pancakes brand and concept by [indiscernible], overall marketing, operational, and financial performance, economic and political conditions, adoption of new or changes in accounting policy [indiscernible] and other factors discussed from time to time in IHOP's filings with the Securities and Exchange Commission. Forward-looking information is provided by IHOP pursuant to the Safe Harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors.

In addition IHOP disclaims any intent or obligation to update these forward-looking statements. Now I like to the call over to Julia Stewart.

Thanks, Stacey, and what a great year 2003 was for us. It was a year filled with impressive accomplishments which included strong sales growth and record breaking promotional sales. Systemwide retail sales grew to a record 1.7 billion in 2003 as we increased retail sales at our franchise & company restaurants and added new restaurants to the IHOP system.

We experienced same-store sales increases of 4.8 percent for the year which were our best annual gains in over 10 years. Our success in driving same-store sales results was due primarily to the innovative product promotions we introduced throughout the year and have focused on improving operations. We ended the year on a very strong note with the introduction of our fifth product production -- Stuffed Crepes -- which contributed to the excellent 6 percent same-store sales gains we experienced in the fourth-quarter.

These are great results that continue to lead our competitors and show that our broader vision of becoming No. 1 in family dining is at work.

For fiscal 2003, we reported EPS of $1.70 per diluted share which was right in the middle of our guidance range of $1.55 to $1.75. This performance was inclusive of charges associated with our business model change and reorganization totaling 9.1 million or 26 cents per diluted share. For the fourth quarter we reported EPS of 41 cents per diluted share.

This decrease primarily reflects our transition to the new business model since we developed and financed 30 fewer IHOP restaurants during the quarter versus last year.

In 2003 we moved away from funding the development of IHOP restaurants and our franchisees resoundingly supported this new direction. We signed agreements to open 137 new IHOPs and obtained commitments from perspective franchise developers to build and operate as many as 79 additional new restaurants. This totaled nearly 230 new restaurants slated for development over the next several years which moves us toward our target of developing 68 restaurants a year in steady-state.

This is significant progress as we look to develop the 400-800 IHOP locations we believe possible in the U.S.

In addition, to the changes in the way IHOP restaurants are developed, the transition to our new business model has also transformed our ability to grow our business through improved marketing, operations, training and product R&D. Our re-energized marketing including the launch of our "Come hungry. Leave happy." advertising campaign at the beginning of the year.

This campaign was supported by improved media buying strategy and two national network [indiscernible] which was a first for IHOP. Our campaign featured unique limited time offers that raised the level of IHOP awareness and enthusiasm nationwide.

We effectively communicated our promise of an excellent guest experience to motivate guests to visit more often. As a result, we drove traffic increases systemwide. And the strength of our marketing campaign recently achieved international recognition with the bronze Medallion for Advertising and Marketing Effectiveness.

The AME Awards recognizes the effectiveness as well as the creativity of advertising and marketing on a global scale. In the first year of our campaign, this is a strong validation of our marketing strategies to re-energize the IHOP brand.

To ensure we continue providing a great guest experience, we successfully implemented a large-scale mystery shop program. This has resulted in more than 15,000 shops during 2003 with the majority of our restaurants being shopped 14 times last year.

The invaluable feedback from mystery shop has been incredibly useful both in terms of letting us know what we're doing well but more importantly where our opportunities for improvements lie. Our franchisees have truly embraced the program and now use the results to set goals for operational and service improvement.

We also recognized the need to address a handful of poor restaurant operators who have a negative effect on the IHOP brand. We systematically attacked the problem and reduced the number of these operators from our system in just the past few months. Training retools the entire promotion training process and utilized a train the trainer process that reached more than 50,000 [indiscernible] five times in 2003 with each product promotion introduction.

Additionally, training roll out has improved and has improved restaurant opening programs that resulted in reduced turnover and higher sales at new restaurants. Our restaurant team members responded with enthusiasm to these changes as there is a new excitement and passion for great service in our restaurants.

With an added emphasis on hospitality training this year we expect to benefit from continued training progress as our restaurant team members fully implement our guest service initiatives. We also spent a great deal of time and resources rehabilitating and refranchising Company-operated restaurants. This enabled us to refranchise a record number of these restaurants in 2003.

We are pleased with the progress that we've made in separating Company and franchise operations.

As you may recall during our reorganization we established a separate management of Company-operated and franchised restaurants. This move allowed us to more effectively improve the performance of Company-operated restaurants and refranchise them in an accelerated manner. We expect this to continue in 2004 as our dedicated Company operations group works to drive substantial improvement with the aim of refranchising Company restaurants more quickly.

Products are indeed created in developed product contents for in-restaurant testing throughout the year and our promotional calendar is filled with promising products for 2004. We conducted menu research in more than 160 restaurants throughout our system and are set to bring a new and improved breakfast, lunch, and dinner experience to our guests in the coming years.

Finally, we want to recognize our franchisees. Our accomplishments and results for the year wouldn't have been possible without their collaboration and support. Together, we are setting higher standards and raising performance expectations for each IHOP restaurant.

In 2003, our invitation to our guest was to come hungry and to leave happy. We delivered that promise in 2003. We did this by putting in place and beginning to execute all of the strategies I mentioned earlier and more. We created a real sense of contagious momentum by simply demonstrating the strength of the IHOP brand. Our franchisees and team members are committed to our vision of becoming No. 1. We've seen the positive results this alignment can effect in just one year.

Now I'd like to turn the call over to our Chief Financial Officer Tom Conforti to review our financial performance for the quarter and the year.

Thanks, Julia, and good morning, everyone. Today I would like to walk you through a topline [indiscernible] for our financial performance for the fourth-quarter and fiscal 2003. I'm sure the majority of you have had the opportunity to read the numbers already so I will keep my comments to key points.

For the quarter, we reported a 26.4 percent decrease in net income to $8.8 million or a decrease of 26.8 percent in diluted earnings per share to 41 cents per diluted share. This decrease primarily reflects the impact of our new business model transition as we developed and financed 30 fewer IHOP restaurants during the quarter than 2002's fourth quarter.

For fiscal 2003, we reported a decrease of 10 percent in net income to $36.8 million from $40.8 million in 2002 and a decrease of 11.5 percent in diluted net income per share to $1.70 in 2003 from $1.92 in 2002. The $1.70 reflects the midpoint of our earnings guidance range which we shared with you in January.

IHOP's net income and diluted net earnings per share performance was impacted during the year by charges of $9.1 million or 26 cents per diluted share associated with our business model change announced in January and our subsequent reorganization in July of last year. Excluding these charges, net income for 2003 would have increased 3.9 percent to $42.5 million or 2.1 percent in diluted net income per share of $1.96.

While our full year 2003 was similarly impacted by our developing and financing 30 fewer restaurants per year, this decrease was offset by an increase in the actual number of restaurants franchised and exceptional same-store sales performance.

As we previously indicated, because of the transition to our new operating model, we expected to see a reduction in revenues. Total revenues for the quarter decreased 4.3 percent to $102.8 million and increased 10.6 percent to $404.8 million for the full year. This decrease for the quarter was primarily attributable to a reduction in the number of IHOP developed restaurants franchise vs. 2002.

For the year, total revenues increased as we benefited from both a 10.4 percent increase in the number of effective franchise restaurants to 931. And a 4.8 percent increase in same-store sales during 2003.

Now let me briefly cover our profit performance by our four key reporting segments. Franchise operations revenues grew by 11.7 percent for the quarter and 13.9 percent for 2003 as franchise retail sales increased. Franchise operations expenses increased by 17.8 percent for the quarter and 16.6 percent for 2003 with a higher level of advertising support during the year as well as financial assistance relief granted to the operators of franchise restaurants.

This short-term relief is named at helping return franchisees to profitability and to help us to avoid costlier takeback scenarios. Profit from franchise operations increased for the quarter by 6.8 percent and by 11.7 percent for the full year as retail sales in franchise restaurants increased.

Rental revenues increased by 16.6 percent for the quarter and 17.7 percent for the full year due to an increase in the number of operating leases associated with new and refranchised restaurants. Rental expenses increased by 15.2 (ph) percent for the quarter and 17.4 percent through 2003 because of this increase in the number of operating leases.

As a result rental operations profit increased for the quarter by 17.7 percent and by 18.8 percent for the full year by having more franchised restaurants in total.

Financing operations revenues decreased by 25.6 percent for the quarter because 30 fewer furor restaurants were developed in the fourth quarter vs. fourth-quarter 2002.

For the year, financing operations revenues increased by 5.4 percent due to an increase in franchise and equipment no interest income associated with the restaurants we franchise.

Expenses in this segment decreased 19 percent for the quarter as fewer restaurants were developed. An increase 14.2 percent for the full year as we incurred additional interest expense associated with our November 2002 private placement.

Financing operations profit decreased 37.1 percent for the quarter as a result of this lower development level. And for the year financing operations profit decreased 5.5 percent primarily due to the expense related to the private placement and lower overall development activity.

Our final segment -- Company operations -- ended the year with a loss of 2.8 million for the quarter and 6.9 million for full year 2003. I want to address this in more detail as it underperformed our expectations.

To start, sales performance on average outperformed the system as a whole with with an overall increase of 6.2 percent. That's good news. In addition, we were quite successful refranchising Company operating units as we ended 2003 with only 44 Company units compared to 76 at the end of 2002.

That's also good news as we benefit both strategically and financially when strong franchisees operate these units instead of IHOP.

Of course, we expect the Company market we are developing in Cincinnati to be the exception as we look to use it to demonstrate world-class practices.

However our loss in this segment increased for a number of reasons. First and most significantly, labor costs were higher. The higher costs were driven by a number of factors. Higher workers compensation expense played a role. Higher incentive costs -- resulting from exceptional sales performance and the refranchising of restaurants -- were also factors.

Finally we believe there is a significant opportunity for better labor management going forward than we achieved in 2003. And we believe we can accomplish this without sacrificing the quality of our guest experience. All of these contributing factors are being addressed our new dedicated Company operations team and we expect to see significant improvement in all these areas in 2004.

The other cause of profit weakness was brought on by our success in refranchising restaurants.

As we refranchised our stronger restaurants we missed the profit contribution we had experienced from these restaurants in 2002. Also, there were higher than normal exit costs associated with each franchise -- refranchised restaurants such as food cost, severance payout, and transitional operating support provided to the new franchisees.

Moving from segments to SG&A, G&A increased for the quarter by 24.5 percent to $16 million and by 10.2 percent for the full year to $54.6 million. The increases for both the quarter and the year were primarily due to higher employee incentive charges in 2002.

In 2002, effectively no bonuses were paid to corporate employees. This expense increase related to corporate bonuses accounts for approximately 1/2 of the total SG&A variance for the year.

Turning to our key balance sheet items, the balance of cash and cash equivalents at December 2003 decreased by 71.6 percent to $28 million from $98.7 million at the end of last year. This was principally due to the more productive deployment of cash into highly liquid, investment grade corporate bonds.

Long-term receivables increased to $354 million from $332.8 million at the end of last year due to IHOP's financing activities associated with the sale of franchises and equipment.

The balance of property and equipment increased 9.8 percent to 314.2 million vs. 2002 due to new restaurant development.

For 2003, total CapEx related to restaurant development ended at $80.5 million compared to $141.7 million in 2002. This reflects the benefit of our transition from the old to the new business model.

Now let's take a look at a couple of cash flow measures and how they performed in 2003. First, cash from operations ended at $71.3 million. Free cash flow -- which is cash from operations, less capital expenditures -- was a -$9.2 million better than our previous guidance range of -$15 to -$25 million. That's a significant improvement from a -$63.6 million in 2002 again reflecting the payoff of our decision to move to our new business model.

Now I'd like to turn the call back to Julia.

Thanks Tom. Clearly we've accomplished a great deal during the past year but much of the work we did was to prepare us for 2004 and beyond. Now the job gets even tougher. We will need to stay on top while the competition starts to fight back. We've gone back to the basics to deepen our understanding of who we are and what we mean to our guests. Our strategy in 2004 is all about delivering the promise conveyed in our slogan "Come hungry. Leave happy."

We are on the forefront of change in an organization that is dedicated to supporting our franchisees and restaurant team members so they will take better care of our guests.

We will continue to execute the proven business strategies responsible for reenergizing our systems to date. We believe there is a great deal of upside left to capture and significant and ongoing improvement are possible in every area of our business. Our future financial success revolves around three initiatives. Driving sales, supporting franchisee development and strategically investing in the business.

Driving sales is a goal for every person at IHOP. Marketing product R&D, operations and training will continue to support strategies that produced our strong same-store sales performance in 2003.

We will also look for ways to introduce complementary initiatives to optimize our approach. We will introduce a third flight of national network advertising and continue to work to optimize our local market media spending. We will introduce six limited time product promotions throughout the year to create reasons for guests to visit more often.

Product R&D is focused on continuous menu improvement throughout the year. In 2004, these improvements will include seamless enhancements to existing menu items, revitalizing our most popular offering and adding successful product promotion to our core menu.

Our guests are asking for new choices and consumers tell us that they will visit more frequently if we offer greater variety and better tasting food. For a brand whose heritage is built on breakfast, we can categorically say that IHOP's owns breakfast in America. We are going to protect this stronghold.

But for the first time in many years we are letting our guests know that we're just as serious about lunch and dinner as we are about breakfast. Our greatest sales opportunity lies in successfully driving traffic throughout the day. For these reasons, we believe that the best is yet to come.

We will continue our mystery shopper program with four shops per restaurant per quarter. This gives us an impartial and important third party measure of how successfully we are meeting the promise of a great guest experience. Our push to remove substandard franchisees should largely be completed in 2004. And we will move forward by sharing and learning from only the best franchisees in our system.

We've also changed the focus of our field consultants (ph) as they work toward becoming greater business partners with our franchisees. And we created new positions to perform the standards enforcement function which field consultants were previously responsible for.

Now a dedicated group will perform operational audits while our field consultants will focus on driving franchisee performance. We expect to see the benefit of this value-added focus during 2004.

And as we train in each new product promotion we will use these training meetings to also refocus our employees on hospitality. Hospitality has been identified as an important area where we could meaningfully improve our guest perception of IHOP. It's about delivering the promise of a great guest experience and we're dedicated to this endeavor. We will develop a new Company market in Cincinnati as part of our new focus on operational excellence. We intend to create a market in which we can develop best in class operation initiatives and training programs as well as test new products and marketing programs for use in our franchise restaurants throughout the country. We expect the first restaurant in Cincinnati to open in the second half of this year.

And finally we will strategically invest in information technology. We have a tremendous opportunity to leverage technology in our restaurant that will have a real quantifiable business impact. At the restaurant support center technology solutions will be aimed at improving franchisee relations and support and automating and streamlining the process of restaurant development.

Most importantly, we will dramatically increase our ability to accept and analyze data throughout our systems to equip us with improved information to help us make better strategic decisions every day.

In 2003, we achieved great focus and success but we've only just begun to realize the power of our brand. 2004 will be about optimizing those strategies already at work to deliver the promise to our franchisees, our team members, and our shareholders of an even better year than 2003. We will do this by focusing on our three strategic priorities. Driving sales, supporting franchise development, and strategically investing in our business.

Now we would be pleased to answer any questions you might have. Operator.

+++ q-and-a.

[Operator Instructions].

Dennis Joe from Sidoti & Company.

I was wondering, first, if you could give the breakdown of same-store sales for in terms of average check in customer traffic?

Dennis we don't give that level of detail, but we have indicated in the past that it was a combination of both.

Could you give some color on this assistant relief that you're talking about, specifically, where these units are and how much you're spending per unit and then how much more do you think you'll need to spend?

One of the guest practices that the Company has had historically that we saw this year increase is when we have franchised restaurants in the past and those restaurants are unprofitable restaurants for what we consider to be reasons and we think that the franchisee's a terrific operator, instead of taking the restaurant back, we prefer a scenario where we will help in subsidizing the performance. So that's typically taken in the form of short-term rent reductions because as you know, Dennis, we make a decent profit on rent as a business under the old model. And so we -- I think we judge that in a scenario like that with franchisees not taking money and we are that as an attempt to help them get through that process we will lower the rent. We will also at times lower royalties for a short period of time but largely the relief that we're talking about here is rent relief. And the number of stores actually increased this year.

While he's looking at that, Dennis, to give you the exact number what I will tell you is that typically those will review every quarter, every six months to look at whether sales and profit have gone up. They are required to give us their P&L. We spent a great deal of time with them on each in the major categories, labor, food cost, anything we can do to help them but Tom's point earlier, these are outstanding AB operators -- we're not giving relief to anybody who's got operational problems. These are the best of the best for whatever the training might be green, competitor might -- whatever the situation is [indiscernible] (MULTIPLE SPEAKERS)

The actual number of franchisees who actually received some former relief assistance is 38 franchisees last year.

38 franchisees.

(MULTIPLE SPEAKERS)

How much relief did they receive?

In total, we spent about $2 million in supporting these guys.

And then what would you estimate the average unit volumes for the remaining company owned [indiscernible] units is?

It's about 1 million to 1 million 1. The remaining 44.

And then did you have any share repurchases in the fourth quarter and...?

We did. We did and we purchased about 60,000 shares.

And then just one last question -- do you have any updates on the Darden lawsuit?

Briefly. The reality is Darden did file a lawsuit that wanted us to cease and desist on the word "never-ending pancakes" or "never-ending shrimp". We answered Darden, finally, that we would last week that we would look at their claim that somehow "never-ending" was proprietary to them and so we're looking at it.

[Operator Instructions].

Mike Smith from Oppenheimer.

The guidance they're giving us for '04 what sort of openings are you implying in that number?

The franchise openings.

[indiscernible]

So it's 30 to 40 franchise openings and we said five to 10 companies openings 'cause we had four from the old model slip into '04 [inaudible] Cincinnati. So it's 35 to about 50, Mike.

Great. Also you read a couple large buys of advertising this year and you had new products pretty much throughout the year -- you did a great job with comps. What are you going to do for an encore in those areas?

The good news is we tested every single product promotion with media in 2003 for 2004. A couple of them are repeats because they were so successful in 2003 and we thought we could optimize them in 2004. But the product promotions you're going to see this year, the mix of breakfast, lunch, and dinner promotions, have been media tested somewhere in the country with projectable results in 2003 so we have a very high confidence in that regard and then all the other strategies we talked about including -- and most importantly -- this has been proven in operations, we really have a really strong belief that we will do very well this year because the momentum is sort of kicked in if you will. Plus as I mentioned before, we have an additional flight of network television and I don't want to underestimate the importance of that. So we have three flights of network this year whereas last we only had two.

Super. How much stock repurchase authorization do you have left, Tom?

2 million shares.

And the dividends of a dollar I know your dividend can be pretty much whatever you want it to be. Is a dollar what you guys wanted to be for the foreseeable future?

At this point in time we feel good about the dividends levels that we're paying out.

And I guess, finally, at the end of the year how many of your operators or your franchisees do you consider A,B and how many do you consider to be still subpar?

We have very few left in the subpar category -- I think it's less than 2 percent -- it's almost down to 1 percent. We might have -- well it's less than actual 20 so we're down to the minimum and Mike, I say after this year we should no longer even be speaking of DF (ph) operators.

And how many franchisees do you now have?

400 -- 410, 415.

At the end of 2003 we had 379. I think it's increased now.

It's increased -- let's say 400 Mike to be safe.

And what did you have at the beginning of the year?

343.

We will have to check the number.

We will come back to you with it.

Rick Freyden (ph) from Railspitter Capital Management.

First question just on the G&A increase in the fourth quarter. Were you accruing bonuses throughout the year or did it just hit you in the fourth quarter?

We were and we were accruing at our forecasted levels for the business for fourth quarter ended -- turned out to be a stronger quarter and so there was an increase in our fourth quarter accrual for bonuses to reflect what actuals were. So our forecast never caught up to our actuals.

And with regard to the '04 guidance, can you give us your thoughts in terms of at least a range on systemwide same-store sales increases?

You can almost -- we talked about this. We don't typically give guidance on comp sales but with the 53rd week, we are saying that -- what, total [indiscernible] [inaudible] (MULTIPLE SPEAKERS)

we got 35 to 50 new units, and a system of 1,165 -- you can sort of back into (inaudible).

Yes. Two others. With regard to the balance sheet, the current liabilities were down somewhat materially and [indiscernible] [indiscernible] can you give us a little color [indiscernible]

Accounts payable number was down considerably because we're (indiscernible) the construction business. At the end of last year just as a representative number in the fourth quarter of last year we developed 41 units and so we had various outstanding obligations to 41 units in the fourth quarter of 2003 we developed 11 units. [inaudible] [indiscernible] carrying over so that is what a large part of it is.

And lastly just on the topic of franchisee financial kind of assistance relief would you expect that that's a materially smaller number in '04 or is that a pretty typical level?

Well, we're faced with a couple of things here. One, the major source of need was created by the fact that we were developing a great many restaurants, most of which were successful some which didn't turn out to be successful. So we had to subsidize and what we found is that a lot of people receiving this financial assistance typically come from restaurants that are relatively newly developed and so that source of growth in our new model -- think about it -- in our new model we won't be able to provide rent assistant because we're not in that business anymore. So that element is going to reduce our need for rent relief. But there's been discussion at our Company here in Glendale about whether we should use relief more frequently instead of taking back stores and operating in them ourselves and that's still in various forms of debate and discussion. So our expectation is because we're out of the old business model, that we will do fewer of those types of rent subsidies in 2004 than we did in 2003. But there's still some question about how much of the decrease that will be.

And just in terms of sort of a perspective on the new business model altogether what do you expect sort of what happened with those franchisees if you were not the landlord?

Well either they're buying land and then they're their own landlord or they're leasing land and the relationship is with the franchisee and the landowner in that scenario or they're doing a build to suit and they have a contractor who has the relationship with the landowner and so our only lever in the new model is whether we would give royalty relief or not. And so it's likely in a scenarios where we have a terrific operator operating a site that we think has good potential, momentarily, there is a chance that we would step in and offer some form of royalty release.

I guess I'm trying to get a sense for whether we should expect there might be more franchise restaurant closings altogether if they're sort of struggling and you're not there to provide. (MULTIPLE SPEAKERS)

I don't think so. We have very experienced people developing restaurants.

[indiscernible] quite the contrary.

(MULTIPLE SPEAKERS)

(MULTIPLE SPEAKERS)

I guess you're suggesting it's more you're kind of helping them out as a partner as opposed to really absolutely having to step in.

(MULTIPLE SPEAKERS)

Andrew Jones from North Star Partners.

Just a couple of questions. On the guidance call that we had about a month ago, you talked about SG&A growing just modestly this year and gave a range of 52 to 57 million. Given that the year came in higher than you expected it, is there any change in that guidance?

We're going to stick to our guidance. You know part of what we had in this year's SG&A because we really sort of outperformed our targets on the (inaudible) basis is higher than what we budgeted for next year of this accrual and so we're holding to that number for now [indiscernible] (inaudible) changes.

The earnings came in as in-line with the guidance but you're saying to profitability was higher than expectations. I'm confused by the mix -- seems like you reported what you expected to report but your SG&A wasn't -- was higher because you say you were above that expectation.

We did move our guidance from $1.55 $1.70 to $1.65, $1.70 and our internal targets were set at some point on profit performance. So the two statements are perfectly consistent.

The Company restaurant -- the losses there, the fourth quarter level. Is that the level that we're looking at moving into the year?

No. I think the point we were dtrying to make is we we sold or refranchised so many of our Company stores in fourth quarters -- their fourth quarter 2003, we had a fair amount of expenses related to that. Throughout this year we see that as being more -- clearly our intention is to continue to refranchise those Company units but the way we have it structured this year it's not bottlenecked into one quarter, sort of -- throughout the year and I think the other point I made earlier is that we have a dedicated group of people focused on Company -- I have been very pleased even in the short-term with this tremendous focus they have been able to carry one (indiscernible) focused on being able to leverage that P&L in a much more lucrative manner than perhaps in prior years where there wasn't the focus. So my belief is that we will continue to refranchise Company units. We already have several in the pipeline as we speak and there is a lot more focus on managing that P&L in a much more prudent manner, especially in the [indiscernible] so I am pretty comfortable that you'll not see a repeat at 2003 vis a vis some of those extraordinary expenses especially in the fourth quarter.

In fact, our guidance on that segment is for dramatic improvement [indiscernible] (inaudible).

(inaudible) to go back towards the 3 or 4 million losses in the past.

I forget what the guidance was that we gave, it was like 50 percent [inaudible]

Were those losses... is that cash losses? Or kind of because of what you carry in the book? Is that much of a cap strain?

You know it's a good question that you ask and at a certain point in time we have a number before we refranchised, it was actually sort of a breakeven cash flow proposition. We had some that were generating good cash flow and others that weren't but what we sold that you might expect the easy ones to [inaudible] are the ones that are generating positive streams of cash. It's hard for me to tell you at a snapshot point in time but I would say that the non-cash items are significant contributors to the overall loss of that business but there probably is some cash buried but I would say it's a mix of the two?

And do you think -- are there any of those restaurants that you've gotten rid of, the easy ones that it just makes sense to shut down? Do you think they're all going to be rehabilitated at some point?

Yes that's why -- as I said earlier - we have got this dedicated group of people who were now spending an inordinate amount of time not only helping to drive sales and process leveraged P&L but they're absolutely focused on evaluating each and every single one of those restaurants and sop that's what we're really in the process of doing. They're spending a great deal of time evaluating the site, the trade area of the management, so I'm not in the decision to say today but there's a great deal of evaluation going into each and every of those restaurants.

And you should note that we're looking at sort of the cash performance and P&L performance of each business. Revaluation.

[Operator Instructions]. Mike Smith from Oppenheimer.

Really quickly, what is your CapEx budget for this year?

10 to 15 million, Mike.

And there are no further questions at this time. I would like to now turn the call to Miss Julia Stewart for some closing remarks.

Thank you all for being here this morning. Actually we're pretty pleased with where we ended up the year and certainly fourth quarter. Feel very good about 2004. We will be back to you, I believe, at the end of April. Look forward to some additional dialog then. Again thanks very much for participating.

Thank you, ma'am. Thank you, ladies and gentlemen, today for your participation. This concludes your conference call. You may now disconnect.