達美樂 (DPZ) 2005 Q4 法說會逐字稿

Good morning.

At this time I would like to welcome everyone to the 2005 annual earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

At this time I would like to turn the conference over to Lynn Liddle, Executive Vice President of Communications and Investor Relations.

Please go ahead, ma'am.

Good morning, everybody.

Thank you for joining us as we review our 2005 results.

With me today is Domino's Pizza Chairman and CEO, David A. Brandon, and our CFO, L. David Mounts.

And as mentioned, we will go through comments on our year-end results as well as opening it up for a question and answer.

The call should take no longer than an hour.

And I'd like to remind members of the media that we do ask that you be only in a listen-only mode.

And whereas it is not our general practice to make forward-looking statements, to the extent that one is made I will refer all of you to the Safe Harbor statement that's in our press release.

So with that I'd like to turn it over to Dave Brandon for comments on the quarter and the year-end.

Good morning and thank you for joining us. 2005 was a very special year for Domino's Pizza and I'm proud to highlight some of our many accomplishments before I turn things over to David for a more detailed review of the financials.

This was our first full year as a public company and we believe that we have accomplished more than what we promised.

It was our 12th consecutive year without a negative same-store sales comp, which reinforces the point that we've made time and time again that year-long results are more indicative of the success and continued stability of our brand and our performance than quarterly comparisons and we continue to focus you on that year-after-year positive performance.

We neared the $5 billion mark in global retail sales.

As you know, global retail sales is the best way to show the growth of this brand because it captures all the dollars that are going out through the cash registers around the world.

And in addition to nearly reaching the $5 billion mark, we grew our share of market in both the delivery segment, the carryout segment and in total pizza overall.

So we had a wonderful year of growth in sales and in marketshare expansion.

We celebrated our 45th year in this business in 2005 and just a few weeks ago in January we celebrated the opening of our 8,000th store worldwide.

Domestically we experienced an exciting year in the marketing of our brand because we had on the things that you look for to drive success in terms of top-line growth.

We had innovative products and some innovative promotions that worked well during the year.

We increased our national advertising spend which drove our share of voice.

We got a lot of buzz around the Domino's brand during 2005.

We had product placements in a couple of high-profile movies; we had a real interesting and high-profile tie-in with the Apprentice program that brought a lot of publicity and attention to our brand.

We seem to be frequently mentioned on such topical highly viewed shows as Saturday Night Live and Letterman's top 10 and all those things that indicate the fact that Domino's Pizza is the brand that's in the hearts and minds of the American consumer.

Our Team USA outperformed our domestic franchisees which doesn't happen very often because we go up against a very, very high bar when we try to compete against the best franchisees in the quick serve restaurant industry and that's the franchisees that work on behalf of the Domino's brand.

And so we were very, very proud of Team USA for actually outpacing that group in 2005.

We persevered through some challenges in 2005.

As you all know, our brand and company showed great resiliency and determination in the wake of hurricanes Katrina and Rita.

Our system rallied around those affected to get many of those stores reopened quickly and we also did a lot of fill in traffic activities around those two horrendous events.

We donated over 40,000 pizzas and worked very hard with law-enforcement officials and rescue workers to bring aid and support to the areas affected by the hurricanes.

We also showed great resiliency in dealing with the fuel and energy price increases that to a large degree were an outcome of those natural disasters.

And once again, I think it speaks to the solid nature of our business model and how we perform in good times and bad.

We continue to build new stores with the result of 84 net new domestic stores in 2005; so all in all domestically we think it was a terrific year.

Internationally we had some significant milestone events; our largest international master franchise partner, Alsea, celebrated its 500th store opening in Mexico.

We had our third largest international master franchise, Domino's Pizza Australia and New Zealand, who took its company public and also celebrated its 400th store opening during 2005.

And we continued to open new stores around the world with a net result of 238 net new Domino's Pizza stores internationally during 2005.

I want to thank and congratulate the franchisees and team members who accomplished these extraordinary 2005 results and I want to remind our investors of the bottom-line impact of these efforts.

We generated nearly $113 million in free cash flow which enabled us to pay nearly $27 million in dividends to our shareholders.

We paid down $40 million in debt.

We repurchased 4.4 million shares of Domino's Pizza stock from one of our original shareholders in a highly accretive transaction, all of which reinforces our commitment to building shareholder value through the effective deployment of the plentiful and consistent cash flow we generate as a result of our unique business model.

We are now hard at work in 2006 and I have significant faith and passion and commitment in our plan to achieve these continued strong results in the new year and it will all be driven, as it always is, by solid operations, staying focused on the fundamentals of our business, continuing to fund that pipeline of products and promotions which will drive top-line success, and continue to leverage the strength of our global brand to grow our sales in our stores.

So 2006 will be an exciting year with some more difficult comps to hurdle than we have seen in a while, particularly in the early part of the year, yet we have good momentum going into the year.

Cheese and many of our commodity costs are, at least for now, below the levels that we experienced a year ago, so we're getting some favorable benefit from that.

And we look forward to 2006 with great anticipation and determination.

Now I'd like to turn things over to David Mounts, our Chief Financial Officer, to work through some fourth-quarter and 2005 overall year results.

Thanks, Dave, and good morning, everyone.

I'd like to provide you with a brief update on the fourth-quarter results.

I hope everyone had a chance to review our press release that was issued earlier this morning.

First, as Dave said, we are very pleased with our fourth-quarter performance.

We're proud to report strong same-store sales and store growth which led to a 55% increase in reported EPS or an 18% increase as adjusted for special items.

Additionally, we continue to improve in the important areas of our business, which Dave mentioned, including team USA and our company-owned store units.

With that in mind, let's review our results starting with our top line.

Our global retail sales increased 0.1% during the quarter.

While this number sounds low compared to where we have been, please remember that our 2004 results include an extra or a 53rd week.

This negatively impacted our 2005 retail sales by approximately 2 percentage points annually and 6% for the quarter.

The growth in retail sales was driven by solid same-store sales growth both in our domestic and our international markets and an increase in our worldwide store counts.

As for the same-store sales, domestically we grew our sales 1.7% for the quarter.

Broken down our company-owned store comps increased 3.3% while same-store sales in our franchise units grew 1.5%.

We continue to be encouraged by these domestic results especially when we consider that this is the 12th consecutive year without a negative same-store sales comparison.

Before we leave domestic same-store sales, I'd like to once again remind you that you can and should expect to see some swings in our quarterly comps.

I think that 2005 was an example of this.

During the first two quarters of the year we posted very strong sales comps as we benefited from successful promotions and we were recycling over a period in 2004 when our advertising spending was down and our sales growth was relatively or comparatively lower.

On the other hand, during the second half of '05 we posted positive year-over-year comps but at a slower pace as compared to the first half of the year and this was due in part to the stronger comps we were rolling over in the last half of '04.

But no matter what the timing is of same store sales changes on a quarterly basis, the best way to look at this is the full-year results and we continue to perform and lead in the industry in this regard.

Now I'll discuss international comps.

We grew our same-store sales 3.8% during the quarter which marked the 48th consecutive quarter that we produced year-over-year increases in international sales.

In addition to the continued growth in our same-store sales, we also continued to grow our worldwide store counts.

During the quarter we added 134 net new stores to our portfolio and over the trailing four quarters we added an impressive 322 units.

Now while we more recently have seen most of our growth coming from our international segment, we were pleased to see solid growth from our domestic operations in the fourth quarter in terms of stores.

Specifically, we added 66 net new domestic stores and 68 net new international stores in the fourth quarter.

Next let's shift our attention to the income statement.

Our total revenues for the quarter were $457.4 million.

This was a 4% decrease from year ago levels where the 53rd week accounted for nearly 30 million of additional revenues for 2004.

If we eliminate this week our revenues grew nearly 2%.

Our domestic store revenues were positively impacted by higher sales comps and higher year-over-year store counts and in turn these increases drove higher volumes in our distribution business.

However, the increases in distribution revenues were offset by lower cheese prices in '05 when compared against '04.

The average cheese block price in the fourth quarter was $1.46 per pound versus $1.61 per pound last year.

And finally, our consolidated revenues were also positively impacted by higher international sales and store count increases.

An important point that I'd like to make about revenues is to remind everyone that we continue to believe our global retail sales and not revenues are the best gauge of our top line performance since retail sales are not affected by changes in the store mix or commodity prices.

For example, we've already seen this morning on the wire releases some of the reports getting it wrong.

For most of you that have been following us for a while, this example is a reminder.

The decrease in the cheese prices during the fourth quarter negatively impacted our year-over-year revenue comparison; however, the cheese prices did not impact our global retail sales metric.

If you take the cheese impact into effect along with the 53rd week impact the quarterly revenue would have been up.

Looking at bottom-line earnings, our diluted EPS as reported on a GAAP basis was $0.59 in the fourth quarter and $1.58 for the full year of '05.

We'd like to point out that there were several special items impacting EPS on a GAAP basis.

We have disclosed these items in the press release that went out this morning, but I'd like to quickly touch on a couple of the larger items.

First, we sold our entire equity investment and our master franchisee in Mexico during the fourth quarter.

This resulted in a $0.20 pickup in diluted EPS.

We also recorded some expenses that affected comparability; specifically we adopted the stock option expensing standard for FAS 123R in 2005.

During the second and third quarters of 2005 we also included a discussion in our 10-Q regarding our Netherlands operations.

We indicated that these operations with assets totaling $5.2 million have performed unfavorably to our expectations.

We also noted that if our turnaround plans ultimately proved unsuccessful that we may be required to record a partial impairment charge associated with these operations.

Since our third-quarter filing we determined that certain assets in these markets were impaired and accordingly we took a charge totaling $2.8 million which included a goodwill impairment of $1.3 million.

We are now predominantly operating these stores in a franchise model rather than corporately owned.

Collectively all special expense items negatively impacted our full-year EPS by $0.08 per share and our Q4 EPS by $0.06 per share.

Again these items are detailed in our earnings release.

After you consider all the special items, our diluted EPS was $0.45 in the fourth quarter and $1.46 for the full year of '05.

Those figures represent an 18% increase in the fourth quarter and a 30% increase for the full year versus our prior year pro forma EPS.

I'd like to now take a moment to discuss our leverage.

Our total debt was $738 million at the end of the year which was a $17 million decrease from the end of the third quarter and a $42 million decrease from the end of '04.

We saw our effective rate stay basically flat at 5.8% year-over-year in 2005.

This was primarily due to the rising market interest rates and the effect of our interest rate derivative instruments.

Our total leverage ratio stood at 3.1 times EBITDA at the end of the year which was down from our 2004 year-end leverage ratio of 3.6 times and our IPO ratio of four times.

Additionally, subsequent to January 1, 2006, just after the 1st of the year, we voluntarily repaid $35 million of term loan borrowings.

Looking at our capital expenditures next, we incurred $28.7 million of capital expenditures during 2005.

This includes $8 million related to the completion of our world resource center renovations.

This is down from nearly $40 million of CapEx in 2004 which included $17.3 million we spent on the renovation in 2004.

The world resource project is now complete.

The last item I'd like to cover is our 2005 free cash flow which we define as net cash provided by operating activities straight off our cash-flow statement less CapEx.

Our free cash flow was nearly, as Dave said, $113 million in 2005.

This was up from $88 million in 2004.

This is a 28% increase.

We believe that this is a very impressive number.

On a per-share basis free cash flow increased 36% from $1.21 to $1.64.

Strong consistent free cash flows allow us to continue delevering the Company making selective acquisitions, paying dividends and repurchase shares.

Our proven ability to generate significant free cash flow is the primary reason why we were able to announce today that we are increasing our annual dividend 20% from $0.40 per year to $0.48 per year.

This change in our track record of increases make our dividend one of the highest growing and highest yielding in our industry.

This concludes the financial update.

Once again we want to thank you for your time today and now Dave and I would like to take your question.

(OPERATOR INSTRUCTIONS).

Jeffrey Bernstein, Lehman Brothers.

Thank you very much.

I actually had a couple of questions.

One, just specific to cash-flow as you were just speaking of.

Surrounding the using of free cash flow, just wondering related to long-term debt if there's a target in terms of paydown.

And then specific to share repo, just wondering if you'd take on additional leverage to repurchase additional shares as we move through '06?

Then I have a follow-up.

This is a business that's demonstrated an ability to paydown debt because of the free cash flow characteristics.

We've used the balance sheet very effectively.

And the answer to your question, is there a scenario opportunistically by which we would take on debt to go buy back shares at some point in the future?

Certainly that would be a something that we could consider as a way to continue to use our balance sheet to the betterment of our shareholders.

Actually just a follow-up -- kind of differentiated.

In terms of the ongoing competitive nature of the segment, just wondering how you think about these competitive pressures when you're thinking about your national promotions?

And specific to your own promotions, just wondering if you could talk about the recent results from the Spectacular 7 compared to the historic success of the 555?

I'll take the back half of your question first.

The 777 promotion is one that's still ongoing and on the air and we don't comment about the results of current promotions and current windows, so we'll talk more about that at the end of our first-quarter results.

As it relates to how well we're positioned and how we approach the competitive nature of the marketplace, we think the marketplace in its current position feeds very well into who we are, what our brand stands for and what consumers look for from Domino's Pizza.

We think it's a party value-oriented marketplace right now and value promotions work and the perception of value is important to the consumer perhaps more so now than ever before.

And I think our results in 2005 and prior, and as we continue to put our promotional plans together, reflect the fact that we've become a very, very positive affective value alternative in the pizza category.

Our delivery expertise when combined with the simplicity of our menu and kind of the fundamental approach we take to marketing and promotions, we tend to be a pretty steady performer as evidenced by our 12 consecutive years without a net negative comp.

So we're going to stay in that groove and stick with that philosophy because it's served us very well.

Thank you.

Mark Kalinowski, Buckingham Research.

A couple things to ask about.

First, I missed the cheese cost per pound for fourth quarter.

What was that?

The cheese cost difference was -- it was $0.15 difference.

It was $1.46 versus $1.61 for the quarter.

And then I think we also released a -- or we may have also covered an annual number which was $0.14 for the year, Mark.

Okay.

And then for the fourth quarter, I apologize if I missed it.

I'm looking at the earnings release and I don't be a specific diluted share count.

Do you happen to have that in front of you?

We do.

It's actually in the release, Mark.

It's on the first page and if you look at the quarter four diluted share count, it's 68,304,808.

Okay.

And then final question just relates to the uses of cash.

You described some of the priorities in the prepared remarks, maybe you could comment a little bit about the prioritization of those priorities?

Thanks.

We believe this is a company that should pay a dividend at the high end of the range and I think our actions today continue to support that with our actions.

We continue to believe that this is a company that really is well-positioned to do a stock repurchase and I think you should continue to look forward to that being part of our deployment of capital.

Obviously still in our first -- within our first two year window of being a public company and still having some of our legacy holders with positions in the company.

As you've seen in the past, our preference has been to purchase stock from some of our legacy holders as opposed to doing a more traditional open market repurchase plan but the key headline here is we are going to continue to be interested in deploying capital against stock repurchase.

And this is all centered around the notion that we have ample capital available or us to continue to invest and grow the business, which obviously we'll continue to do.

Great, thank you.

Joe Buckley, Bear Stearns.

A couple questions.

Curious on the Alsea deal, if there are any other international licensees or franchisees that you have equity stakes in?

Joe, there's nothing material out there that we have in terms of investments.

There are some very small things.

I think if you're wondering if there's another Alsea gain looming, we don't anticipate that.

Okay.

And just talk about maybe the origins of that investment and the rationale behind selling it?

The origins of it -- well, it came about two ways.

One, we had an opportunity to invest in our Mexican franchisee, and we took that opportunity to invest.

It also came about as part of a process that goes back aways that had to do with another operation in another country, and it was part of a settlement arrangement on that.

So it was less of an intent to make a strategic investment in the Mexican franchisees.

It was part a workout and part an investment that we made consciously.

It was a minority investment, and we looked at the valuations and where the Alsea market was at the time.

We took a look at -- had been watching that throughout the year.

We felt like the time was right, the exit multiple was right, and since it was not a strategic investment -- in other words, it was not a majority position -- we felt that it was time to exit that investment.

Okay.

Floating to the U.S. business, give us an update on delivery charges; a lot of talk about that over the past several quarters.

Maybe share with us if you can how much of your system has delivery charges now versus a year ago, and if you had seen any change in the competitive deployment of delivery charges?

Joe, I think the best way to put it at this point is that delivery charges have become the norm in our industry as we benchmark our competitors, both national and local.

I think you will find far more markets that are on delivery charges at varying levels than you will find markets that are not.

There are exceptions in certain areas where operators and markets have not gone to a delivery charge, but the vast majority of the stores in the system out there have some form of a delivery charge.

That charge continues to be evaluated.

I think you would probably find if you did the analysis that there are a number of different drivers behind that charge.

It started out being to a certain degree driven by energy cost, inflation, but truthfully I think what you're seeing is that in many markets where things like minimum wage increases are being forced upon the industry, that this delivery charge is a place to recover some of the inflationary aspects of a mandated minimum wage.

So depending on what state and what market you are looking at, these delivery charges are still anywhere from a low of $1 and probably -- I think there was a couple of markets where they had gone up over $2, but they are falling within that range.

Is there some point in the coming year where you lap like a big step up in delivery charges that we should be aware of that it will affect comps?

Just from a timing standpoint?

No, we've been on this progression with delivery charges now for over three years.

And so as opposed to some clip where there's going to be some kind of a significant negative comparison, at least as the way our system has kind of gradually moved in this direction and as our system continues to gradually adjust that delivery charge, I do not believe you're going to see any kind of a step up or step down as a result of any clip that we encounter as part of our lap in year-to-year comparisons.

Okay.

And then, Dave, if you would just talk about the thinking behind the Spectacular 7's coming so shortly on the heels of the 555 and what if anything should we read into the 555 seeming to reemerge fairly quickly?

As you know, Joe, we're not going to sit here and talk, particularly in the middle of a promotion with a number of different strategies and tactics in place -- we're not going to sit here and explain to you and the world what we're doing, why we're doing it.

I don't think it's in anybody's best interest.

So I will just tell you that when we roll out anything new it's gone through our test protocol which is very disciplined and defined and it serves a specific purpose that's been identified as a result of that test experience.

And that's the case with the Spectacular 7's, it's the case with everything new that we roll out.

But above and beyond that, I'd really just as soon stay away from what we're doing and why we're doing it at the present time.

Okay.

And then just one last question.

Just curious on '06 capital spending, would you expect it to be around that $20 million area?

Yes, we put out a 20 to 30 million range, Joe, and we'll be right in the sweet spot of that range.

Okay, thank you.

John Ivankoe, JPMorgan.

Thanks very much.

David, I think there's another shift from co-op to national advertising in 2006.

Could you walk us through the mechanics of that and -- a couple things if I may?

If there is any shift that we should be aware of versus 2005 in terms of using significantly more, significantly less advertising as you're thinking about it now?

And secondly, is there an opportunity to increase the national advertising budget even further in '07 and would that even be necessary?

And I have some follow ups.

First of all, we did step up another percentage point as we turned into January of 2006.

So dialing back, we went from 3 to 4 in 2005, 4 to 5 in 2006 and that strategy fundamentally allows us to buy media at the national level which that national buy capability provides us with a significant savings.

So when we do that we can buy more gross rating points and we can be on TV for more weeks than we would have otherwise as a result of the efficiencies that you gain by buying television particularly at the national level.

So we're buying to a large degree the same television that our co-ops were buying locally, only we're buying it substantially cheaper because it's part of a national buy.

So we expect to gain the same benefit in 2006 as we did in 2005 of that strategy.

Now having said that, there is some media inflation and so in some cases the money that we're saving by this is offsetting weeks in GRPs we would have lost as a result of inflation, but we will certainly do better than inflation as a result of the leverage we get buying nationally.

And it this is primarily a TV tactic, but it also provides us more money at the national level to leverage against national print programs and other partnerships that we think serve the best interest of the brand on a national basis.

And in terms of your shifts, is there going to be any lumpiness in '06 versus '05?

In terms of shifts of media?

Yes, I think in your prepared remarks you mentioned the first half of '05 had a very favorable comparison versus '04 just in terms of media spend.

And is there anything that you could help us forecast now in terms of lumpy media spending for '06 relative to '05?

Not really without unveiling our marketing calendar which would be very, very foolish of me.

So every year is a new race in terms of how we stage our promotions, where those promotional windows fall and how we spend media against that.

And we think that's about as proprietary as anything we do around here.

So I can't really help you with any of the specifics other than we have more bullets in our chamber this year than we did last year at the national level to continue to hopefully roll out a marketing calendar that achieves great results.

Of course, I understand that.

I had to ask of course.

I'm sure there are a lot of different answers internally.

How much do you think that additional national advertising helps you in '05?

Is there a way to put a comp on that?

It's very hard because national advertising makes the phones ring if it's effective and working properly, but a big part of the drive in terms of sales progress is what do we do when the phones ring?

Do we upsell the customer?

Do we build that ticket?

Do we operate at a high-level so we make that customer a loyal customer?

Do we remarket effectively with some of our database marketing?

There's a lot of attributes that drive this business.

I think one of the "watch outs" that I give everybody is that we tend to get mesmerized with what we see on television because it's right there for us to witness.

But there's a lot more going on in this business than four or five national promotional windows during the year.

The vast majority of what we sell is not the national topics, it's something very different.

So certainly the national topics is a big investment in its attempt to generate interest and momentum in the brand and we hope it makes the phones ring, but how we execute beyond that becomes a very important part of what makes a year successful.

We do know in 2005 that we were able to buy media on average at the national level 40% cheaper than we were buying the same media at the local level.

And that's a significant savings for us, when you buy as much TV as we do, to get 40% more product for our money, if you will, in the form of frequency and reach.

What will that be in '06 relative to '05, that same number apples-to-apples?

That dynamic does not change in 2006 to any significant degree.

We have the same purchasing leverage at the national level.

When you average all of the markets, and keep in mind I'm averaging all the markets it's not as impactful in some markets and it's even better than 40% in others, but on a national basis we're able to buy media -- buy television specifically much more efficiently on a national buy basis.

Do you think '06 is the last year where you can step that up?

Does it make sense to -- obviously it worked in '05 and you think it's going to work in '06 or you wouldn't be doing it.

Is this something that we could expect to be extended even further?

No, I don't think you can only because we've kind of got to the point where we've shifted virtually all the TV dollars into national.

So what's remaining at the co-op local level provides them what they need to do in a print and local marketing way to be effective.

We don't want to have all the marketing spend and all the marketing activities taking place out of Ann Arbor.

We don't think that's healthy.

We just want to buy media that can be most efficiently purchased in Ann Arbor centrally so that we can take advantage of that opportunity and I think we're pretty much there.

The money that's residing in those local market budgets, we call them the co-op budgets, the money there really needs to stay there to give them the resources they need to market at the local level which is very important in this category.

Okay, thanks for that.

Let me switch gears on you for a second.

I think the Netherlands was one of the only company equity markets, if I remember correctly.

Could you give your attitude of further investment on a company operated basis?

Whether you would do it just to see whether you would actually put company money to work in other markets going forward or whether franchising is the way to go internationally for you all?

We've definitely shown a propensity for using the master franchise model.

It's virtually in place in all but two of the markets we do business, Netherlands is one and France is the other.

That proves the fact that our belief is that we can deal with local partners who are going to be more successful deploying their capital and putting their efforts and their skin in the game against building the business in that market.

That's fundamentally our business model.

Having said that, the Netherlands was a very small acquisition for us, it was opportunistic.

There wasn't someone readily available to step into the shoes of the previous master franchise partner.

We wanted to perpetuate the market.

And probably the only mistake that we made is that we underestimated the market in terms of the difficulties we would have operating company owned stores.

We inherited more company-owned stores as part of that than we probably should have or would have otherwise liked to.

So what's really happened here is we've refranchised many of those stores in such a way that we're not running a significant on the ground store operation in the Netherlands.

We're using the same model that's successful for us in other places and that is relying on franchisees -- hence the write-down.

It's still a good market, we've got profitable stores there and reasonably good unit economics, but that was just the story of that transaction.

And John, I think the other thing to keep in mind, whether it's an international or domestic market, there are times where from a transitional standpoint we will need to go in and make a market or to work through transitions.

And you can kind of look at the Netherlands case sort of similar.

We have situations that occur; we would like for every one of our international franchisees to be successful, but that's not always going to be the case when you're in as many markets as we are in.

And you have to be prepared to go into those markets and if you believe in them and we believe there are our activities opportunities and present them for future opportunities either through franchising or corporate owned.

Very good, thank you.

(OPERATOR INSTRUCTIONS).

Jessica [Tom], Goldman Sachs Asset Management.

Good morning.

I was just wondering if you could describe whether or not you have a target leverage as you balance or consider share repurchase.

We don't publish or we don't have a target leverage.

But I think if you look historically at where we have been, we've been running in this -- if you go to the IPO we were at a 4 times leverage.

Of course, we're now with the most recent pay down, the $35 million just after the 1st of the year we're down in the 29 range.

We're certainly comfortable between 3 and 4 and I would argue at times for the right opportunities and to put the balance sheet to work for share repurchase we'd be comfortable at even higher leverage points.

We believe that the cash flow nature of the model, and that's the main thing I think investors who really get our stock understand is that the cash flow generation of this and the consistency of those cash flows is what allows us to put leverage to work in a highly effective way for shareholders and we plan to continue to do that.

Okay, great.

And how much does JPMorgan still own?

JPMorgan is -- as far as the original ownership with the IPO, they do not own any of those shares.

Those shares are all sold out and were at the middle of the year.

When we made the purchase of $75 million we bought about 4.4 million shares of $17 and a penny I think -- $17 and a penny a share, and think that took them out of their position.

Okay, great.

Thank you.

Ladies and gentlemen, if there are no further questions at this time I would like to turn the conference back over to Dave Brandon for closing remarks.

My closing remarks are thank you for all your support and attention and interest in our brand and company in 2005.

We're very proud of those results, but we're already very, very focused on 2006 and continuing our tradition of exceeding expectations and delivering on our promises.

So we're going to be fast at work at that and we'll look forward to reconnecting with you to talk about our first-quarter results a little later in the year.

Thank you very much.

Thank you for participating in today's 2005 annual earnings conference call.

You may now disconnect.