Brinker International Inc (EAT) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Brinker International second-quarter 2010 earnings release. (Operator Instructions). It is now my pleasure to turn the floor over to your host, Marie Perry, Vice President of Investor Relations and Treasurer.

Thank you, Kate. Good morning everyone, and welcome to Brinker International's second-quarter fiscal 2010 earnings call, which is also being broadcast live over the Internet. Today with us from management are Doug Brooks, Chairman and Chief Executive Officer; Chuck Sonsteby, Chief Financial Officer; Wyman Roberts, President of Chili's Grill & Bar and On The Border Mexican Grill & Cantina; and Guy Constant, Vice President of Corporation.

Before turning over the call, let me quickly remind you of our Safe Harbor regarding forward-looking statements. During our management comments and in our responses to your questions certain items may be discussed which are not based entirely on historical fact. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release and the Company's filings with the SEC.

On the call we may refer to certain non-GAAP financial measures that management uses in its review of the Company's business and believe will provide insight into the Company's ongoing operations. Reconciliations are provided in the tables in the press release and on Brinker's website under the Financial section of the Investor tab. Please note this quarter we added the comparable restaurant sales by period to the website.

Finally, we wanted to take this opportunity to clearly state our guidance policy, which is also included in the press release. Management provides annual guidance as it relates to comparable restaurant sales, earnings per diluted share and other key line items in the income statement, and will only provide updates if there is a material change versus the original guidance. Consistent with prior practice we will not discuss intra-period sales or other key operating results yet to be recorded, as limited data may not accurately reflect the results of the period or the quarter.

Now I will turn the call over to Doug.

Actually, Wyman, why don't you kick it off this morning.

Good morning, and thanks for joining us on the call today. Over the last several quarters we have made some promises, so today as I talk to you about the performance and initiatives at Chili's and On The Border, I will directly link our progress to those promises.

So let's turn to the quarter. Results showed improving momentum on sales as the quarter unfolded, further aided by a few items that don't represent sustainable margin improvements that Chuck will discuss later.

Traffic, while still negative, is much improved as compared to the trends of last year and better than casual dining restaurant space as a whole.

Chili sales for the second quarter outperformed the industry as measured by Knapp-Track on a one- and two-year basis. And our [gap to Knapp] has sequentially increased from the first quarter.

On The Border continued its steady sales performance, punctuated by a December period that featured flat traffic and over a 300 basis point sequential sales improvement versus October and November. On The Border in particular continues to make great strides in improving the business model, with second-quarter operating margin improving 580 basis points on a year-over-year basis, driven by substantial improvements in cost of sales, labor and management expense that are directly linked to the impact of our food and hospitality initiatives.

We are not stopping there. On The Border will roll out a new menu on February 1 that adds some great items, like our [street tacos], while also meaningfully reducing the number of items. These actions are meant to incorporate great new taste into the menu while simplifying execution and improving consistency.

Chili's margin improvement is more difficult to see clearly due to the margin impact of three-course and investments to transform the menu. As promised, the three-course promotion did drive traffic, and our continued focus on improving the program has made each phase of the promotion more profitable, translating into improved bottom line as seen in our second-quarter results.

Over the last several quarters we have discussed the ambitious transformation of Chili's menu to deliver fresh quality food that stays true to our unique culinary heritage and flavor profile. The journey began in early fall with the rollout of our improved burgers and ribs, attacking the key menu categories first. In late November we followed on with big bold flavors in our mini tacos. And now we near completion of this primary phase of our menu development with the completely updated menu rolling out to the full Chili's system in the next few days. For your convenience we posted a copy of the new menu on the Investors section of the website.

This menu is markedly different from its predecessor both in terms of look and size, moving from 12 pages down to 8. Also added are items like new soups, sandwiches, salads and even some new beverages. You may even notice an old familiar item is back. Yes, the Caribbean salad returns, with enhanced flavor and even fresher ingredients. In conjunction we bid farewell to some of our less popular items.

We promise food and beverage excellence, and this menu delivers with improved quality on core products and distinct items in every menu category that serve to further differentiate Chili's within the grill and bar segment. At the same time we challenged every item on the menu to ensure that it is delivering appropriate returns, driving customer loyalty and earning its right to our valuable menu real estate.

So with the rollout of the new menu in a few short days, we cap off the primary phase of our menu journey. And while quality has been upgraded on many parts of the menu, we have consciously made those investments while keeping a close eye on returns. Investing in the menu where it is most valuable to guests and deemphasizing those areas that were less critical to guest loyalty was the foundation for the new menu.

In fact, over 75% of the new menu items have a new recipe, a new ingredient, or have been replaced to further deliver on Chili's promise of bold flavors, while keeping the brand integrity.

Yes, we have made necessary investments in these past two quarters and will continue to do so with this last phase of the primary rollout. But the impact of the guest experience is significant.

As is often the case with chains, it may take time to get used to the new way. And for restaurants that means a little time to build greater familiarity with execution of new items. For a few of our guests it may mean finding a new favor on the menu. And keeping true to our hospitality promise the team member helping guests will recommend another item that is similar to their old faithful with a guarantee that if they are not totally satisfied the meal is on us. These types of near-term investments serve to build guest loyalty and team member engagement.

So in the near term our advertising will transition from 3C and move to a proven value message, big mouth bites with our always fresh and never frozen USDA choice beef and bottomless express lunch, which will showcase some of our new soups. This familiar and popular guest message will allow the restaurant sufficient time to master the new menu items.

Our next platform we will talk more fully about our menu enhancements and capitalize on our innovative food and be supported by a value message we believe will resonate with guests. As always, we will strive for the most compelling marketing message that balances sales goals with margin improvements and increased overall profitability.

Much has been accomplished in the last several months at Chili's, but there is still more to come. The improved menu will further solidify our differentiated food position in the grill and bar segment. Our signature style of hospitality will serve to enhance the experience, letting time with your family, friends or coworkers be the main attraction. We are, and will continue to aggressively pursue opportunities to improve margins, but not at the expense of guests. Investments already made in the business and investments on the horizon will come together, forming a dining experience unsurpassed in the industry.

Thanks, and now I would like to turn the call over to Chuck for a detailed discussion on the financial results.

Thanks, Wyman, and good morning. Let me outline a few highlights from the quarter that demonstrate the traction we are gaining from some of our recent initiatives, and also reinforce some of the ongoing strengths of Brinker's brands.

Earnings per share for the quarter, excluding the impact of special items in Mac Grill, increased 7.4%, in part due to the sales momentum gained through the quarter. On December 14 we announced the completion of the Muy Mucho refranchise transaction, a demonstration of the strength of Chili's, as well as Brinker's ability to execute franchise deals in the midst of a difficult credit environment.

This refranchise transaction, along with the opening of 15 new franchise locations in both domestic and international markets, delivers on our promise to advance our franchise mix, which now sits at 42% as of the end of the quarter.

Strong cash flows in Q2 and the expectation of strong cash flows for the foreseeable future enabled Brinker to pay down $140 million of our long-term debt, reducing our term loan balance to the capacity of our $250 million revolving credit facility. Again, delivering on our promise of paying down debt and strengthening our balance sheet.

These results are encouraging, although expected and communicated on past calls. So while we delivered on these initial commitments, we have not lost sight of the next goals.

So let's turn over to our results and review the quarter. All comparable year-over-year numbers in today's discussion of results will exclude Macaroni Grill for an apples-to-apples comparison. This is different from the press release, where prior-year numbers reflect the results of Macaroni Grill, and that is required by GAAP.

Our majority interest in Macaroni Grill was sold in the second quarter of fiscal 2009, and a reconciliation of our consolidated income statement is provided on our website. In the second quarter revenues decreased $47.2 million or 5.7% to $781.9 million. This was comprised of same restaurant sales decline of 3.1%, as well as a capacity decrease of nearly 4.6% from having 63 fewer restaurants versus last year.

Mix is negative due in part to promotional activities at each of our brands. Traffic, while down 2.6%, represents continued sequential improvement from down 9.5% in the fourth quarter of fiscal 2009, and down 5.3% in the first quarter of fiscal 2010, and that is an encouraging sign.

Franchise royalties and fees were $17.3 million for the quarter, an increase of $1.1 million compared to the prior year, primarily due to an increase in royalties from our growing franchise system, both domestically and internationally.

Cost of sales increased 80 basis points to 28.9% in the second quarter, primarily due to the margin impact of three-course and Maggiano's Today and Tomorrow promotion. However, these costs were partially mitigated by improved kitchen operations, which were implemented in late fiscal 2009, and menu pricing.

We also continue to see minor sequential easing of price inflation across our basket of commodities, which we expect to continue throughout fiscal 2010. As an evolution of the marketing focus Wyman discussed, and newly negotiated contracts on commodities grow into the system, cost of sales should see sequential improvement starting in the third quarter, and even further improvement going into the summer season.

Many of our commodity contracts run on a calendar year basis. And with the recent contract renewals, approximately 80% of our commodities are under contract through June of 2010. And that percentage slightly decreases to just below 70% by December 2010. Therefore, we may lag the industry in terms of feeling the impact of rising or falling costs. But the effect is Brinker has a more stable commodity basket. It helps us make better decisions around menu price and offerings.

In particular, we should see significantly favorability on chicken this calendar year due to annual price resets which were based on input costs in our long-term deal, and a new contract for a portion of our chicken supply.

So as goods purchased under the new contracts make their way into the restaurants, we will see favorability in cost of sales from a commodity perspective. However, some of the savings may be offset in the third quarter by impact of the recent winter weather.

The improved traffic from our promotions helped restaurant expense, which decreased 90 basis points to 56%, thus offsetting our cost of sales increase. Included is a $0.04 of EPS benefit resulting from a $3.3 million credit card fee settlement and some reduced insurance expenses.

These decreases were partially offset by sales deleverage and a decrease in labor productivity due to the three-course promotion, the initial rollout of new kitchen procedures for the upgraded menu, and one-time investment costs for training in small wares. The impact on restaurant expense for these items related to the menu transformation was approximately 20 basis points. And I expect a similar impact to the third quarter for the final phase.

Depreciation and amortization expense as a percentage of revenues was flat for the quarter, but decreased in total by $2.4 million. The decrease is due to 63 fewer restaurants, and represents the anticipated trend for the remainder of the year.

General and administrative expenses for the second quarter decreased $4.6 million on a year-over-year basis to $33.1 million or 4.2%. We are realizing ongoing efficiencies from the restructuring activities that took place in the second half of fiscal 2009, as well as income related to transitional services provided to Macaroni Grill. The quarter also benefited from approximately $1.4 million of credits related to lower health insurance and a canceled manager conference.

Other gains and charges for the quarter are $18.8 million, and primarily relate to non-cash charges for the closure of 12 restaurants and impairment of 14 underperforming restaurants.

Interest expense decreased by $3.7 million from the prior year to $6.8 million in the second quarter due to lower interest rates and lower average borrowings. So other net improved by $1.5 million in the second quarter of fiscal 2010, primarily due to sublease income related to the sale of Macaroni Grill.

After adjustments for special items, the tax rate increased to 27.6% versus 22.4% last year, primarily due to increased income and lower tax credits. So all in all it was a very good earnings quality quarter.

We are on track to generate substantial free cash flow in the range of $190 million to $200 million during the fiscal year. Additionally, the dissolution of our captive insurance company freed up previously restricted cash. The dissolution is substantially complete, allowing us to access $75 million of cash this quarter. However, it will require total cash payments in fiscal fourth quarter and first quarter of 2011 of approximately $22 million in aggregate. The result, as promised, we paid down $140 million of debt, lowering our outstanding term loan balance to $250 million, equal to the capacity of our revolving credit facility.

We have accomplished one goal of paying down our term loan balance to the capacity of our revolver, and expect to accomplish our second goal of reaching investment-grade metrics in the near term. These actions underscore Brinker's commitment to maintain our financial flexibility and keep a strong balance sheet.

With strong and stable free cash flow in place, and projected for the foreseeable future, Brinker looks to invest in strategies to grow earnings, further our brand differentiation, and return cash to shareholders. To this end Brinker will hold an investor conference on March 26 to outline the details of this next phase in the evolution of our business. At that time we will discuss plans to both grow earnings in the core business and methods to increase shareholder value, as well as give you an opportunity to meet our management team.

There has been significant traction on our key priorities. The balance sheet and business fundamentals of Brinker are strong, and our cash flows are secure and stable. We are not satisfied with where we are, and we are aggressively pursuing further changes in the business to deliver a superior dining experience to our guests, and I look forward to sharing these plans with you in March.

Now I would like to turn the call over to Doug.

Thanks Chuck. As you have heard, our solid second-quarter earnings are the results of our increasing traffic and sales trends in each of our brands. Additionally a key focus on operations continues to ensure that we hold margins in line during this difficult operating environment.

We continue to challenge the current processes in place, not just to improve them, but to reinvent them in a manner that is fundamentally superior. At times these new ideas may require some investment in margins, but will yield a nimble operating model that can be more adaptive to changes in the sales and economic environment.

Wyman covered the results at both Chili's and On The Border, so I would like to highlight some of Maggiano's key accomplishments. Sales at the brand continued to improve, even posting positive traffic for the quarter, demonstrating particular resilience as compared to its casual plus peer group. This positive traction can be attributed to the strength of the Today and Tomorrow promotion and our ability to harness the power of alternative marketing channels.

In addition, Maggiano's once again had a record-setting day on Thanksgiving. All restaurants in the system were open and tallied $1.5 million in sales that day, showing that Maggiano's is a restaurant of choice for our guests that want to celebrate the Thanksgiving holiday with family, but without the stress of preparing the turkey and the meal themselves.

I would like to take a moment also to focus on people, the cornerstone of our business. Shifting talent to new roles and empowering them to be change agents, who encourage innovation while delivering results is essential to our future success. As such, changes were made in key leadership positions to harness our people power.

As you know, Wyman was recently named President of Chili's and On The Border. Steve Provost has also assumed the role as President of Maggiano's Little Italy. More recently, Carin Stutz has assumed the position of Senior Vice President of Strategic Operations for Brinker. Carin's impressive operational background makes her the ideal person to oversee key operational initiatives meant to improve execution and drive margin improvements in the brands across the Brinker portfolio.

In her new role Carin will partner with the leaders in operations, Kelli Valade at Chili's, Tony Wehner at On The Border, and Ron Ryan for Maggiano's to help achieve these initiatives. These recent changes underscore our commitment to making people, whether they be our guests, our team members or our management team a key priority at Brinker.

Turning to the franchise business, there are a few key highlights we want to share with you. During the quarter Brinker opened 10 new restaurants in international markets, including a Maggiano's and On The Border in Saudi Arabia, as well as several Chili's restaurant in locations such as Mexico, India and Egypt.

The Maggiano's opening in Saudi Arabia marks Brinker's first international franchise opening for the brand. While the essence of Maggiano's remains intact in this new lactation, key attributes are modified to better serve the needs for the Saudi market, with a reduced focus on banquets and adaptation of the menu to complement local customs and flavor influences.

Also during the quarter we opened our 70th restaurant in Mexico, and continue to see solid performance in most regions of that country. While areas heavily dependent on tourism have been somewhat impacted, sales in other parts of the country continue to reflect a strong acceptance of the Chili's brand.

Additionally, growth in Asia continues, with three openings during the second quarter and 11 expected openings by the end of the year, including our second Chili's location that opened in India. Asia holds a great deal of promise for future international expansion, and we are excited about the results achieved thus far.

Domestically we opened five new Chili's franchise locations. And as Chuck discussed, the Muy Mucho group has acquired 21 existing Chili's Grill & Bar restaurants in Kansas, Missouri and Nebraska. It has also agreed to develop 5 to 10 new Chili's locations in that same geographic region. The completion of this transaction indicates the strength of the Chili's brand, not only with potential franchisees, but also at the institutions that continue to provide franchise financing for Chili's and Brinker.

The second-quarter results and topline trends are encouraging. We have made progress in evolving our business model, but there is still work to be done and investments to be made. We have made certain commitments to our shareholders, and as you have heard today, we are delivering on those commitments.

So as promised we delivered overall results that are showing improving topline, favorable comparisons to the industry and stronger year-over-year margins. Also as promised, we transformed the food by improving quality and putting Chili's signature touch on notable items to drive further guest loyalty, similar to the work put in place in fiscal 2009 at On The Border. And we will continue with the new On The Border menu rollout in coming weeks.

As promised, we got smarter about our promotional activity with our 3C program becoming more profitable each phase of the promotion. As promised, once the Chili's menu reveal took place we would transition from 3C, and as we move forward, talk more fully about our menu enhancements and innovative foods supported by value messages.

As promised, we would complete refranchise transactions with solid economics. And as promised, we continue to grow our international business through franchise openings, including those through our joint venture in Mexico. We even saw our first franchise Maggiano's opening this quarter.

Finally, as promised, we improved the strength of our balance sheet by paying down long-term debt down to the amount of our undrawn line of credit, fully eliminated near-term liquidity concerns, and continuing to generate significant free cash flow.

So we have, and we will continue to make financially prudent decisions around our business. Choosing priorities that maximize the long-term impact of the business, with short-term investments. The guest has, and will always be, our guide to making decisions impacting our operating model. We will improve margins, but not at the expense of the guest.

Our strong cash flow allows us to make investments in the business, while other competitors may not have that same financial flexibility. We do have reasons to be optimistic about the long-term health of our brands.

During our March conference you will see how we intend to harness our powerful financial position to grow value for our shareholders, as well as you'll get a chance, as Chuck mentioned, to meet the entire leadership team charged with driving the Company's success.

Now I would like to turn the call back over to Kate to open the line for questions. Thank you.

(Operator Instructions). Destin Tompkins.

Morgan Keegan. I guess my question should be directed towards Wyman. I am curious on the strategy at Chili's. If you could help us with the timeline. I guess first of all the three-course promotion, was it in place for the entire second quarter? And then as we go forward you mentioned the advertising transitioning away from the three-course promotion, will that still be in place while the advertising is transitioning? Then there was also some mention of the next platform that included maybe a new value message. So can you help us through the timeline of how that will occur?

Sure. To answer your first question, we ran three-course for most of the second quarter. So it was out there for the majority of the quarter. As we move forward we will transition to the message that I mentioned, the lunch -- bottomless lunch, or express lunch, and the bites, and we will carry that for a time period as the restaurants settle in on the menu. Then we will change messaging towards the back half of the third quarter to start to introduce our guest to more of the new food that is on this new menu, and we will have some value components to that.

So there is going to be a new value message that may be different from the three-course promotion?

Correct.

One more, if I may. On the restaurant expense line the -- I guess, beyond the credit card settlement piece there seemed to be some other things like lower utilities. I am just curious what the sustainability of those is. Have you contracted natural gas or what does the visibility look like on the restaurant expense line if you back out some of those one-time benefits?

Destin, it is Chuck. We do feel pretty good about where restaurant expense is. In terms of contracting on utilities, we do contract wherever we can do so. Some states are deregulated and we are allowed to do contracts. Others aren't, so in that case we are not covered. So we've got pretty good visibility into utilities for the rest of the fiscal year, and feel pretty good about where restaurant expense is.

Jeff Farmer.

Jefferies. Can you just give us a sense of how the 3 for $20 sales mix has trended over the last several months? And I guess more specifically, has it become more or less popular on the menu for your guests?

This is Wyman. What we saw with 3 for $20, we were able to improve the profitability of that promotion throughout the time periods that we were running it. And the mix went from close to 30%, and as we finished up -- as we finish up the promotion here in the last week we are running around 23%. So we have been able to minimize the mix, as well as improve the profitability of the items that are -- of the guests that are ordering the promotion over the duration of the promotion.

Okay, that is helpful. Then in terms of the new menu, how are you communicating that upgraded quality to your guests? How do you do that? At Chili's, that is.

Through advertising. So our message -- we have been doing that as a component of the three-course promotion with our big -- our ribs and our new burgers. So we have been introducing it that way. And with our tacos most recently. We will be getting a little more specific. But even with this interim period where we are talking about lunch, there is a message about some of the new soups that will be available for our lunch guests.

So there will always -- there has been a consistent message of improvement and news in the promotional messages. We will be a little bit more direct as we get the menu in place and locked down towards the end of the quarter.

Then final question. It looks like Chili's effective pricing was right at 1.2% for the quarter. I think that is the lowest number in almost three years. Where do you see that trending over the next couple of quarters?

We will stay in that 1% to 2% range as we go forward.

Anything else, Jeff?

That's it. Thank you.

John Glass.

It is Morgan Stanley. Chuck, if you could maybe consolidate or bottom line the restaurant margin expectations in the back half, assuming a constant comp. At one time I think you had thought that food costs could decline by about 100 basis points in the back half. Is that still your view given the promotional mix?

Last year it looks like your restaurant expenses went down significantly as a percentage of revenue versus the first half and versus prior. Is that something you can match or were those temporary cost controls that probably aren't and maybe your back half of this year looks more like your second quarter from a restaurant expense perspective?

Let me start off at cost of sales. We did give guidance to that line item somewhere around 27.5%. If you look at where we are right now, we are higher than that. But I still feel like some of the contracting that we have done will lower our commodity costs, partially in the third quarter, and particularly in the fourth quarter. So I still think that 27.5%, while maybe a shade low, is still well within reachability.

We did have a little bit of a freeze that affected tomatoes in this quarter. So we will expect to see about $0.01 hit on that. But still feel like that 27.5%, while maybe a little bit low due to the promotional activity we have been doing, that number is offsetting restaurant expense by better traffic. So all in all the trade-off between cost of sales and restaurant expense, there is no material difference from what we originally stated.

As we go forward, last year there were some one-time items, and we sat down and talked a lot about, John, those costs of discontinuing growth. We did see some real benefits in the third and fourth quarter last year. The thing that is going to -- that makes that tough is we will see better restaurant expense on a year-over-year basis, because we have the 53rd week in our fourth quarter, so that will help us in terms of restaurant expense as well.

Bryan Elliott.

Raymond James. Good morning. I wanted to clarify a couple of things that you mentioned, Chuck. The $3.3 million benefit I think from the credit cards, you, I think, threw out a $0.04 number in the prepared remarks as the EPS impact. Is that -- did I hear that right?

Well, there was that, and then there was also some workers comp benefit that came through the line. (multiple speakers). Just in terms of trying to get good visibility against the number we called both those out.

So the $3.3 million, that is an after-tax not a pretax number then?

No, that is pretax, but there was also some workers comp, so the combination of those items gave us somewhere around $6 million.

So $6 million pretax, all in the operating expense line.

[That was] restaurant expense.

Or restaurant expense line there were none -- sort of one-time items, and that was the $0.04. Okay. I think you mentioned something in the G&A line as well.

We did. G&A was a little bit artificially low this quarter. We saw some benefits. We canceled the manager conference that we had accrued, and so that helped us by about $1.4 million. That, plus some health insurance benefits, totaled about $1.4 million pretax.

So G&A was probably a little artificially low. We will probably get back to our run rate as we see that number in the third and fourth quarters.

Also, let me just clarify to make sure I understood the guidance policy (multiple speakers).

Bryan, let me correct that a little bit. I think -- we have some timing differences, so actually third quarter will probably be a little bit higher on G&A than our normal run rate. But by the time we get to the end of the year, we will still be in that run rate we had talked about with guidance at the beginning of the year.

Okay, all right. And the restatement of the guidance policy, essentially as I read it, it says -- I just want to make sure I am reading it and hearing it properly. So the policy is going to be, we are going to give guidance at the beginning of the fiscal year. And if we don't restate it that means you remain comfortable with that guidance, that only a material change from that guidance will be called out. Is that effectively the message?

Yes, that's correct. I mean, we did give a pretty wide range when we started the year. We really haven't gotten into do -- tighten the range, etc., so I think we feel pretty comfortable about where we are in the high end. Again, when we gave guidance at the beginning of the year we didn't include things like the windfall we got from Visa. So those numbers probably have helped our current earnings, but weren't really in our guidance. So we are feeling pretty good about where we are right now.

Okay, all right. Thank you.

Nicole Miller.

Piper Jaffray. I just want to know is the 3C available at all, or is it just gone?

What we do, typically when we change a promotion is we will take it out of the restaurant with regard to merchandising. But if a guest has request it, we honor those requests for a reasonable period of time. And so we will see a little bit of preference on the promotion after we actually officially walk away. But within a few days, a week or so, for all intents and purposes it is done.

So if you want to come in for lunch, we will get it for you.

I will try not to be too cheap. If I am understanding the context of the conversation this morning correctly, it sounds like as you transition to the bottomless or express lunch and the big bites and things of that nature, it sounds like there is a better margin opportunity to be had. Is that correct?

We are definitely thinking that we can improve our promotional margins with the strengthening of the base business offers, and that is what we are planning on doing.

I do want to point out something. We really took our first foray into value this year with our first range of three-course. The one great thing that I think we have done as an organization is we have learned from each and every rollout, each and every turn that we have taken on 3C.

So we did three of them. As we look at it, we tightened the range of offerings. We improved profitability consistently on each iteration that we made. And I think we learned a lot. We learned a lot about how guests react, what guest behavior has become. I think we will use those learnings as we go forward to make sure that we not only drive traffic, but also maintain margins and maintain profitability, so that there is a really good balance.

So I think that has been one of the great things that we have taken on the last seven or eight months has been just the learnings of how to get better and understand what consumer behavior is in the system.

So we shouldn't look at that as an on and off, but just something in your toolbox, your value tool box, I guess?

Absolutely. Doug, you want to add some things?

I will just add too, part of the strategy on the bottomless express lunch also is, as we look at our dayparts that are most challenged during this current economic time, weekday lunch is one of the dayparts that we can do a better job of driving. So that item is made up of products that not only have great value, but are very fast to get out of the kitchen. So for those workday lunchers that may not think we are as fast as possible, this has both value and pace. And so this is a business strategy as well as a nice value promotion.

Could you just speak quickly to Maggiano's, and then I will hop off. But I think it is interesting with what is a higher average check certainly versus Chili's, but such great comp improvement. Can you just give us a little color on what is going on there on the higher end?

One of the things it is Today and Tomorrow promotion, which was put in place in this second quarter. Again, great value but really great margins as well, a chance to order a pasta dish during your visit and then take one home with you. So that clearly resonated with the guests.

We also saw in December some nice improvement back in our banquet business. Which again as we look across the environment gives us a little bit more confident about maybe the businessmen, the focus around expense accounts. We also saw an increase in our catering business. So there is a bunch of lines of business at Maggiano's that -- and at $25 it is a great value. It has always been known as a lot of food for the money. People take a bag home with you. But we do see business spending up. At Maggiano's actually one of the dayparts that is up is the weekday meal experiences. So just the opposite of Chili's.

So good confidence with the business meal, but overall just a lot of nice business components. And I think the key core elements of the Maggiano's brand, which is great food prepared fresh by chefs and great value, even at $25. So the second quarter was very nice for Maggiano's.

David Palmer.

UBS. One thing that I wrestle with, and I think folks generally wrestle with, is how to really evaluate the same-store sales results we are seeing, not just from Brinker but from the casual dining industry lately as to signs of whether things are getting better or worse.

Let me ask it this way, do you take heart in the fact that the December month same-store sales declined 3% at Chili's, or do you view that as somewhat disheartening, given the comparisons, the marketing you may have had in the month? Or perhaps this is just you have to kind of squint through these few months, and just look at the general one-year trend we are seeing for Brinker in the industry is grinding a little bit better since the summer with jobs. Then maybe by the second half of calendar '10 we might be flat to stable as an industry, and the leaders a little bit better than that as jobs get to flat versus a year ago. How are you thinking about what we are seeing here?

I'll take first cut at it. I think -- one of the things we look at, we are gaining share. And while the 3% comp is not what our goal is -- the negative 3% comp, we outlined at the beginning of the year we would be down 2% to 4%. So we are still within that range. So we feel pretty darn good about that.

While we are doing it, we have been gaining share. We have been gaining share from independents. We think we have been gaining share when you look at Knapp-Track data versus our competition. So I think -- those have been things that we are really pretty excited about.

It is right. Job creation has not been good. Depending upon who you want to look at and what you want to look at, some people say it will get better midyear, mid calendar year of 2010. Some people say that true recovery is not until 2011. So we feel pretty good about delivering year-over-year earnings growth in this kind of period. I think the segment has held up certainly from an earnings perspective much better than people would have liked.

We think we are getting some benefits of commodities that will help us in third and fourth and for the balance of the calendar year. So we feel pretty good about those things. I don't know if you guys want to weigh in anything more on the consumer or --?

Just a -- we are never happy with negative traffic and negative sales. We are just never satisfied with that. That said, again, it is a battle for marketshare and we are winning that battle. I think we're going to continue to focus on how we maintain that momentum, and do it in a way that maintains our business model and our margins, but more importantly improves the guest experience as we go forward. That is really the key.

So all our energy right now is on that. And when the economy gets better, whether it is the second half or early next year, we are confident we are going to be in a great position to ride that momentum even further than this -- than we are having to get momentum in this tough environment.

Doug, you want to add anything?

Yes, I think a smart guy once said, up is up. So improving trends, as Chuck said, it is not where we want to go. But I think this whole conversation falls under the category of things we can control. So when I think about things inside of Brinker that get me excited, because to steal marketshare we have to out execute our competitors.

So I talked a little bit on my prepared comments about new leadership. I really excited about the new leadership in these very important operations roles -- Wyman running Chili's and On The Border, Steve at Maggiano's, Kelli Valade in her new role as Chief Operating Officer at Chili's, Carin Stutz in this SVP Strategic Operations, these four leaders, they bring different perspectives. They bring different experiences and they bring different skill sets. When you blend that with some of the old-timers that are here talking right now, it is a really nice melting pot of leadership that I'm excited about.

When I think about the transformation of the menu at Chili's, the transformation of the menu at On The Border, these are new, better products and ingredients, and our guests and our team members are excited about it. When I think about hospitality initiatives and strategies that are taking place and improving the guest experience, improving guest counts. Again, two of our three brands, On The Border had flat guest counts in December, Maggiano's slightly positive the whole quarter. And of course, the balance sheet and the cash positions are in good shape. So as we get strategies laid out we are in a position to act on them.

So everybody is tired -- there is no economist in this room. We don't even want to predict the weather, but what we can control is what happens inside our four walls. And I am really encouraged and optimistic about where we are taking or businesses.

Thanks for your thoughts.

Tom Forte.

I had a couple of questions on sales trends. First, I wanted to know during the December quarter how did Texas and other regions perform against the country as a whole?

And then second, I wanted to know what you have learned from the three-course offering on promoting to the consumer an individual item at a price point or multiple items at a price point. Then thoughts on the use of multi-course promotions in the future.

Texas has been weak. I think you have heard that from some of our competition. Texas has been weak now for about a year. It had been one of the best performing markets out there and has now settled in to be average to slightly worse than average. But again, as you know, we've got a big footprint in Texas and we've done very well considering we've had that headwind.

I appreciate your question about asking what we have learned, but honestly we know there is a lot of our competition on the call and listening, and so we hesitate to really give you all of the learnings that we have seen over the last seven months. It has been a lot of work, a lot of effort by our teams, and we would hate to just drop that out there for somebody to get just for listening. So I think we would rather pass on answering that question. Is there something else we can help you with r some other way we can approach your question?

Sure. I appreciate your answers. Can you give -- you talked about the improving banquet sales at Maggiano's, can you talk about either other improving sales trends you're seeing that suggest, in addition to the successful menu adjustments at Chili's and On The Border, you are seeing just evidence of an improving consumer?

Well, it starts with business, and as Doug said, business spending has come back a little bit. We have seen more banquets at Maggiano's during the holidays. We have seen weekday improvements at Maggiano's. So I think as business spending goes, the rest of the consumers hopefully will follow. Maggiano's again is a great value at $26 for a business person to go to a meal. So maybe that is the initial foray into seeing that part of the economy coming back.

Gift cards were better than what we had expected in the year. So I think there's a number of small bright lights in the economy that maybe are starting to pick up a little bit.

John Ivankoe.

Two unrelated questions, if I may. The first is on the three-course combo. It is mixing so high, I just want to get a sense in terms of what your tests or thoughts are going to be for the returning customer that wants that promotion, if you are fearful that it can be traffic dilutive -- materially traffic dilutive. And why, for example, you can't figure out a way to have some kind of scaled down full margin version of that on the full menu.

Related to that, is the new menu that is online proven to be average ticket additive or average ticket dilutive? And what are your thoughts regarding that. I guess I will ask the other one after.

Wyman, you want to take the 3C.

Sure. With regard to the promotion, John, one of the things you have to remember with that promotion and the high preference that it is driving is that it has got a lot of items on it and a lot of -- and they are base menu items, so we are not as concerned about the impact. We also have learning -- we have run it as a promotion. We have stepped away from it even over the last five, six months as we have used it as a promotional vehicle for us. We have walked away from it several times. So we've got learning on what happens when we step away from that promotion. So that is why we are confident about what we are doing in the future.

With regard to how we -- our biggest concern is we don't want to alienate or disappoint guests. Your can't always have the same promotion out there forever. So I think in this environment consumers know that. But if somebody comes in in the near future and is really looking forward to that and asks for it, we make it available for them. We've got that factored into our business as we move forward.

As far as putting it on the menu, yes, we could do that, but we just don't think packaging it up at full margins -- guests can order the appetizer and the desert they want for full margin, and it happens every day. So rather than create more complexity on the menu, we will just let them order the way they normally do to get that kind of value around the offerings we have.

Wyman, on the new menu, are you seeing that -- or do you expect to see --?

It is price and margin neutral. So we built it that way. It has played out that way in tests. And so, as we said in the prepared notes, we have made improvements but we have been smart about how we portion, how we price. We took very little price in terms of even the new items. We did some things with large and smalls on some of the new salads you will see.

So we think we have been able to find a real nice balance of adding new news to the menu, bringing up quality product on almost every item, without significantly impacting the check, positively or negatively or the margins. So I encourage you to go eat that and give us your feedback.

I look forward to it, thanks. Chuck, maybe a question for you on CapEx and free cash on the balance sheet. You made the comment that your term loan is now at $250 million, which is what your undrawn revolver is, which is great. So, one, is there a need for refinancing? Are you anticipating a refinancing of that term loan or would you draw down your revolver at this point in time?

Then related to that, clearly you have plans in 2011 for development, or lack of development, remodels or lack of remodels. What should we expect for 2011 CapEx relative to 2010? What would be the most likely use of that free cash flow?

A lot of questions there. First of all, let me go backwards, I think. We expect our CapEx for this fiscal year to still be somewhere in the neighborhood of $80 million to $85 million for CapEx. As we go forward, honestly we are sitting down taking a look at that. We will have a long discussion with our Board next week about plans for what do we do with our cash, what do we do with our balance sheet, what do we do with financial policy. That is really one of the underlying stories that we will have to tell at the end of March.

We are in great shape from a cash perspective. We will not go out and refinance the term loan today, just because we've got a great interest rate. It is 95 basis points over LIBOR. To put it on our revolver would actually increase our interest expense. So you will see that in the Q that gets filed, that will be listed somewhat in current, some in long-term.

But, again, we don't feel like there is a need to go refinance it today because it would be more expensive. It would just give more money to the banks than we feel like we need to do.

Do you have a sense on -- without talking specifically where the buckets would go, what fiscal '11 CapEx would be relative to '10, or do you not want to answer that yet?

Right now we are still planning on being somewhere in that $80 million to $85 million range. That has been a good run rate for us. We can reinvest back in the business. We keep the restaurants looking up to date. The question is -- and we will sit down and talk about whether we should spend more money than anything else as part of our investor conference.

Brad Ludington.

KeyBanc Capital Markets. Thank you. I wanted to start off with -- since you freed up that $75 million in restricted cash and paid down some additional debt, what is a cash balance at the end of the second quarter, and is there any restricted cash in that balance?

This is Marie. As of the end of the second quarter, we ended with $110 million of cash. As Chuck mentioned, since we unwound the captive insurance, the majority of that cash is now completely unrestricted. There is just a minimal amount we are still trying to unwind, it is less than $4 million. But really when you look at that $110 million that money can be used for any purpose.

Then going forward should we expect to see some additional sales to franchisees in fiscal '10?

We will continue to take a look at a market by market analysis to make certain that we are operating that market as a Company operation and receiving better shareholder value than if it was franchised. If we determine that it is better to be franchised, we certainly would take on that process.

Then I have been looking at the menu you posted. It looks good. When the 3C comes off this week or next, should we expect that you would be considering something -- maybe not the same deal, but some other kind of bundling promotion in the coming months and quarters?

We would hate to get too far out and talk about marketing programs today. So right now we are running the bottomless express lunch and burger bites and so stay tuned.

I do think -- we have had a lot of conversations today about the consumer and the turnaround. It is still a very value-oriented consumer and the marketplace is still very competitive. So with that, I will just say we plan to continue to gain marketshare and we will do what we need to do.

Then just kind of housecleaning and I will jump off. I think you said there is a $22 million payment due with the unwinding of that captive insurance, when is that due?

There are two payments. We will make one the fourth quarter of fiscal year 2010, and then we will pay the balance in the first quarter of 2011 fiscal. That is $22 million in total. That is not -- that is just -- that is a grand total of the payments.

Steven Kron.

Goldman Sachs. Thanks very much. A couple of follow-ups, if I can. I wanted to go back to the transition off the three-course per a second. We talk a lot on these conference calls about the battle for marketshare, and as you guys alluded to, this is kind of your first foray into getting something more value-oriented on the menu. It seems as though you gained marketshare this quarter when you have kind of really stepped up the frequency with which you are in market with that three-course promo. But you are at a critical point here because you're making the decision to move off that and eventually get to a more longer-term sustainable driver that you believe can get traffic in the door.

I guess there is a bit of education process that is associated with that for the consumer. When you moved off the promotion, I think, last quarter, intra-quarter for a brief period of time, your comp softened. So I guess, how are you thinking about it internally on your expectation -- of traffic expectations? And how firm are you that this is the right approach? And maybe in answering that you can get into the testing of the product. Was it -- in those markets was it exactly what you planned to do now as far as pulling three-course and going out with this new menu?

There is a couple of different themes through there. I think the first time we ran three-course we were still learning and we didn't pull off it. It was brand-new news to the marketplace, and we did see sales get softer once we came off it. But if we look at earnings and margins, margins also were much better during that same period. So on a profitability basis we didn't feel like we gave up much by coming off at all. In fact, it was fairly neutral.

We did get smarter with the promotion. We did get better. But we also believe that as you can see, because we have tightened the number of items, the combinations that were on the 3C, our preference did go down.

We think the lap, or I should say the transition from 3C to non-3C should not be as big as it was over the first two times, at least that is what we are planning and modeling. We do think that we will probably give up a little bit of traffic from it, but we think we will see increased profitability on a comparable basis, or at least something that is relatively neutral. Wyman, I don't know if you want to talk about (multiple speakers).

Again, yes, there is -- you run a promotion for so long and it doesn't become a promotion anymore, right, it becomes a little bit -- it loses that since of urgency. I think we are starting to feel like 3C has lost some of that sense of urgency, which is great. Let's put it to rest and bring some new messages to the table. And they will have value components to them.

So again, you have to -- when you are looking at our results sometimes we'll put messages out there that are less value-oriented, and then we may see a more significant impact to traffic, but obviously the trade-off is in the margins. What we are planning to do is to continue to keep a fairly focused -- should stay fairly focused on value. Not as aggressive as three-course, but we are not going to walk away from value messaging. And again, the next message that we just shared with you have a value component to them that we think is -- well, we know is compelling. We have run these offers before, so we have a pretty good history of what to expect with regard to traffic and the margin impact.

In the markets that you have tested this transition was it mimicking exactly what you planned to do here as far as pulling three-course from those markets temporarily?

We haven't tested the -- we don't test promotional messages, if that's what you're asking. So we haven't tested the promotional message change. We have history and we have a lot of research that goes into the impact and the motivational power of the different promotional messages, but we don't do in market advertising testing of promotions.

Then, Chuck, on the balance sheet, when -- you made the comment that a goal of yours is to get to -- to have the balance sheet for investment-grade, investment-grade companies. In your discussions with I guess rating agencies what do you think you need to do further at this point?

Well, I think we are getting pretty close to those metrics now. We are very close. We are currently rated investment-grade by S&P. We are a notch below at Moody's. So I think we just need to demonstrate the same strong cash flow that we have seen, and prudent financial policy.

Then last question from me, as far as the franchisee and their access to capital at this point, it seems as though out there it remains still pretty tough for the franchise community. It seems as though you have been able to get some transactions done, and franchisees are still building some stores. Can you comment on the current credit environment as it relates to them?

I think it is getting a little bit better. Honestly, you are not seeing the kind of access to capital you saw two years ago, but we have seen it thaw a little bit. There is a new players coming into the franchise market who have had capital to lend. And that has been a welcome thing. Chili's, with its strength and unit economics in terms of having topline in excess of $3 million, that makes us a pretty bankable deal.

So our franchise partners have had more access than maybe others in the space. But the overall environment has gotten much better, I would say, over the last nine months.

Our domestic partners, we are going to open 12, 13 restaurants this fiscal year. So they are still building restaurants even in this uncertain time.

Jeffrey Bernstein.

Barclays Capital. A couple of questions. I just want, I guess, a clarification. Earlier we were talking about sequential comp trends, and it looks like through the quarter it was relatively stable. I know it was brought up in terms of year-ago comparisons. I am just wondering -- I don't see the year-ago monthlies. Is that something that you guys have distributed? And perhaps can you talk about -- it seems like a two-year trend, based on what we have heard about December, it would still be I guess a deceleration on a two-year basis. I was wondering if we can get some color on the year-ago in terms of monthlies.

I would be going off memory.

You are right, December was weaker. So if we look at the whole quarter, December was weaker than October and November were. So you would be correct in saying that December on a two-year basis was a little bit less.

What about -- but I do know we have had some issues on calendar flips with Thanksgiving. So we did have a situation where Thanksgiving flipped from one period to the next, comparing last year to this year. So I think while that statement may be true on a factual basis, I think if we made a modification for the calendar flip it may not exactly reflect that.

But is it -- ex that shift -- I mean, kind of fleshing it out from normalized numbers, does it appear like it is still on a two-year basis, that deceleration, or would that shift really make it as if --?

We would have to do the math.

Okay, but there is no plan as of this point to I guess put up all of last year's monthly numbers, like you're doing now for this quarter?

No, there is no plan to do that. We gave it last year, so we are hoping everybody has kept good notes.

Then Macaroni Grill, I think you mentioned again the transitional services provided to the brand. I don't think we have ever got it before, but total dollars, or EPS, is it significant? And how long should we expect that benefit contribution?

We are locked in until the balance of the fiscal year. Are we actually allowed to talk about that? It is around $7 million that we get for those transitional services.

For the full year or that is for this quarter?

Full year.

Sorry about that. Then just lastly in terms of gift card sales, through the holiday season, I just wondering how that went pre and now redemption rates relative to year-ago period?

We were up 5.3% versus last year, so good success, particularly at Maggiano's. A lot of our third-party partners had double-digit growing sales in some of those locations. So overall, despite what some of the gloomier predictions were, we sold more.

Joe Buckley.

BofA Merrill Lynch. I know you are thinking there is no more possible questions on 3C, but I have a couple.

We were thinking that too.

Did 3C work as a way to feature the improved menu items? Did you get a pretty good mix on the burgers and the ribs and on the tacos?

That is actually a great question, Joe. So even though it seemed like we have exhausted them, that was a good one. Yes, we did. It worked exactly as we had hoped.

So let's just take these new tacos, we probably sold 2 to 3 times more of those tacos than we would sell just on a base menu item. So the promotional preference really helped put those new flavors in a lot of guests' mouths, who wouldn't normally have come to Chili's to eat a taco, because their favorite was a burger or something else on the menu.

So we were able to do exactly what we had hoped to do strategically in that get those new products in more of our guests' mouths. And especially again, you got to remember with 3C there we were driving some lighter and less frequent guests in. So exposing them to some of the new things that we are doing at Chili's was a real strategic imperative for us, and it worked very well to do that.

Again, as we move to different promotional ideas we are going to continue to use the promotional messages, like with lunch to get the new soups in people's mouths. We will continue to leverage that strategy, just not necessarily with a three-course vehicle.

Then you made reference to the history you have had advertising big mouth bites and bottomless express lunch. Can you share a little bit of that with us? Have they been pretty effective drivers of traffic in the past?

Sure. Yes. I would hope you would note if they wouldn't, we wouldn't be bringing them back. But, yes, they have worked very well for us. And we haven't been on that message for a while, so it is some fresh news to the marketplace. Again, it gives as an opportunity, maybe not as aggressively or as direct, but those are burgers now made with fresh USDA beef. So our improvement to our hamburgers are centered, and again we've got new soups. So both of those things add to the newness of the promotion. But, yes, the promotion worked very well for us in the past.

Then, Chuck, a question on the cash flows. I know you probably want to hold a lot of this for the March meeting, but as you talk about both trying to move to investment-grade at Moody's as well as S&P, and also we talk about returning cash to shareholders, is there an implied bias there towards dividends as opposed to share buyback to achieve both goals?

I think you're right. I think that would be a great thing we can address in March. I think right now we would hate to just step out and pick one or the other.

But returning cash to shareholders you mentioned briefly. Can we assume that will be a stepped-up goal as the balance sheet now is closer to where you want it and so forth?

Yes, I think we can do both. I think we can -- we are entering into a position where, as I think John may have asked, we don't have a lot of new restaurant development in the pipeline right now. We certainly don't have openings of any significant number at all planned for the next 18 months. So we will be generating a huge amount of cash flow.

So the question is how do we build the business, how do we also return cash to shareholders. Historically we have been able to both keep an investment-grade balance sheet and pay a dividend and do share repurchase. So I think we will look to accomplish all four of those goals in some way, shape or form and talk about that in March.

Sounds good. Thank you.

Sara Senatore.

Sanford Bernstein. Just a question about the other gains and charges, the long-lived asset impairment. I just wanted to get a sense of how you decide to take that this quarter. Should we expect any more -- essentially it implies lower cash flows from -- I think you said 14 restaurants and a couple of closures. But why those restaurants, and why are they different from the rest of your store base where you haven't taken impairments?

We do run an analysis that is required every two quarters. We do it during the second quarter and fourth quarter of each year. We take a look at under accounting regulations we look at the cash flows of the restaurant, discount those back, and then compare those to the asset value to the net book value that we have for that restaurant. If there is a gap, if the net present value of the cash flows are less than the asset balance, we have to take an impairment. So we have done that on 18 restaurants during this quarter.

The decision to close is somewhat different. We will take a look at, and talk with our operators about, are we in the right market? Has the market perhaps moved away from where we are? Maybe we are not renewing a lease. Perhaps we are just in a place that development was supposed to happen and never came. There are still some of those places where we built a restaurant expecting development to be built out, and it didn't occur. So if we are experiencing negative cash flow we will go ahead and close that restaurant.

We impaired 14 restaurants, not 18, I am sorry. So they either fall into those other two buckets. The good news is that the rest of the restaurants that we have don't fit in either of those categories. So we did take an impairment and we will evaluate it again in the fourth quarter.

But just to clarify, so the distinction between those 14 and the rest, obviously you looked at the cash flow, but was it geographic or were they older or can you just give me a sense of why it might be, because it looks like -- it is a pretty big chunk?

There is really no pattern. Of the 14 out of our 1,000 restaurants some of them -- each one of them had a reason. There is no consistent, hey, we did this or this didn't occur. It just is a restaurant that is not cash flowing. And our operator said, hey, this is not a restaurant we should be in. Anything else?

[Jonathan Waite].

[Precipio Research]. Two quick questions for you. On the consumer discussion here the 3C is mixing a little lower here. Is it a better environment from a discounting promotional perspective from the consumer angle? Should it look healthier going forward as far as how much discounting you do? And then the second question would be, is there any seasonality in that $7 million on the Macaroni Grill income?

There is no seasonality on the $7 million. I will handle the easy question first. Wyman, you have been our 3C expert, you want to --?

So I guess the question -- I am not exactly sure what the question was. In terms of do we anticipate it being a more -- a less aggressive kind of promotional marketplace out there, there is no indication that is necessarily the case. Although the level of -- the depth of the discounting we do believe can be moderated. So that is what we have been talking about here. Again, value is still important. All the metrics from an economic standpoint tell us that. The competitive environment out there, which you guys know as well as we do, is still very aggressive. But we think there is room for us to be less -- to [feel] less deeply that (inaudible).

What gives you that kind of comfort? Is that more than the traffic trends or what --?

Yes, learnings from within, history with the different promotions. And again, we have taken 3C through several different iterations, our learning there. research we do with the consumer that is proprietary on promotional offers, a lot of variables that go into a marketing plan. And then looking at the marketplace.

And again, we are banking on the core of our business, the things that we are improving like the menu and the food and service to help strengthen the brand, so that that will carry more of the weight and the promotions won't have to as much. So that is ideally what we are working towards, really relying on much more as we move forward.

We have no further questions in the queue at this time. Do you have any closing comments you would like to finish with?

We just want to thank everyone for joining us today. This concludes our earnings call. And we look forward to talking to several of you this afternoon, and actually hoping to see a lot of you and speak to you on our investor conference on March 26. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time. And have a wonderful day. Thank you for your participation.