達登餐飲 (DRI) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Darden Restaurants Incorporated fourth quarter earnings release conference call.

At this time, all lines are in a listen-only mode.

Later, there will be a question-and-answer session and instructions will be given at that time.

(OPERATOR INSTRUCTIONS).

As a reminder, today's call is being recorded.

At this time, then, I'd like to turn the conference over to Mr.

Matthew Stroud.

Please go ahead.

Thank you, Ken.

Good morning everybody.

With me today are Clarence Otis, Darden's Chairman and CEO, Drew Madsen, Darden's President and Chief Operating Officer, Brad Richmond, Darden's Chief Financial Officer, and Gene Lee, President of Darden Specialty Restaurant Group.

We welcome those of you joining us by telephone or the internet.

During the course of this conference call, Darden Restaurants' officers and employees may make forward-looking statements concerning the company's expectations, goals or objectives.

These forward-looking statements could address future economic performance, restaurant openings, various financial parameters or similar matters.

By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements.

The most significant of these uncertainties are described in Darden's Form 10-K, Form 10-Q and Form 8-K reports, including all amendments to those reports.

These risks and uncertainties include the impact of intense competition, changing economic or business conditions, the price and availability of food, ingredients and utilities, supply interruptions, labor and insurance costs, increased advertising and marketing costs, higher than anticipated costs to open or close restaurants, litigation, unfavorable publicity, a lack of suitable locations, government regulations, a failure to achieve growth objectives through the opening of new restaurants or the development or acquisition of new dining concepts, weather conditions, risks associated with Darden's plans to expand newer concepts, Bahama Breeze or Seasons 52, our ability to combine and integrate the business of Warehouse Italian International Incorporated, achieve synergies and develop new Longhorn Steakhouse and the Capital Grille restaurants.

Risks associated with incurring substantial additional debt and other factors and uncertainties discussed from time to time in reports filed by Darden with the Securities and Exchange Commission.

A copy of our press release announcing our earnings, the Form 8-K used to furnish the release to the Securities and Exchange Commission, and any other financial information about the period covered in the conference call, including any information required by Regulation G is available under the heading Investor Relations on our website at Darden.com.

We plan to release fiscal 2009 first quarter earnings and same restaurant sales for fiscal June, July and August 2009 on Tuesday, September 16th after the market closes.

We released fourth quarter and fiscal year earnings results yesterday afternoon.

Those results were available on PR Newswire, FirstCall and other wire services.

Let's begin by updating you on our fourth quarter and fiscal year earnings.

Fourth quarter net earnings from continuing operations were $103.3 million, and diluted net EPS from continuing operations was $0.72, representing a 7% increase in diluted net earnings per share from continuing operations.

This includes the integration costs and purchase accounting adjustments related to the October 2007 acquisition of RARE Hospitality Incorporated, which reduced diluted net earnings per share by approximately $0.06 in the fourth quarter.

Excluding the estimated integration costs and purchase accounting adjustments, net earnings from continuing operations were $0.78 per diluted share, or a 16% increase from prior year.

On an annual basis, we reported net earnings from continuing operations of $369.5 million, and diluted net EPS from continuing operations of $2.55, representing a 1% increase in diluted net earnings per share from continuing operations.

This includes the integration costs and purchase accounting adjustments related to to the RARE acquisition, which reduced diluted net earnings per share by approximately $0.19 in the fiscal year.

Excluding estimated integration costs and purchase accounting adjustments, net earnings from continuing operation was $2.74 per diluted share or an 8% increase from prior year.

Fourth quarter diluted net earnings per share including discontinued operations were $0.71, compared to diluted net losses per share of $0.38 in the prior year.

On an annual basis, diluted net earnings per share including discontinued operation was $2.60, compared to $1.35 in the prior year.

As you recall, on May 5th, 2007, we closed 54 Smokey Bones and two Rocky River Grillhouse Restaurants and announced our intent to sell the remaining 73 Smoky Bones restaurants.

Additionally, we closed Bahama Breeze restaurants on April 28, 2007 to position the brand for future growth.

The Smokey Bones results and the related impairments and costs are classified as discontinued acquisition, and other results and related impairments and costs for the For the nine closed Bahama Breeze restaurants.

In December 2007, we sold Smokey Bones to an affiliate of Sun Capital Partners.

Brad will now provide additional detail about our financial results for the fourth quarter and our fiscal year.

Drew will discuss the business results of Olive Garden, Red Lobster, and Longhorn Steakhouse.

Gene will discuss the specialty restaurant group.

Brad will come back and review our fiscal 2009 outlook and he will be followed by Clarence, who will have some final remarks.

We will then respond to your questions.

Brad?

Thank you, Matthew.

And good morning.

Darden's total sales from Continuing Operations increased 25% in the fourth quarter, to $1.83 billion, driven by the addition of Longhorn Steakhouse and the Capital Grille, plus meaningful new and same restaurant sales growth at Olive Garden.

The incremental sales from Longhorn Steakhouse and the Capital Grille totaled $290 million for the fourth quarter.

Excluding the acquisition, sales growth for the quarter would have been 5.1%.

Now let's review same restaurant component of our total sales growth.

For context, industry same restaurant sales as measured by Knapp-Track and excluding Darden, were down approximately 2% for the quarter.

Olive Garden's same restaurant sales were up 5.8% for the quarter, its 55th consecutive quarter of same restaurant sales growth, and growth that was 8 percentage points above the industry benchmark.

Olive Garden's total sales increased 11%.

Red Lobster had same restaurant sales decrease of 0.2% for the quarter, which was 2 percentage points better than the industry, while its total sales decreased 0.5%.

Longhorn Steakhouse same restaurant sales decreased 3.1% for the quarter.

Although below the national industry benchmark, this result is in line with the same restaurant sales results in the Knapp-Track regions where Longhorn Steakhouse operates, which are principally in the Eastern half of the country.

The Capital Grille had same restaurant sales decrease of 3.8% for the quarter.

Bahama Breeze had a same restaurant sales decrease of 3.7% for the quarter.

I will also point out that winter weather had a negative 1 percentage point impact on sales in March, which equates to approximately 0.3 of a percentage point of negative impact for the fourth quarter.

The net result is that in a difficult environment, relative to the industry as measured by Knapp-Track, our three large brands performed solidly.

Now let's discuss the margin analysis of the fourth quarter, which is complicated by the acquisition of RARE Hospitality.

We are comparing our year-over-year results on reported basis and we are also comparing results from continuing operations this year and last year.

Thus, results from Smokey Bones and the closed Bahama Breeze restaurants are not included for either fiscal 2007 or fiscal 2008, and the acquisition of RARE Hospitality is only included for the fourth quarter of fiscal 2008.

Food and beverage expenses were 100 basis points higher than last year on a percentage of sales basis.

This is entirely the result of mix changes due to the addition of RARE Hospitality, which accounts for approximately 140 basis points of the increase.

Excluding the mix change, food and beverage expenses were approximately 40 basis points favorable due to promotional mix changes because of the timing of Lent and its effect on Red Lobster and the benefit of waste reduction efforts across all of of our brands.

Fourth quarter restaurant labor expenses were 60 basis points lower than last year on a percentage of sales basis, due primarily to mix changes, associated with the addition of RARE Hospitality, which lowered expenses by approximately 130 basis points.

The changes in mix more than offset the wage rate inflation of 2 to 3%, and increases in group insurance cost as well as increases in manager compensation costs for higher bonuses and profit sharing incentives this year compared to last year.

As a reminder, our current pricing approach is focused on maintaining our dollar margins and not our percentage margins.

Restaurant expenses in the quarter were six basis points higher than last year on a percentage of sales basis because of the impact of RARE Hospitality acquisition, which accounts for approximately 50 basis points of increase.

Excluding the mix changes, restaurant expenses were approximately 40 points -- 40 basis points favorable due to positive developments in workers' compensation and sales leveraging.

Selling, general and administrative expenses were 18 basis points lower than last year as a percentage of sales for the fourth quarter.

Excluding the acquisition cost, which accounts for approximately 33 basis points, selling, general and administrative expenses as a percentage of sales were approximately 50 basis points favorable to last year, primarily due to sales leveraging.

As a result, when factoring out the cost of the acquisition and mix changes resulting from the acquisition, margin expansion in fourth quarter was over 55 basis points.

We feel great about what we were able to do as an organization to reduce cost and eliminate unnecessary expenses in a challenging cost environment.

The effective tax rate for the quarter of 29.6% was in line with our previous guidance, although it was higher than last year's rate, and reduced earnings per share by about $0.015 due to increased state tax rates.

Turning to the full year, Darden's total sales from continuing operations increased 19% in fiscal 2008 to $6.63 billion, driven by $745 million of sales from the addition of Longhorn Steakhouse and the Capital Grille in October of 2007, a blended same restaurant sales growth of approximately 2% and a 2.6% increase in new restaurant operating weeks at the legacy Darden brands.

On an individual operating company basis, Red Lobster had a 1.1% same restaurant sales increase for the year, and its average unit volumes were $3.9 million.

Olive Garden, same restaurant sales increased 4.9% and its average unit volumes reached $4.9 million, well above those of any other nationally advertised full service restaurant brand.

Longhorn Steakhouse same restaurant sales decreased 1.9%, and its average unit volumes were $2.9 million.

The Capital Grille same restaurant sales decreased 1.1% and its average unit volumes were $8.1 million.

Bahama Breeze had same restaurant sales declines of 1.8%, and average unit volumes were $5.9 million.

These sales results demonstrate that Darden has a strong portfolio of brands with significant annual unit sales volumes that exceed the full service restaurant average.

In fiscal 2008, Olive Garden opened 39 net new restaurants, Red Lobster had no net change in units, Longhorn Steakhouse opened 24 net new restaurants, and that's through the period of June of 2007 through May of 2008, the Capital Grille opened four new restaurants from June 2007 to May of 2008.

And Bahama Breeze and Seasons 52 had no openings or closings.

For the year, we repurchased 159 million of our shares.

In the last five years, we've repurchased over $1.51 billion of our stock, which speaks to the significant cash flow we generate on a consistent basis.

We have 15.4 million shares remaining in our current authorization.

And yesterday, we announced an increase in our dividend to $0.20 per share, payable August 1st, 2008 to shareholders of record July 10th, 2008.

Previously, we paid a quarterly dividend of $0.18 per share or $0.72 per share on an annual basis.

Based on the $0.20 quarterly dividend declaration, our indicated annual dividend is $0.80 per share, an increase of more than 11%.

Let me take a moment to update you on our integration efforts.

We are pleased with the progress we made integrating the Longhorn Steakhouse and the Capital Grille brands we acquired with the purchase of RARE Hospitality.

As we stated last quarter, our integration plan and synergies are exceeded our expectations.

We are seeing greater cost savings than we estimated and we are seeing an acceleration of those savings.

For fiscal 2008, we realized cost savings of approximately $10 million.

In fiscal 2009, we are estimating incremental cost savings of approximately $30 million, and, we anticipate additional incremental cost savings of approximately $10 million in fiscal 2010 or approximately $50 million in annual savings.

These savings are especially welcomed in today's increasing cost environment and we'd are slightly higher than our previous expectations.

And now I'll turn it over to Drew to comment on Olive Garden, Red Lobster, Longhorn Steakhouse and I'll come back later to review the financial outlook for fiscal 2009.

Thank you, Brad.

I'll start by sharing a few thoughts about the full service dining industry and then get into summarizing the fourth quarter performance as well as the fiscal 2009 strategic focus for Olive Garden, Red Lobster and Longhorn.

Overall, we believe we're well positioned to outperform the industry and deliver another year of solid performance.

We expect the full service dining environment over the near term to be similar to what we've experienced most recently.

In particular, industry traffic will most likely remain depressed and cost pressures will be comparable to what we experienced during fiscal 2008.

Given this background, there are five key considerations that have helped shape our thinking for fiscal 2009.

First, strong brands will continue to outperform the industry and this is most true for brands with broad appeal, strong value and national marketing capabilities like Olive Garden and Red Lobster.

Second, when guests choose our restaurants, it is more important than ever that we deliver a consistently great guest experience, which will obviously help ensure their continued loyalty going forward.

Third, giving our guests a new reason to visit our restaurants, typically in the form of compelling new food promotions, will continue to be important.

Fourth, we will take full advantage of the cost management opportunities that our scale and strong operating infrastructure provide, especially in our supply chain.

This will allow us to minimize the amount of pricing we need to take to protect our unit level margins, while still maintaining broad consumer appeal.

And finally, we will stay focused on the strategic priorities critical to our long-term success and resist short-term tactics that could undermine that success, tactics like couponing too aggressively, reducing portion sizes or cutting back on front line restaurant training or staffing.

Now let's talk about the specific priorities at each of our operating companies.

As Brad already mentioned, Olive Garden delivered very strong results during the fourth quarter.

More specifically, Olive Garden delivered their 55th consecutive quarter of same restaurant sales growth, achieving a 5.8% increase that exceeded the Knapp-Track competitive benchmark by 8 percentage points.

In addition, Olive Garden opened 10 net new restaurants during the fourth quarter, bringing their total during fiscal 2008 to 39 net new restaurants.

This exceptional sales performance is explained by two important factors.

First, Olive Garden is a trusted brand with broad appeal that has earned strongest loyalty and a reputation for exceptional value over many years.

Second, advertising during the fourth quarter featured exciting food news and strong value that reminded guests why they love Olive Garden and gave them a compelling new reason to visit.

Their Passion For Cheese promotion ran in March and April, that featured two new entrees, Fontina Chicken and Asiago Steak.

This was followed by their Twist On Classics promotions in later April and May that featured two new dishes, stuffed rigatoni with shrimp and stuffed rigatoni with sausage, plus a starting at $9.95 price point.

As you can see by the same restaurant sales results in May, this was certainly a successful promotion.

Both fourth quarter promotions were supported with new commercials as well as their unlimited soup, salad and bread sticks for $5.95, equity building advertising.

Just as importantly as their promotions, operating fundamentals at Olive Garden remain quite strong.

Guest satisfaction continues to improve, and set a new record for the year.

Restaurant turnover has declined, while management staffing has increased and controllable cost management continues to be strong.

Looking ahead to fiscal 2009, the strategic priority at Olive Garden remains unchanged, and that is to accelerate new restaurant growth while maintaining same restaurant excellence.

Olive Garden expect to open approximately 40 net new restaurants during fiscal 2009, and ultimately as we've said before, we believe the brand has the potential to operate 800 to 900 restaurants in North America.

Now, to maintain same restaurant excellence, the restaurant operations teams will continue to focus on improving the guest experience in underperforming restaurants, and evolving their service standards to improve server attentiveness and teamwork.

In addition, Olive Garden will further strengthen their brand relevance by continuing to develop compelling food news, expanding their Latino marketing program nationally and refining their digital communications strategy.

We're pleased with Olive Garden's strength in this challenging consumer environment and we believe they will continue to deliver industry-leading performance during this fiscal year.

Red Lobster delivered competitively strong same restaurant sales performance in the fourth quarter, exceeding the Knapp-Track benchmark for the 13th time in the last 15 quarters.

Red Lobster also continued to strengthen its business foundation and delivered record guest satisfaction.

Red Lobster ran two promotions during the fourth quarter, in March and early April they ran their signature Lobster Fest promotion which featured three new items and two popular classics, providing a range of cravable dishes and price points.

IN April and May, Red Lobster featured Jumbo Shrimp, with a starting at $11.99 price point.

This promotion featured three new shrimp dishes, jumbo shrimp with lobster butter, spicy asian garlic jumbo shrimp, and tequila lime jumbo shrimp, all at affordable price points.

Also during the fourth quarter, Red Lobster completed installation of our meal paces system.

Similar to Olive Garden's experience, the introduction of this system is helping to improve guest satisfaction, service times and guest through-put.

As we discussed before, Red Lobster's plan to achieve sustainable growth has three phases.

The first phase was to strengthen the brand's fundamentals.

The second phase is to refresh the brand, broaden its appeal and build guest counts.

The third phase will be to accelerate new unit growth.

During fiscal 2008, their primary focus was to refresh the brand and build guest counts by improving perceptions among lapsed users that Red Lobster offers a variety of fresh fish and other seafood prepared with culinary expertise.

Importantly, our research shows that this focus is helping the brand attract more affluent lapsed guests while also maintaining their current core guests.

During fiscal 2009, Red Lobster will continue to focus on broadening the appeal of their brand through a significantly improved core menu, further service improvements, and completing preparations for a remodel program of their existing restaurants.

We're confident that Red Lobster is on the right course and that it will be ready to resume meaningful unit growth in the second half of fiscal 2009, with plans for approximately 10 net new restaurants this fiscal year.

Total sales at Longhorn increased 6% versus last year during the fourth quarter, driven by new restaurant growth.

Same restaurant sales declined versus year ago and were below the Knapp-Track national benchmark.

A key driver of this unfavorable comparison to the national Knapp-Track benchmark is Longhorn's geographic concentration in Florida, the south Atlantic and New England.

Combined, these three regions account for nearly 60% of Longhorn's restaurants.

In addition, industry same restaurant sales in these three regions are nearly 2 percentage points lower than the remainder of the country.

During the fourth quarter, Longhorn opened six net new restaurants.

They opened 24 net new restaurants during fiscal 2008, and have built a pipeline of quality sites to support approximately 20 net new restaurants during fiscal 2009, and ultimately we believe Longhorn has the potential to operate 600 to 800 restaurants in North America.

Operating fundamentals remain strong.

Guest satisfaction, as measured by their mystery shop program improved versus prior year, and set a new record for fourth quarter and for the year.

Restaurant level returns are solid and improving as more integration synergies are captured and employee as well as management turnover remains at industry-leading levels.

Longhorn ran two promotions during the fourth quarter, starting in late March, they advertised two dishes, Silver City Strip and Sierra Chicken, in mid-May they began their Rib Combos promotion that includes a new Red Rock Grilled Shrimp and Rib combination.

Longhorn has three key areas of focus during fiscal 2009.

First, they will successfully complete the integration process.

Second, they will further elevate the guest experience by improving results at underperforming restaurants and on weekend occasions.

And they will continue their efforts to strengthen brand relevance.

In particular, Longhorn will sharpen their brand promise, strengthen their advertising and promotion effectiveness and expand their ranch house remodel program.

Two trusted business partners, Gray Advertising and Zenith Media have been brought on board to work with the Longhorn team on this priority.

Now Gene will discuss the three brands in our Specialty Restaurant Group.

Thanks, Drew.

Specialty Restaurant Group continues to make progress developing an organizational structure that supports and governs our three differentiated concepts, while reducing G&A expenses.

The operating foundation we are building positions our brands for strong profitable growth.

The Capital Grille's fourth quarter sales were $64.9 million, an 11.8% increase over the prior year.

Same restaurant sales declined 3.8%, reflecting weakness in luxury consumer spending and confidence.

Capital Grille's average weekly sales for the fourth quarter, however, continued to be strong.

Overall guest satisfaction reached an all-time high in fiscal 2008, demonstrating that our restaurant teams remained focused on providing guests with a best-in-class, personalized dining experience.

While we experienced traffic softness, we are working to increase our private dining business, as well as continuing to elevate our differentiated service experience and overall restaurant level execution through enhanced training.

In fiscal 2009, we anticipate opening five to six restaurants, while continuing our integration efforts and improving same restaurant sales performance.

Bahama Breeze had fourth quarter sales of $36.6 million, 3.7% below prior year sales from Continuing Operations.

Same restaurant sales declined 3.7%, which was below the Knapp-Track national average.

However, a significant portion of our restaurants are located in Florida, one of Knapp-Track's weakest regions.

While we are disappointed with these results, Bahama Breeze outpaced the Knapp-Track competitive set in same restaurant guest counts by 1.5 points in the fourth quarter, and exceeded the industry every quarter in fiscal 2008.

In addition, overall guest satisfaction for the year as measured by our Internet guest satisfaction survey was at an all-time high.

In fiscal 2009, the brand will continue focusing on providing a compelling, differentiated dining experience.

As many of you know, over the last several years, we have made a significant number of operational changes to strengthen the business model.

This year, there will be fewer of these changes, allowing our restaurant teams to focus on executing at a consistently high level.

We are also preparing to open one to two restaurants in the second half of the fiscal year.

Seasons 52 has worked hard to build a solid foundation for growth.

This uniquely positioned brand has sales in excess of $6 million, and strong restaurant level returns.

We continue to focus on building effective operational foundation, and hiring and developing talented team members to support growth and ensure we continue executing this concept at a high level.

In addition, we are actively working to identify and secure new locations to support disciplined growth, beginning with one new restaurant in late fiscal 2009.

We are pleased to report Bahama Breeze and Seasons 52 were accretive to earnings in fiscal 2008.

We expect these concepts to increase their earnings in fiscal 2009.

Now I'll hand it back to Brad for our fiscal 2009 financial outlook.

Thank you, Gene.

In fiscal 2009, we expect combined same restaurant sales growth for Red Lobster, Olive Garden and Longhorn Steakhouse to be approximately 2%.

This includes approximately 2 to 3% of pricing for fiscal 2009, and our expectation that together, traffic and mix changes will be flat to slightly negative.

We believe this is a realistic estimate, given the consumer -- the current consumer environment.

Of course, we will be both above and below this 2% estimate from month to month and quarter-to-quarter, depending on promotional calendars, holiday shifts, and changes in consumer sentiment, which as you know, has been volatile for much of the past 24 months.

In fact, there are two quarterly holiday shifts you should be aware of this fiscal year.

The Thanksgiving holiday, when our restaurants are closed, will fall in our fiscal third quarter in fiscal 2009, while it fell in fiscal second quarter in 2008.

And, the start of Lent will shift to the fiscal fourth quarter in our fiscal 2009, from the fiscal third quarter in 2008.

These holiday shifts will have a meaningful impact on quarterly same restaurant sales results.

Let me take a moment to review our same restaurant sales comparison we face in fiscal 2009.

In fiscal 2008, first quarter same restaurant sales were exceptionally strong with outstanding traffic driving promotions at both Olive Garden and Red Lobster.

We are not estimating that we will see similar performance this year, given today's challenging consumer environment.

While Red Lobster is featuring similar promotions to their prior year, they will have less total media support this quarter.

And, Olive Garden is featuring different promotions year-over-year, with similar media support.

In the second quarter, same restaurant sales will benefit from Thanksgiving moving into the third quarter.

Again, as a reminder, all of our restaurants are closed on Thanksgiving Day and sales are generally softer that week because of the holiday.

In the third quarter, same restaurant sales will be adversely impacted by the inclusion of the Thanksgiving week and by the later fourth quarter start of the Lenten season.

Both events will have a negative impact on same restaurant results in the third quarter.

While fiscal 2008 third quarter same restaurant sales were impacted by more severe winter weather, we do not believe normalized winter weather will offset the adverse effect of the holiday and calendar shifts.

So from a same restaurant sales perspective, the third quarter will be challenging.

In the fourth quarter, same restaurant sales will benefit from the inclusion of the entire Lenten season, typically when Red Lobster features their signature Lobster Fest promotion.

We will also be comparing to the very strong quarter Olive Garden just reported.

Looking ahead to unit growth, new restaurant plans that Drew and Gene outlined mean that we expect a net new restaurant increase of approximately 75 to 80 restaurants or about 4 to 5%.

However, our development schedule is weighted toward the back half of the fiscal year, with approximately 30 restaurant openings planned for the fourth quarter.

So a sales growth impact will be closer to 4%.

We anticipate total sales growth for the year will be 14 to 15%, including the impact of the 53rd week.

The extra week is worth approximately 2 percentage points of sales.

With the increase in unit development, we expect capital spending to be higher than it was in fiscal 2008, approximately $600 million.

This amount also includes approximately $85 million of capital spending on our new restaurant support center.

We note that the incremental expense of building our new restaurant support center is offset by various state and local tax credits and incentives that make the net cost to build our new offices relatively immaterial.

Looking at operating profit margins from continuing operations, we anticipate a margin contraction of approximately 20 basis points on a full year basis, compared to fiscal 2008.

This is primarily from food and beverage expense as we experience higher year-over-year costs on many of the commodities we use and from increased restaurant labor.

As we stated in February, we have many of our products contracted through the end of calendar 2008.

So we have about six months of full visibility on our cost, which I will detail shortly.

Net of it all, is that we anticipate food and beverage expense as a percentage of sales will be higher than the prior year, and food costs will be approximately 2% net higher than we experienced in fiscal 2008.

Acquisition synergies, our other cost savings initiatives and the favorable sales mix changes we will experience due to Olive Garden's expanding share of our overall business will be offset by increased costs of various commodities.

In terms of specific food items, total seafood prices for fiscal 2009 are expected to be equal or slightly higher than fiscal 2008.

Seafood accounts for approximately one-third of Darden's total costs of goods sold.

Category by category, shrimp is our highest volume protein and we have coverage through the second quarter of fiscal 2009 with prices equal to fiscal 2008.

We do not foresee risk to shrimp cost in fiscal 2009.

We have 100% of our crab contracted or purchased at prices slightly higher than in fiscal 2008.

And we currently have 25% of our lobster usage contracted or purchased at slightly higher prices than the prior year.

Beef prices are higher on a year over year basis and we have extended our coverage to February 2009 at slightly higher prices than in fiscal 2008.

Poultry prices are higher on a year-over-year basis, but we have contracted our usage through the second quarter of fiscal 2009 at prices equal to our fiscal 2008 cost.

Wheat prices are higher on a year-over-year basis, but have declined significantly from the previous all-time high.

We have contracts taking us through the summer for most of our wheat-related products, with some contracts expiring in December.

We are confident that contracts will be renewed at prices equal to or better than what we are experiencing currently, given the expected increase in this year's harvest.

As you know, energy costs are expected to be higher on a year-over-year basis.

We have some coverage of our natural gas and electricity usage in deregulated markets in which we operate and we will be opportunistic about adding additional coverage.

To reduce food cost volatility, we will likely enter into various commodity-rated contracts this fiscal year.

Given the environment, there is less opportunity to enter into long-term contracts with suppliers.

So we will be buying future contracts on the open market to hedge our exposure to certain commodities, similar to what you see other food companies like General Mills, Tyson Foods, Kraft among others do to hedge their costs.

The complication is that the accounting treatment for many of these contracts will require us to mark-to-market these derivative instruments each quarter.

As a result, there may be gains or losses within our income statements that are unrelated to current quarter's operating performance of our company, but represent products or services to be received in subsequent quarters.

We will clarify the nature of these contracts each quarter if necessary, and their mark-to-market impact on the P&L.

We have yet to enter into any of these future contracts and really have no estimate as to what the impact will be on quarterly or fiscal year earnings.

Our intention is to better hedge our food costs in the current environment to reduce volatility.

Turning to labor, we anticipate that labor costs as a percentage of sales will climb slightly due to modest wage rate inflation this fiscal year.

We anticipate that selling, general and administrative expenses as a percentage of sales will be flat to the prior year.

This is because of the acquisition synergies generated from the RARE acquisition, as well as sales leveraging, which will be offset by inflationary pressures and investments tied to the 53rd week.

These investments, which are approximately $0.04 per share, include strengthening the Longhorn Steakhouse brand with a change in advertising agencies we recently announced, investments in seafood sustainability, launching an energy conservation program and other business-building initiatives.

Excluding these additional investments, selling, general and administrative expenses would have been favorable to the prior year on a percentage of sales basis.

We also expect to generate solid cash flows, which we've done consistently since we became a public company in 1995.

And, to use these to pay our increased dividend and repurchase a meaningful amount of shares.

Which will also help drive earnings per share growth.

As I said earlier, we repurchased $159 million of our stock in fiscal 2008, and we anticipate purchasing approximately $200 million to $225 million in fiscal 2009.

Additionally, we expect to pay out approximately $110 million in dividends to shareholders, an increase of almost $10 million from fiscal 2008.

Finally, for 2009, we expect our tax rate to be approximately 28%, and to continue benefiting from the acquisition synergies.

This rate will vary by quarter, depending on the timing of certain tax credits.

With our same restaurant sales and new restaurant growth expectations, we anticipate reported diluted net earnings per share growth from continuing operations of 14 to 15% in fiscal 2009, which includes the impact of the 53rd week.

The additional week is expected to contribute approximately 2 percentage points or $0.05 of growth, compared to the reported diluted net earnings per share from continuing operations of $2.55 in fiscal 2008.

Excluding the estimated integration cost and purchase accounting adjustments of approximately $0.19 in fiscal 2008, net earnings from continuing operations were $2.74 per diluted share.

In fiscal 2009, these costs and adjustments are estimated to be approximately $0.06 to $0.07 per diluted share.

Excluding the impact of these costs and adjustments for both fiscal 2008 and fiscal 2009, we expect diluted net earnings per share growth of 9 to 10% on a 53 week basis and 7 to 8% on a 52 week basis.

As you might expect, there will be some quarterly variability in diluted earnings per share in fiscal 2009 that mirrors the sales variability I discussed earlier.

As such, we expect earnings growth to be more muted in the first quarter as we compare to the strong EPS results in that quarter of fiscal 2008.

We also expect earnings growth to be more elevated in the second quarter as we compare to the more modest EPS results in the second quarter of fiscal 2008.

Overall, we remain confident that our results will be competitively superior in what continues to be a challenging environment.

And now I'll turn it over to Clarence for some final comments.

Thanks, Brad.

I don't think it's a secret to anybody that follows the restaurant industry in general or casual and fine dining in particular, that the last 12 months really have not been easy.

And as Drew said, we do expect many of the challenges that the industry faced in our fiscal 2008 to continue into fiscal 2009, but with that said, we're very pleased with the performance we had in this difficult environment.

We're also very pleased with the strategic progress that we've been able to make.

And that progress includes the acquisition and integration of RARE for sure, but it also includes steps we've taken to improve our culture, improve our employee experience, as well as the success we've had strengthening our leadership and our talent management, our brand building capabilities and the brand support that we provide.

As many of you know and we talked about it before, we have what we believe is a proven approach to the business.

It's an approach that combines strong brand management and great operations, in order to build and sustain strong brands.

We've been guided by that approach and with that, we think we're working on the right things at all of our brands, things that are going to drive current period success, while better positioning us to capture what we think is a very attractive long-term opportunity in our industry.

But behind all of that is what ultimately drives our ability to create sustainable leadership level value for our shareholders and that is great people.

And we talk about it and a lot of other companies talk about it.

We really believe, though, that at every level of the organization we've got the best team in the restaurant business.

And so as proud as we are of our results, we're even prouder of the outstanding teams who delivered those results.

With the acquisition of RARE, again, we've got the strongest leadership team in full-0service dining around we're going to continue to invest in the growth and development of that team.

That's part of our 2009 plan, that's something that's critical in any environment.

And so as we look forward, we think we're well-positioned entering 2009, we're comfortable with our financial plan for the year, and we're also excited about what we think we'll accomplish strategically this year to make the company even stronger for the long term.

We do know we've run a little longer with the prepared remarks this time, but we had a lot of ground to cover, especially given the dynamics that are out there in the macro environment and with the restaurant industry in general, but with that, we'll take your questions.

Thank you very much.

(OPERATOR INSTRUCTIONS) .

Due to time considerations and the amount of interest we have in Q&A today, we ask that you limit yourself to one question and one follow-up per turn.

The first question comes from the line of John Glass with Morgan Stanley.

Please go

Thanks very much.

Just going back, Brad, to your guidance on the 52 week basis being 7 to 8% earnings growth, you talked in February about 9 to 12% in a tougher operating environment.

So is the change that the environment from February to now has gotten that much worse from a cost perspective?

Is your view different on a top line?

Maybe reconcile what you talked about in February versus today.

Well, John, you're actually right on both points.

It's a little bit of the tougher consumer environment so when we talk about our same restaurant sales performance we're today seeing a little less there than what we talked about in February and the cost environment continues to be challenging.

So we're pretty close to that but a little bit up from there and so those are the real two driving factors that lead to us the guidance we have today.

Okay.

And then my follow-up is that your buybacks in 2009, around $200 million, I think were less than your longer term goal of 350 to $400 million.

So maybe is this lower buyback than maybe you initially expected this year, given the operating environment?

Or when should we expect you to be able to achieve the full potential buybacks longer term?

I believe the guidance that we had at the time was once we get two to three years out past the acquisition we return to our normal buyback amount.

We do anticipate it will take us a couple years to get our debt metrics solidly in the range that we want them to be, principally on adjusted debt to adjusted capital of 55 to 65%.

So we're moving close with this guidance to the middle of that range and on a debt to EBITDAR calculation, we'd like to get that closer to two, we're a little bit above that, so if we look where we are today, I'd say we're probably a year, maybe just a little bit longer to returning to what I would call a more normalized share repurchase approach.

Thank you.

Our next question comes from the line of Steven Kron with Goldman Sachs.

Please go ahead.

Good morning, guys.

Couple of questions.

I guess first, Drew, if we look at Olive Garden, seems to be the area where you might be seeing a bit more cost pressures there with the strong same store sales margins, if I read the release correctly, seem to be kind of flat on a year-over-year basis and in May we saw the uptick in pricing.

I guess just to the pricing, if I look back, this is I think the most price you've ever had in the Olive Garden menu, at least over the last seven or eight years.

Given the value proposition that this brand has, can you maybe talk a little bit about how you're taking that price, where you're taking it and maybe the sensitivity to the guest on price?

Well, we are very sensitive obviously to maintaining Olive Garden's breadth of appeal for a variety of guests and a variety of occasions and also maintaining value leadership for sure, in this environment or any environment going forward.

Olive Garden has this year experienced more cost pressure than in the past.

Earlier on in the year it was more wheat.

In the fourth quarter, April, May, it was more dairy.

And it did take some pricing in May.

But it isn't fundamentally different from what they took the prior year.

We look at taking pricing in two ways, trying to balance two things.

One, maintain our relative positioning in the market versus our key competitors.

And maintain broad price point accessibility.

Second, balance that with the cost pressure we see and try and take enough pricing in addition with active cost management to cover the dollar inflation that we're seeing.

And that's what we've been able to do with Olive Garden and with Red Lobster.

But the pricing isn't meaningfully different from what they did a year -- in recent history.

Okay.

And then Brad, to your comment --

One month earlier.

Yeah, but the absolute amount is very similar.

So that four to five that we see in May is going to trickle down?

Yeah, right.

Brad, on the commodity comment that you had where you're changing a bit to more hedging from contracting, if I heard your comments correctly, it seems as though there aren't the same level of availability or at least the attractive rates for long-term contracts.

I guess which specific commodities are you referring to, and aside from the mark-to-market adjustments in the P&L, are there any additional costs associated with hedging as opposed to contracting that we should be thinking about?

What really drives that is many of our suppliers in this current environment don't want to take the risk of contracting out for longer periods of time.

We have -- so that puts some of the responsibility back on us to manage that.

We have looked at what other companies are doing and our internal resources and availability and see that as an opportunity to keep us in a place that we've been in the past in terms of some certainty over our cost outlook.

And so what's unique is that though the accounting treatment for those cannot be matched up to the actual delivery of those goods, so we will contract those forward at the end of an accounting quarter, depending on the positions we have, the market price of those, those could be at a gain or loss, but really represent receipt of future goods.

As to the items that we're talking about, it really covers pretty much all of our key items outside the seafood, the beef, the wheat, a lot of those where there is not direct correlation that you need for the stringent accounting requirements to use hedge accounting treatment there.

I would just say in terms of added cost to take this approach, we don't see a whole lot.

We've got a pretty robust supply chain, very savvy buyers and on the treasury side we also feel good about our corporate finance capabilities.

Thank you.

Our next question comes from the line of Jeffrey Bernstein with Lehman Brothers.

Please go ahead.

Great.

Thank you.

Somewhat to the question earlier on Olive Garden, just wondering if you look at Longhorn, we've seen some labor leverage against an actual down 3% comp, whereas something like an Olive Garden sees a strong 6% comp and has labor pressure.

Just wondering if you can give additional color in terms of perhaps the benefits from the Longhorn labor model and how you see that best transferring such benefits to Olive Garden and Red Lobster.

Then I have a follow-up.

This is Drew.

One of the benefits that Longhorn is capturing now is a wage management program that they've been using to help offset wage pressure inside the restaurant.

It's a more disciplined tip share program than they've had in the past and as that progresses and as we see results of that more broadly in more restaurants, that's something we can look at in all of our restaurants.

So there is the potential to see if that applies in a Red Lobster or an Olive Garden.

Okay.

And actually just a follow-up on Red Lobster, you mentioned in your prepared remarks the remodel program for this year.

Just wondering if you can give some incremental color in terms of the number of units, perhaps your expected contribution to comp and/or sales list.

The big objective as I said earlier is expanding appeal by bringing back lapsed use to the brand.

There's two fundamental barriers there, appeal of the menu and appeal of the building and atmosphere.

The remodel program is addressing the atmosphere.

And they've developed several prototypes, several remodel options that all try and bring in the best of what they like about their Bar Harbor prototype into their existing restaurants.

The different design options, the different investment levels on interior and exterior.

They've got four or five of those in test right now.

For fiscal 2009, we expect to run a more defined and disciplined test in probably another 20 or 30 restaurants, and really measure impact on the guest experience, impact on guest count growth, ability to earn a return, and by the end of the year be prepared to begin to expand that.

So we don't see that having a material impact on fiscal 2009 results but we do see it positioning us for more meaningful growth and expanded brand relevance beyond '09.

Great.

Thank you.

Our next question comes from the line of David Palmer with UBS.

Please go ahead.

Hi, guys.

Actually this is Michael Binetti for David today.

Congrats on a good quarter.

I think it's becoming clearer that the tax rebates have been providing a boost to the industry and to Darden.

I'm curious, is it reasonable for us to think that there may be an opportunity to get more optimistic with the 2009 guidance once you see how sales hold up after the rebates and then I have a follow-up?

Yeah, this is Clarence.

I would say it's probably not reasonable.

What we saw in May -- it's hard to gauge.

We do get weekly Knapp-Track numbers and our best guess as we look at that data is probably in May a lift of maybe a point on a same restaurant sales basis.

But that data does not reflect the run-up that we've seen in June and some of the costs that consumers are facing, especially gasoline.

And so we would say it's still -- there's still enough going on out there to be fairly cautious.

Would be our stance on it.

And I think as Brad talked about, our assumptions for '09, our traffic assumption, went a click down, half a point or so from what we were talking about in February and then on a net cost basis, I think in February we talked about net cost inflation of a point after active cost management.

Probably a point higher than that is sort of what we're thinking about for the fiscal year.

So we're approaching what is a relatively uncertain environment with some caution.

So I'd say that probably is a wise way to approach it.

That's helpful.

And then if I could just ask a quick follow-up.

In last night's release you commented that despite the slightly low revenue at Red Lobster, the operating benefits were actually higher.

I was wondering if you could give us a bit of detail on some of the efforts at that chain that are helping boost the profitability with the sales kind of flattish and to slightly down and what your expectation is for I guess for the cost management at that chain this year.

Thanks.

This is Brad.

I mean, Red Lobster had a strong quarter with increased leveraging at the restaurant level.

A lot of it was really driven by what happened on the food and beverage line.

We talked some about obviously for that brand their largest component is seafood plus their promotional activity, they used all those to their advantage and really just had the opportunity to take a flattish sales basis and good active cost management to increase returns at the unit level.

And I would say just -- Ken and his team have been really improving basic operations for the last four years and so operating better with all the fundamentals and operating more efficiently and that's continued.

I mean, they continue to try to take cost out of their operations that don't matter to the guest.

Thank you.

Our next question comes from the line of Larry Miller with RBC capital.

Please go ahead.

Sir, your line is open but we're unable to hear you if it's muted on your end.

Can you hear me now?

Sorry about that.

Clarence, can I follow up on something you just said, did you say you saw a continued run-up in June?

It sounded like you were taking a more cautious approach.

Is that what you were saying?

What I'm saying was that what we saw in the industry, the point that we think might be attributable to some of the stimulus checks was May results and that came before the most recent run-ups in oil and gasoline.

So remains to be seen how that affects the stimulus dynamic that we saw in May.

Thank you for that.

Also, Drew, I was opening to get some more color on some of those cost management areas that you briefly touched on.

I think you've been running like $30 million or so in savings per year.

Where can you guys get aggressive?

You're right, roughly, in terms of what we've been able to take out of the business without negatively impacting the guest experience for the employee experience.

I think the best way to think about it is we comprehensively look at our entire business.

We look at food.

We look at labor.

We look at G&A expenses.

Inside each business, we've got different -- we've got multi-function teams that work on identifying costs that have crept into the business and are no longer adding value and test taking those out.

We've gotten better at managing costs related to workers' compensation, slips and falls in restaurants, public liability, that sort of thing.

So it is really is sort of all across the business and we'll continue to do that in fiscal 2009, looking at fundamental ways we can take cost out of how we structurally support the business going forward with -- while making sure that there's no detrimental impact to the guest experience.

Thank you.

Our next question comes from the line of John Ivankoe with JPMorgan.

Please go ahead.

Thank you.

In the fiscal '09 development guidance, at least relative to my previous expectations, you took up Red Lobster and you took down Longhorn.

I just want to understand that.

It does seem a little bit counter-intuitive from my perspective, given that Longhorn will probably benefit the most from more new unit penetration, especially as you try to achieve national advertising.

I guess that's kind of the first point.

Related to that, what do you think needs to be fixed at Longhorn, not only the brand level but at the store level to really start driving comps at that business?

We're very confident, remain very confident that Longhorn is going to be a significant growth vehicle for Darden.

In the near term, in fiscal 2009, net new unit openings are down modestly, which is more a reflection of organization capacity and focus on integration as well as applying some of the Darden site selection tools to the business that didn't exist before at RARE.

It's more a reflection of those sort of tactical adjustments if you will than it is a change in our thinking about what the ultimate unit potential is.

We think going forward, we can open more aggressively than 20 a year, once some of those dynamics are past us, and what we have to do is take a brand that we think is very fundamentally sound in a very big category, in the steak category that's got solid operations and strengthen some of the brand management fundamentals.

It's not unlike where Red Lobster was a couple years ago.

We need to broaden the appeal of the business and really are looking at menu and building and what the brand stands for.

That's why we worked so hard the last couple of months to strengthen the brand team at Longhorn.

There's new head of marketing, Terry Stanley.

There's a new head of food and beverage, Kurt Hankins, there's a new head of Consumer Insights, Brad Marcunis, we've brought on Gray Advertising to help with the repositioning work and the advertising, as you know, Gray's been a valued partner at Olive Garden for some time.

We brought on Zenith media to help us look at how we purchase and traffic spot media more efficiently and some other opportunities to expand reach there in the near term.

But that's fundamentally what has to happen, building on a solid operation's foundation, look to broaden relevance with particular focus longer term on menu and building.

Some of the other things I mentioned around advertising and promotion can start to have an impact more mid-year in fiscal 2009.

That is a question.

When might Longhorn actually receive national cable advertising?

Does it begin to make sense start investing ahead of the curve, especially if unit development is going to be increased in the out years?

It does.

Very broadly speaking, there is kind of three ways to think about where Longhorn is today.

They're in roughly 25% of the U.S.

with all spot television.

When you get to about 40%, roughly, 35 or 40%, then you can do the national cable that you were talking about.

So national TBS, national TNT, Lifetime, those sorts of things.

When you get to about 55% or so, that's when you can be on network TV across the country and one of the reasons we decided to partner again with Zenith media is so that we could work with our development team and Zenith Media to coordinate site selection so we can get to those penetration levels as quickly as possible.

It won't happen in fiscal 2009 for sure.

And but that's something the team is working on.

We'll have better visibility on that as we go forward.

Thank you.

Our next question then comes from the line of Matthew DiFrisco with Oppenheimer.

Please go ahead.

Thank you.

Can you hear me okay?

Yes, we can hear you.

Go ahead.

My question is pertaining to the development and the availability of those sites.

Where do you stand in terms of historically comfort zone, being locked in on those, given the overall slowdown in economy, slowdown in retail, and the anchor mall not opening up their store as much.

Do have you the pipeline that you used to in the years past or are you compensated by sort of a cushioning unit, so you feel good about that target in case some of those fall out.

Then I have a follow-up as well.

We feel very confident in the strength of our development pipeline.

There are a number of dynamics going on now for sure.

Some developers are pulling back.

At the same time, some of our competitors are slowing down in terms of their unit growth.

So a company like Darden with brands like Olive Garden and Longhorn and Red Lobster, they're expanding in addition to what Gene talked about and specialty retailing is even more attractive now.

So we feel very confident in the site pipeline we've got for 2009 and as we look at 2010.

Okay.

And then also as far as looking at a couple of people have been asking about the sustainability it sounds like from the May comp.

I was curious, you mentioned a couple of things, just to rehash.

Pricing looks like it's going to cycle off a little bit as we go through June and then also I think Clarence you mentioned that you don't feel like you saw the full effect of the rise in gas, although I think gas really did rise in mid-may.

Some of May you already experienced that.

Is there anything else going on as far as the June comp?

I know you mentioned the advertising, looks like dollar-wise Red Lobster was going to be down in the first quarter and Olive Garden was going to be flat with the year ago, so is it a conservative same store sales outlook and possibly better margin management in 1Q?

Is that how we should look at it.

I think Brad's comment is probably about as far as we're going to go.

We talked about, I think Brad did, as we looked at it quarter by quarter, we certainly are up against a stronger quarter year-over-year in the first quarter.

As a result, we talked about those dynamics, but we don't really want to get into month-to-month, but on a quarterly basis, that's sort of where we are.

Great, thank you, and our next question comes from the line of Bryan Elliott with Raymond James.

Please go ahead.

Thanks.

I wondered if you could give us a little help with some comments on how to quantify all of the calendar shifts that Brad talked about earlier.

At this point, we probably don't want to go much beyond the comments that we made there, because we're projecting pretty far ahead on some finite details there, but I think that the direction that I shared would be something that you definitely want to incorporate as you look at expectations for each quarter.

All right.

Thank you.

And follow-up on all the May questions, I guess, is since you haven't really highlighted anything unusual about May, that it just was another month of particularly strong market share gains, is that how we should look at it?

Well, there were two unusual things about May.

One was double pricing in the month of May for Olive Garden, which has already been commented on, and then second, there was a year-to-year shift in Olive Garden's promotion that featured a price point from the first quarter last year into the fourth quarter we just finished, so there was a promotion at Olive Garden as well.

We've got time for one more question here, I know that we've run past the bottom of the hour, so just one more, and then we'll cut it off from there, thanks.

Certainly.

The last question comes from the line of Joe Buckley with Banc of America.

Thank you.

One set of questions on Red Lobster.

You mentioned lapsed customers a few times, and, can you talk a little bit about that, how you can find that over a period of time might these customers have lapsed, and then, how you plan to get them back in, and then, also, with Red Lobster, you mentioned ten net new openings skewed toward the back half of the year, which implies you perceive yourselves moving into phase three of the brand management, and just talk about what gives you confidence that you're at that point, given comps that are better than Knapp-Track but still pretty lackluster.

Well, technically the definition of a lapsed user is someone that hasn't been to the brand in a year.

More generally, the way we think about it is over the last several years, we've lost people in the Red Lobster -- users of the reds lobster franchise who directionally tend to be a little higher income, a little higher education and a bit more brand sensitive.

So to bring those people back at the same time, keeping our core guest in the franchise, to bring those users back, we need to make the menu for appealing and we need to make the restaurant atmosphere, the building more up-to-date.

And those are the things that our testing is showing is beginning to work.

So the addition of today's fresh fish, for instance, today's fresh fish advertising in support of that this year, somewhat more culinary forward dishes that the brand is developing, the way people have reacted including lapsed users to the Bar Harbor prototype and what we're trying to do to take design elements of that and put it into the remodeled restaurants, all of those things are giving us a good feel that we're eliminating the fundamental barriers that have kept lapsed users away but not doing anything to diminish the appeal to current core users.

And our research shows that as we dissect the user base, we're maintaining share with our current core guest, but attracting more of these lapsed users.

We need to do much more of it for sure.

So we are not completed with that by any means.

But we are confident that the strategy is right.

We're making progress.

And given the lead time of development, we thought it was appropriate to enter phase three, as you said.

All of this is going on top of an operations foundation and unit economics that are substantially stronger today than they were two years ago.

So unit level returns at Red Lobster fundamentally are where they need to be for us to open value creating new units.

So long as we can maintain traffic.

The final point is as we think about these, these are 30 year investments.

We've got to make some forecasts about the future for sure.

The fact that Red Lobster is ending the year where they're three points ahead of the industry giving us a lot of confidence as we forecast where we think the industry is going to be and a positive delta to that, not necessarily three points, but a positive Delta to that long-term industry forecast.

Thank you, and just one more for Brad, Brad you mentioned the SG&A being boosted a little bit and wasn't clear to me if you were spending the benefit of the 53rd week on some SG&A initiatives including some long-term focused initiatives.

Can you just clarify if that's what you're doing or if we should think about the 53rd week as adding $0.05 to reported EPS?

You're correct on both accounts.

The 53rd week does add approximately $0.05 to our EPS.

But above and beyond that, because of the leveraging that we get because of that 53rd week, the additional leverage of about $0.04 EPS, we are investing and most of those costs will appear on the SG&A line.

Thank you, and that does conclude our question-and-answer session.

Gentlemen, did you have any closing comments today?

Yeah, we would just like to thank everybody for joining us this morning.

We apologize for going a little long.

We hope you found that what we had to say was worthwhile.

We understand there was technical difficulties earlier in the call.

We apologize for that.

If you have any questions, we know, I'm sure you do, please call us here in Orlando and we can respond to those.

Thank you very much for joining us.

We hope everybody has a safe and happy summer and we look forward to talking with you again in September.

Than you very much.

Ladies and gentlemen, this conference will be available for replay starting today, Wednesday, June 25th at 10:30 a.m.

Eastern time.

And it will be available through Friday, July 25th at midnight Eastern time.

You may access the AT&T executive playback service by dialing 1-800-475-6701 from within the United States or Canada, or from outside the United States or Canada, please dial 320-365-3844 and then enter the access code of 930487.

Those numbers once again are 1-800-475-6701 from within the U.S.

or Canada or 320-365-3844 from outside the U.S.

or Canada.

And again, enter the access code of 930487.

And that does conclude our conference for today.

Thanks for your participation and for using AT&T's executive teleconference.

You may now disconnect.