CKE Q3 Earnings Call Transcript

123jump.com Staff
06 Jan, 2009
New York City

CKE reported third quarter earnings declined to $5.4 million or $0.10 per share from $6.2 million a year ago with revenue fall of 4%. On a blended basis the sales at comparable stores rose by 0.9%. In the first three quarters of the fiscal year the restaurant operator added 27 new stores.

CKE Restaurants, Inc ((CKR))
Q3 2009 Earnings Call Transcript
December 11, 2008 9:00 a.m. ET

Executives

John Beisler - Vice President, Investor Relations
Andrew F. Puzder - President, and Chief Executive Officer
Theodore Abajian - Chief Financial Officer and Executive Vice President
John J. Dunion - Executive Vice President, Supply Chain Management

Analysts

Anton Brenner – Roth Capital Partners
Conrad Lyon - Global Hunter Securities
Brian Moore - Wedbush Morgan Securities.
Christopher O''Cull - Suntrust Robinson Humphrey
Karen Chan for Keith Siegner - Credit Suisse
Chris Sipple (ph) – Blueline Capital
Rachel Rothman - Merrill Lynch
Josh Rosen -- RLR Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to the third quarter 2009 CKE Restaurant’s earnings conference call. (Operator Instructions) At this time, all participants are in a listen-only mode. We will facilitate a question-and–answer session towards the end of this conference. If at any time during the call you require assistance please press”*0” and an operator will be happy to assist you. As a reminder this conference is being recorded for replay purposes. I would now introduce Mr. John Beisler, Vice President, Investor Relations. Please proceed, sir.

John Beisler – Vice president of Investor Relations

Thank you. Good morning everyone. Thank you for joining us. My name is John Beisler, Vice President of Investor Relations for CKE Restaurnats. CKE Restaurants is hosting this conference call to discuss our results for the 12 weeks ended November 3rd, 2008. Yesterday CKE issued a pair of press releases announcing its financial results for the 12 weeks ended November 3rd, 2008 and same-store sales for the 4 weeks ended December 1, 2008. These releases are available on our website, CKR.com. CKE has also filed its Form 10-Q with the SEC. This call will reflect items discussed within these press releases and Form 10-Q. CKE management will make reference to them several times this morning.

Speaking on today''s call are Andy Puzder, President and Chief Executive Officer, and Ted Abajian, Executive Vice President and Chief Financial Officer. Andy in turn will refer to our third quarter fiscal year 2008 earnings conference occasion that we posted on our website this morning in the Investor Relations area and once again the website is www.ckr.com. To view the presentation, click on investors and then click on presentations. You’ll now see a list of our presentations and we’ll be referring to the presentation dated December 11, 2008 which is entitled Q3 fiscal year 2009 earnings call. Andy will begin today''s presentation with a few comments regarding our third quarter results as well as our Period 11 same-store sales results. Ted will then review our third quarter results with you. Andy will conclude today''s presentation with comments on the strategic direction of the company. Andy and Ted will then take questions from callers.

Before we begin I''d like to remind you of our disclosure regarding forward-looking statements contained in our Form 10Q and earnings release. Our disclosure regarding forward-looking statements can be found within our Form 10Q under Item 2, Management''s Discussion and Analysis of Financial Condition and Results of Operations. Matters discussed during our conference call today may include forward-looking statements related to our future plans and developments, financial goals and operating performance, and are based on management''s current beliefs and assumptions. Such statements are subject to risks and uncertainties and actual results may differ materially from those projected in the forward-looking statements.

Thanks and you should now hear Andy Puzder, our President and CEO.

Andrew F. Puzder – President & Chief Executive Officer

Thank you, John and good morning everybody. The third quarter of fiscal 2009 presented unprecedented challenges for CKE Restaurants and our economy in general. Despite these challenges, we increased same-store sales and average unit volumes at both our brands even as our competitors resorted to historic levels of discounting. Moreover in part because we declined to participate in the successive discounting, we were able to reduce both food and labor expense as a percentage of company operated restaurant revenues versus the prior year quarter. We also accomplished the sales increases and operating expense reductions, while maintaining and in some cases improving very positive consumer perceptions of our brand in the six attribute ratings on which we focus and which consumers rank as most important to them when selecting a restaurant. These attributes are taste of the food, quality of ingredients, temperature, friendliness cleanliness, and accuracy. To measure the consumer perception we use Sandelman Research which is research that we subscribe to and not research we commission. They do it, whether we buy or not and the top two box analysis, graphs reflecting that research and comparing us to our largest competitors, are set forth on pages 8 through 19 of the earnings call presentation.

On the financial side, we continue to execute our scaled back capital plan while reducing our bank and other long-term debt year-to-year by $32.6 million from the end of fiscal ’08. We continue to reduce G&A expense for a year-to-date reduction of $4.1 million excluding a $1.8 million increase in share-based compensation expense. We also continue to improve our adjusted EBITDA and are now $3.5 million ahead of last year’s adjusted EBITDA through the first three quarters despite an $8.2 million negative impact to adjusted EBITDA from our re-franchising of 118 Hardee’s restaurants over the past four quarters. On page 28 of the presentation you’ll find an adjusted EBITDA bridge chart showing certain items that affect our adjusted EBITDA over the first three quarters of this year versus the first three quarters of last year. Third quarter net income was $5.4 million or $0.10 per diluted share versus $6.2 million or $0.11 per diluted share in the prior year quarter. Income from continuing operations was 5.4 million or $0.10 per diluted share versus 7.5 million or $0.13 per diluted share in the prior year quarter.

This quarter’s results include 4.9 million of interest expense to mark-to-market of interest rate swap agreements versus a $1.8 million expense in the prior year quarter. These mark-to-market accounting charges do not represent interest expense that we are actually paying in the current quarter. In fact when we make interest payments related to our swap agreements in future quarters, those payments will not result in additional interest expense, since we are booking the charge now, even though we are not paying it now. It is important to note that there would likely be additional mark-to-market payments, either favorable or unfavorable in future quarters as interest rates continue to fluctuate. Absent the additional interest expense related to our interest rate swap agreements, income from continuing operations would have been $8.3 million or $0.15 per diluted share in the third quarter versus income from continuing operations of $8.6 million or $0.15 per diluted share in the prior year quarter.

Finally, on a trailing four quarters basis our diluted earnings per share from continuing operations stand at $0.64 versus $0.57 as of the end of fiscal ’08. All in all, our focus on reducing our operating expenses, combined with our focus on quality, taste, service and cleanliness, resulted in a positive quarter despite severe financial headwinds, deep competitive discounting, and a difficult-to-fathom accounting rule related to mark-to-market adjustments. With respect to same-store sales, third quarter blended same-store sales increased 9/10th of a percent, our 12th consecutive quarter of positive blended same-store sales. On a two year cumulative basis, blended same-store sales increased 2.6% for the third quarter. With respect to our individual brands, same-store sales, in company’s operated Carl Junior restaurants increased 5/10th of a percent versus 7/10th percent increase in the prior year quarter. Same-store sales in company operated Hardee’s restaurants, increased 1.3% on top of the 2.7% increase in the prior year quarter. Year-to-date our blended same-store sales have increased 2.1% with a 1.1% year-to-date increase at Hardee’s and a 2.9% year-to-date increase at Carl’s Junior.

Page 3 of the presentation sets forth a chart comparing our three quarters same-store sales with those recently reported by other brands. Restaurant operating costs, on a consolidated basis or restaurant operating costs as a percentage of company’s operative restaurant revenues for the third quarter was 15 basis points unfavorable to the prior year quarter. Food and packaging cost decreased 10 basis points despite higher commodity costs for big cheese, potato and oil. This improvement was primarily due to price increases and other initiatives including our ability to increase same-store sales without resorting to low margin high food cost products. Payroll and other employee benefits expense for the third quarter of fiscal 2009 decreased 70 basis points. This improvement is primarily attributable to increased scheduling efficiency and paper roll leverage at same-store sales at Hardee’s. Occupancy and other expense increased 130 basis points due to higher utility costs and depreciation expense primarily related to our on going revamp programs at both brands as well as an asset disposal charges related to the rebuilding of two Hardee’s restaurants. Our restaurant operating expenses as a percentage of company operated restaurant revenue by year for this decade and year-to-date for fiscal year 2009 for Carl’s Junior and Hardee’s are set forth on pages 5 and 6 of the presentation. Carl’s is having its fourth best year this decade and is really only the fourth best year by 30 basis points. Otherwise it would be the third best year with respect to operating expenses and Hardee’s is having its second best year this decade.

During the third quarter, the company opened 8 new units. Our domestic franchisees opened 14 new units and our international licensees opened 10 new units for a total of 32 new units. For the first three quarters of fiscal 2009, we and our franchisees added 27 net new units, raising our consolidated unit count to 3110 units. Our projected system wide unit count to 2014, roted down by company operated stores, domestic franchise stores, and international license stores, is set forth on page 23 of the presentation. Notably, we are currently projecting that by 2014 our system will be 75% franchised and 20% international. With respect to our remodels, we remodeled 15 company operated Carl’s Junior and Hardee’s restaurants during third quarter. As of the end of third quarter, we have remodeled 366 restaurants or about 41% of our company operated restaurants. We also completed 14 company operated dual-branded Green Burrito and Red Burrito conversions during the quarter. At the end of third quarter, we and our franchisees have a combined total of 433 Carl’s Junior units dual-branded with Green Burrito and 109 Hardee’s units dual-branded with Red Burrito, including 208 Green Burrito and 88 Red Burrito, company operated dual-branded units.

On the G&A side, G&A expense in the third quarter decreased $1.5 million from the prior year quarter. This reduction is primarily related to our re-franchising program and lower overall corporate spending. G&A spending was flat as a percentage of total revenue despite a $15 million reduction in total revenue as a result of re-franchising 118 Hardee’s restaurants over the past four quarters. For the fiscal year to date, we’ve reduced our G&A expense by $4.1 million excluding a $1.8 million increase in share-based compensation expense. On the re-franchising side, we re-franchised 23 Hardee’s restaurants during the third quarter. Since our initial announcement in April of 2007, we’ve re-franchised a total of 224 Hardee’s restaurants. All of these transactions were completed without any company-backed financing. In addition the franchisees that have acquired these units have agreed to build an additional 112 restaurants in these markets. With respect to period 11, we have also reported same-store sales for period 11 yesterday. For the four weeks ended December 1, blended same-sales stores increased 3/10th of a percent. Hardee’s same-store sales increased 5/10th of a percent during period 11. On a two year cumulative basis, Hardee’s period 11 same-store sales have increased of 3.7%. Same-store sales at Carl’s Junior increased 1/10th of a percent for period 11. On a two year cumulative basis period 11 same-store sales at Carl’s Junior have increased 2.6%. Sales at both brands were impacted by a number of factors including as already noted, the ongoing reliance on aggressive discounting by our competitors and Carl’s Junior’s company comparisons were impacted by a reduction in the number of completed remodels this year, versus the prior year. As of the end of period 11, the binded average volume for our company operated stores was $1,225,000 a $86,300 per unit increase over fiscal 2008. Carl’s Junior average unit volume was $1,005,029, a $36,000 per unit increase over fiscal 2008, and an all time high for the brand. Hardee’s unit volume was $985,000, a $31,000 per unit increase at the end of fiscal 2008 and the highest ever unit volume for the brand as far back as we can check. Herdee’s in now tantalizingly close to our initial average unit volume goal for the brand of $1 million and we look forward to setting and then reaching an even higher goal in the near future. Our historic average unit volume trends, for this decade, and for both brands is set forth on page 4 of the presentation. It’s worth a look.

I’ll now turn the discussion over to Theodore Abajian our Chief Financial Officer for his discussion of our quarterly operating results. Ted?

Theodore Abajian – Chief financial Officer

Thank you, Andy. Good morning everyone. Before I get started I need to make you aware that during this conference call we refer to certain non-GAAP financial measures as explained in our earnings release issued yesterday and in our Form 10Q for twelve weeks ended November 3rd 2008. During our third quarter, we continued to increase adjusted EBITDA despite the impact of increased restaurant operating costs. We achieved this increase through net new unit growth, re-franchising company operated restaurants and increasing same-store sales and average unit volumes. We hope investors understand the impact of each of these areas on our operating results. I’ll review how these and other items affected our adjusted EBITDA performance for the third quarter. I’ll finish by discussing aspects of our interest and income tax expenses as well as our credit facilities. First of all I want to review our use of the term adjusted EBITDA as opposed to EBITDA. Adjusted EBITDA as reported in our Form 10Q is calculated using the definition that is provided in our senior credit facility. In our case EBITDA is adjusted for two items. Facility action charges, which is a line item on our income statement and share-based compensation expense which is a component of our G&A expense. Both of these items are added back to EBITDA to get to adjusted EBITDA.

I now want to refer you to a slide on page 27 of the presentation. This slide adjusted EBITDA of Q3 FY08 to Q3 FY09 identifies and quantifies the primary factors impacting our adjusted EBITDA performance for the third quarter of fiscal ’09 as compared with the third quarter of fiscal ’08. Third quarter adjusted EBITDA increased by $577,000 versus the prior year quarter. The factors behind the increase in adjusted EBITDA can be put into two categories as shown on the slide. The first category is changes in restaurant count and the second is changes in operating results. In the changes in restaurant count category, combination of restaurant closures, the re-franchising of 118 Hardee’s restaurants and the sale of three Carl’s Junior restaurants but with a trailing 13 week period resulted in a net decrease in adjusted EBITDA of $3.2 million. These decreases in adjusted EBITDA were more than offset by a $1.1 million increase in adjusted EBITDA related to the opening of 25 new company-operated restaurants over the past year, a $1.8 million increase related to the sale of La Salsa brand last year, and $535,000 increase in adjusted EBITDA from franchise operations excluding the impact of re-franchising.

Moving now to the changes in the operating results category, our 0.9% increase in third quarter, blended company operated same-store sales provided a $200,000 increase in adjusted EBITDA for the quarter. In addition, G&A reduction and other expense reduction resulted in a $1.4 million increase in adjusted EBITDA for the quarter. These items were partially offset by $1.3 million decline in adjusted EBITDA due to a 50 basis point increase in same-store operating costs. To summarize, third quarter adjusted EBITDA grew by approximately $580,000 despite the negative impact that re-franchising had on adjusted EBITDA during the quarter. We achieved this increase by growing same-store sales, opening new company-operated restaurants, growing our franchise operations both domestically and internationally and reducing our G&A expenses.

Moving to the income statement, company-operated restaurant revenues for the third quarter of fiscal 2009 was $255.5 million, a $17.8 million decrease due to the re-franchising of 118 Hardee’s restaurants which more than offset the impact of opening 25 company-operated stores and positive same-store sales over the prior year quarter. Third quarter operating income of $17.8 million was down $1.7 million from the prior year quarter. However it must be noted that facility action charges which was $1.2 million for the quarter were about $950,000 unfavorable to the prior year quarter. Facility action charges in third quarter were primarily related to a loss on re-franchising transaction that closed during the quarter. Interest expense was $9.4 million for the third quarter, a $1.7 million increase from the prior year quarter. This increase in interest expense was attributable to the $4.9 million or $0.05 per diluted share unfavorable adjustment to mark-to-market our interest rate swap agreements versus a $1.8 million or $0.02 per diluted share expense in the prior year quarter.

Moving now to income taxes, our effective income tax rate for third quarter was 41.2%. We expect our effective tax rate for the fourth quarter of fiscal 2009 to be approximately 41%. In addition, we expect that our fiscal 2009 cash taxes will be approximately 17% of our pre tax income as a result of our income tax credit carry forwards.

I’ll now move to our balance sheet and credit facility.

As of the end of the third quarter we have reduced our debt and capital lease obligations by $36.7 million as compared to the end of fiscal 2008. Our reduction in debt includes the conversion of $15.2 million in convertible debt to equity during the third quarter. At the end of the third quarter, our total debt to adjusted EBITDA ratio or leverage ratio was 2.1, well below the 3.0 maximum leverage ratio allowed under our credit facility. Our credit facility is in place until March 2012, with very favorable terms including minimal required principal payments on our term loan through 2011 and interest rates on our term loan and revolver that could not be obtained in today’s credit markets. At the end of the third quarter we had nearly $100 million available under the revolving portion of our credit facility. In addition as of yesterday, we had approximately $5 million of cash on hand. To summarize, we have an outstanding credit facility with a syndicate of very strong banks and therefore we expect to have the resources and flexibility to navigate through the ongoing financial crisis.

I’ll now turn the call over to Andy for his closing remarks.

Andrew F. Puzder

Thanks Ted. With respect to fourth quarter and looking to the future just to summarize, during the third quarter of fiscal 2009, our same-store sales and average unit volumes improved as food and labor costs came down. Our consumer perceptions remain strong. Our adjusted EBITDA increased compared to the prior year quarter. For the first three quarters of fiscal 2009 both our adjusted EBITDA and our diluted earnings per share have increased. We also have a very favorable credit agreement with minimal payments through 2011. We have cash in the bank and about a $100 million of liquidity under our revolver. And by the way, the credit agreement is summarized in the presentation on page 22. As such we believe our company is very well positioned to succeed even during the current economic turmoil. Nonetheless certain of our shareholders have recently asked about the current status of our capital plan, the financial strength of our franchise community, how we intend to deal with consumer perceptions with respect to value and affordability of our products and the status of our international development plans. I’m going to briefly address these issues now. Earlier this year, we reduced our capital plan to account for the impact of our re-franchising program. We limited the need for remodeling and repair and maintenance expenses related to those stores. We announced an additional $46.8 million reduction in June as we scaled down our unit growth projections till fiscal 2011 given the slowdown in commercial and residential real estate construction resulting in fewer high quality sites available for us to build new units. And while in the increasing turmoil in our economy, this morning we are announcing further reduction in our unit growth projections. These reductions take our capital plan down by an additional $36.3 million through fiscal 2011.

For fiscal 2009, we plan to spend between $120 million and $130 million on capital expenditures and most of that has already been spent through the first three quarters. For next year we are reducing our projected capital spending to between $100 million and $110 million down from $130 million to $140 million at the beginning of the year. This reduction should allow us to either accumulate more cash or further reduce debt as we deem appropriate. The majority of this capital spending reduction comes from our scaling back of new company-operated unit openings for both brands. We now anticipate opening a total of 22 company-operated Carl’s Junior units in fiscal 2010 and fiscal 2011. That’s down from the 40 we announced in June and a total of 6 company operated Hardee’s unit is fiscal 2010 and fiscal 2011 and that’s versus the previous projection of 15. We currently expect to make capital expenditures of $193 million for fiscal 2010 and fiscal 2011. Our non-discretionary expenditures, which includes remodels, repairs and maintenance for existing stores and IT and distribution center spending, now account for roughly 63% of $122.2 million of our capital spending through fiscal 2010 and 11. This means a 37% or $17.8 million of the contemplated $193 million total, is discretionary spending, which we can further reduce or eliminate as we deem appropriate. As we have repeatedly stated and as our recent actions show, we will adjust the discretionary portion of our plan subject not only to the returns we achieve on each project but also as economic conditions dictate. Additionally, we are planning to spend $68.3 million over the next two years to remodel our restaurants and what we consider as a non-discretionary expenditure, we could slow or halt the remodel program should we feel the need to do so.

We’ve already remodeled 41% of our units and many of these were the ones most in need of a remodel. This means that should circumstances require, we could potentially reduce our two year capital spending, that’s for fiscal years 10 and 11, relatively quickly from $193 million to $53.9 million. Now we don’t contemplate a need for further significant reductions at this time. We do want our shareholders to know that we are aware of a potential need for further reductions and that we are willing to make reductions. Finally we still intend to fund our capital needs through operating cash flows and not through borrowing. A breakdown of our capital plan is on page 24 of the presentation. A graph showing this year’s reductions to the plan is set forth on page 25 and our capital plan is briefly discussed on page 26. Moving on to the questions about our franchisee financial strength, we believe our franchisees are generally financially secure. While the current economy presents significant challenges for franchisees, we run our business in a way that we believe promotes franchisee strength. Among other things we’ve resisted the temptation to require that franchisees to sell deeply discounted low margin products or that they remain open during unprofitable hours. On page 7 of our presentation we have set forth operating expenses for the most recently reported quarters for Carl’s Junior, Hardee’s, Carl’s Junior and Hardee’s blended, Burger King and Jack in the Box and we’ve set forth for our third quarter basically the times don’t match up perfectly but our third quarter last year and this year. So, we’ve got a year-over-year comparison.

We did not include McDonalds or Wendy’s because we were unable to make a meaningful comparison due to the way they’ve reported their operating expenses, which prevents us from showing an apples-to-apples comparison. As you can see the four brands presented had operating expense increases as a percentage of revenue versus prior year, although Carl’s Junior and Hardee’s operating expense increased far less than operating expenses at Burger King or Jack in the Box. While the numbers presented here are for company operated stores, we can see the potential impact on franchisees of how to running our business by assuming hypothetical franchisees with average unit volumes and operating expenses comparable to these franchise stores. Looking at Burger King’s numbers for example, if we assume a franchisee has a $1320000 average unit volume and 87.9% restaurant operating expenses that will leave then 12.1% to cover royalties, advertising, general and administrative expenses and profit. While rate varies somewhat between brands, we’ll assume 4% for royalties, and 6% for advertising. This leaves the franchisee with 2.1% or $27,720. Applying the same analysis to Hardee’s assuming the franchisee has a $982,000 average unit volume, and 84.7% restaurant operating expenses, the franchisee is left with 15.3% to cover royalties, advertising, G&A and profit. Assuming the same 10% for royalties and advertising, leaves the franchisee 5.3% or $52,046, a substantial increase over the hypothetical Burger King franchisee’s $27,720 despite a significantly lower average unit volume at the Hardee’s unit. Applying the same analysis and making the same assumptions using Jack in the Box’s numbers produces $58,999 which is very close to Hardee’s number despite a significant difference in average unit volumes. The comparable Carl’s Junior, Hardee’s blended number is significantly in excess of any of these numbers at $96,459 and if you look at Carl’s Junior’s number alone it is $152,900. Now I want to emphasize that all of these franchisees are hypothetical, there may not be any individual franchisees from any of these brands who actually just has the results I just talked about. My intent is merely to note the impact on the financial viability of franchisees of our focus on not only top line revenues which generate royalties but also on controlling operating expenses which produces profits, by for example, avoiding an excessive emphasis on low margin products.

I also don’t intend to spare with any brands. In fact I’m glad Burger King and Jack in the Box are the brands we could compare to because I really think they are two fine companies and two of our better competitors. They are good people there, and there are many ways to enhance franchisee’s results. My only intent here is to point out that we operate our business in a manner that we believe enhances our franchisee’s economic strength by enabling them to make more money on lower average unit volumes as we are in the process of increasing those volumes, and obviously even more money on higher average unit volumes. Ultimately, we believe that as the franchisees make money we all make money. As such, we also believe most of our franchisees are generally well-positioned to weather the current economic crisis.

Now, another question that comes up often is, what do we think about value and affordability of our products. Now, having discussed the lengthy advantages of premium versus discount products, I want to emphasize that we do understand the importance of consumer’s value and affordability perceptions in the current economic crisis. While we do not have a value menu per se, we do offer, we do deliver value and we have affordable products. We’ve been working diligently to develop additional lower priced products that will still allow us to maintain our profitability. Our Mexican brands Green and Red Burrito have been helpful in this respect as it is often easier to develop a lower-priced Mexican food product. We also understand the increased importance of couponing and new product introductions in the current economic environment. It’s important to keep in mind that the most price conscious customers are also the least loyal customers. They will go where the deals are and they know where the deals are. They are also the least profitable customers. Nonetheless, we do understand the need to attract these customers more aggressively as unemployment increases and money becomes tight. So our intent is to fill that need with Carl’s Junior and Hardee’s quality products at lower price points but with acceptable food costs. You’ll see some of these products at our menus now, such as Chili dogs and little thickburgers at Hardee’s and the spicy chicken sandwich and our big hamburger at Carl’s Junior. You’ll see more such products over the coming months. However our brands are positioned around delivering sit down restaurant quality burgers and other quality menu items at fast food prices. So, it is critical for us to maintain our very positive customer perceptions regarding the taste and quality of our food. We believe it is very difficult to retain those taste and food quality range if one is also willing to sell cheap low quality value menu fare.

So, while we will offer a few more affordable menu items as an act to becoming economic environment, it will also be great tasting ones with acceptable food costs for both us and our franchisees.

On the international side, this is a very exciting aspect I think of the company and its future. At the end of third quarter our franchisees and licensees operated 310 international units in 14 countries. This represents a net increase of 28 units from the end of fiscal 2008. Our international operations now account for 10% of our total system wide unit count. Based on our signed agreements for 100 units in China, 25 units in Pakistan and the 12 unit deal we announced Tuesday for Kazakhstan, combined with our continued growth in the Middle East, Mexico, Russia and South East Asia, we anticipate a doubling of our international unit base to more than 600 units by fiscal 2013, and we expect our international locations to account for approximately 20% of total units by 2014 or roughly five years from now. We continue to aggressively pursue additional new markets such as Canada, Brazil, Australia, Hong Kong and Taiwan as well as additional countries in Europe, Central and South America. We believe our brands continue to hold great potential internationally and that international development will be an important growth driver for the company over the coming years.

We’ll now take your questions. Thank you.

Operator

Ladies and gentlemen if you wish to ask a question press”*1”, if you wish to withdraw from the queue, press “*2”. Questions will be taken in the order received, press “*1” to begin and please standby for your first question. Our first question comes from the line of Tony Brenner with Roth Capital Markets, you may proceed.

Theodore Abajian

Hello, Tony Brenner.

Andrew F. Puzder

Good morning, Tony.

Anton Brenner – Roth Capital Partners

I’ve got a question regarding your reduced capital spending pace. In the last two months or two periods, as consumers were in systemic shock you still were able to show year-over-year same-store sales improvement. The points restaurant cost were smaller and those items which you cited is causing pressure albeit it will be lower in 2009, there is oil and there is one other item there, but cheese should be lower next year. Facility costs are going to come down. Your margins appear to be in good shape. I understand why you choose to be cautious about expansion next year but I’m curious why given the attractive real estate deals out there you are also reducing expansion two years out?

Andrew F. Puzder

Well you are right about oil and cheese by the way. Also one thing you have to keep in mind Tony is that we always try and build on sites where there is going to be some dynamic business, a site where you’ve got a lot of people going by or there is a new development going in. A lot of the places that are currently like that already have two, three fast food restaurants in them now. So, our growth plans often depend on the ability of builders and contractors to put out new developments, new housing developments, new business developments so as that retracts the number of sites that are available out there become fewer, and if they become, I’ll tell you, if they become more available and if our results continue to improve and there is excess cash available to build profitable new units, we will build them. But we do want to budget and plan, I don’t want to plan for the best and then get hit with the worst. I’d rather plan for things being bad, and then if they are wonderful I’ll take advantage of it. So, I think that’s really the way we are approaching the capital plan. This allows us to reduce debt or to retain more cash if we want to hold the cash back. So I think in this environment I think that’s a good thing and it also gives us the ability and flexibility to move quickly if sites become available and the financial circumstances of the country are turned around rapidly. So, I understand what you are saying but like I said I want to plan for the worst and if the best happens take advantage of it.

Anton Brenner – Roth Capital Partners

It is true. The number of units being remodeled, is that constant over the next several quarters or two or three?

Andrew F. Puzder

We are pretty constant. Obviously if we decide we need to pull back for some economic reason, that’s one the…yeah I do consider they are non-discretionary expenses as our units need to be remodeled as there are too many of our competitors and it is very helpful to the business and we do so but if we had to pull back, if this economic crisis deepened my only point here was that we could pull back quickly. That’s one we could stop within a week or so. But it looks like pretty constant I believe absent some other compelling circumstances.

Anton Brenner – Roth Capital Partners

So, if we look to those accelerated depreciation charges begin to be flat year-over-year, as a result of that…?

Andrew F. Puzder

Yeah, Ted why don’t you?

Theodore Abajian

Yeah, Tony that’s really a function of…each year that we remodel 120 to 150 restaurants. So, we obviously are adding whole new base of capital on to the system. So really next year will be our…we will be at about a similar pace as this year and then the following year should begin to show fewer remodels being done as we get closer to the end of the project.

Andrew F. Puzder

Yeah, the more we do the harder it is to do them because you got…you leave the ones with permitting issues and difficult landlords for last. So this year we are really accelerating the Hardee’s this year and next year. We’ve already gotten to the point of at Carl’s where it is more difficult to get the numbers done that we like to get done, and Ted is right we’ll probably hit that at Hardee’s after next year.

Anton Brenner – Roth Capital Partners

Thank you very much.

Andrew F. Puzder

Thanks Tony.

Operator

Our next question comes from the line of Conrad Lyon from Global Hunter Securities. You may proceed.

Andrew F. Puzder

Good morning, Conrad.

Conrad Lyon - Global Hunter Securities

Hey good morning, first of all I must congratulate you on a nice job on the P&L, up and down P&L this quarter. My question first of all stems on just on the Carl’s Jr company on same-store sales, franchise same-store sales. Could you perhaps add color or maybe the differential there, and the performance of what you are seeing perhaps?

Andrew F. Puzder

First of all for period 11, we don’t have franchise sales yet. They don’t report. I know our sales every day but their sales there is a lag time.

Andrew F. Puzder

Yeah.

Conrad Lyon - Global Hunter Securities

And I’d say the Carl’s and Hardee’s, the Hardee’s franchisees I believe are seeing sales that are…they are seeing same-store sales even better than the company and I think the Carl’s franchisees have been seeing sales that are either comparable or slightly…not quite as good, and Ted is that…?

Theodore Abajian

Yeah for the quarter for example the Carl’s franchisees were down 2.2% while we were up by half a point and really as we have talked about in the past part of that as we have looked at markets where we’ve remodeled a significant number of company stores that we share a market with the franchise operator and a very good franchise operator, we’ve noted that the remodel has an effect of not only improving the same-store sales results in the stores that have been remodeled but our other company stores that are in that same immediate vicinity as compared to the franchisees who are just now beginning to start remodeling. So, I think in some respects that franchisees have not had the benefits of remodels on the one hand and in some cases have been a little more aggressive in pricing than the company has.

Conrad Lyon - Global Hunter Securities

Yeah that’s it. Okay thanks.

Andrew F. Puzder

By the way our performance in those markets has really helped in convincing franchisees that they need to remodel their restaurants too.

Conrad Lyon - Global Hunter Securities

Yeah that makes sense. A question about G&A here, maybe you can help us with this, is there a level that you guys want to pursue going forward here over the next fiscal year, it gives an idea of what we should expect as far as a percent of revenues?

Theodore Abajian

Yeah, that’s a tough question, Conrad. I mean we obviously want to continue to control our G&A and bring it down where we can. We do have some investments to make especially with respect to international as Andy mentioned our excitement and success in that arena. So, we do have some upward pressure coming from international. We are continuing every day and every month we meet as an executive team and one of the topic is the G&A spending but I think with the re-franchising essentially complete at this point its becoming all the more difficult to have meaningful decreases from the current run rates.

Andrew F. Puzder

Also we don’t have the revenue decline. So, when we do have decreases you might see, you’ll see the dollars go down maybe less but the percentages will go down more but we also have the offsetting revenue decreases.

Conrad Lyon - Global Hunter Securities

Okay all right. Thank you very much.

Operator

Our next question comes from the line of Brian Moore with Wedbush Morgan. You may proceed.

Andrew F. Puzder

Good morning, Brian.

Theodore Abajian

Good morning, Brian.

Brian Moore - Wedbush Morgan Securities

Good morning how are you?

Theodore Abajian

Good.

Andrew F. Puzder

I have seen you with some drinks.

Brian Moore - Wedbush Morgan Securities

I imagine so Andy. I’ll ask my favorite question on new products and certainly you had at least one winner this year with the Prime Rib Burger and as I’m looking at this starboiled Sticks and I wish I could have perhaps two. I think in the past you talked about increasing the number of LTOs per year and so I’m wondering where you are in that process if you could speak to of the level and the days we might expect for fiscal year 2010?

Andrew F. Puzder

Yeah we try and give if you are looking at just lunch and dinner there are lots of…when you can get our marketing calendar there are like five or six levels. There is an area breakfast level, underlying product level, you might have chili burgers. You might have chili cheese fries. There is a sub product level, there is a Green Burrito, Red Burrito level but if you are just looking at the top level which is new products at lunch, dinner which is very much the general focus at both brands, Hardee’s has some significant focus on breakfast products as well. We are trying to do four new product introductions a year essentially, three or four and when I say new products the Welcome Only Burger was not a new product but it was reemphasized. So, we try four major new product promotions a year but that could go up to five. We, in the current economic circumstances as I said in my presentation, we do recognize the value of new products. It isn’t always that easy to introduce new products as I said last time, because you’ve got operations complexity. You don’t want to really mess up the restaurants and some of our competitors who are not doing so well currently got into trouble by doing too many products and doing inexpensive products. So, you don’t want to confuse your operators. You don’t want to overstress your product development people because you want them to continue to come up with these really, really great new products which our guys generally do. In fact if you look around with many of our competitors who are selling these new products are some of the products we were selling last year. So, their complexity is changing. It could still increase. I’d like to see an increase because I think in this economic environment any kind of excitement which you can generate that doesn’t relate to our giving that food away is a positive for your business.

Brian Moore - Wedbush Morgan Securities

Okay that’s pretty helpful, maybe just the final question on, is there any way you can parse out within the state of California, the regional differences, inland empire, Sacramento versus the kind of the coastal communities any diverse sales trends there, or changes in recent weeks or months?

Andrew F. Puzder

I don’t see anything dynamic. I will say it is a little hard to compare them because penetration is so strong in the Los Angeles area, Los Angeles and Orange County, and even up to Monterrey and to Santa Barbara. We have a lot of advertising in those areas. So, it is a little easier for us to maintain momentum. But I’m not saying any…let me say there has been…Riverside Counties seems to have had more lay offs than some other places in the state and we do have restaurants in the Riverside Counties and that’s about the only place where there is a substantial, I shouldn’t say substantial, a noticeable difference in performance.

Brian Moore - Wedbush Morgan Securities

Okay thanks very much. Nice quarter guys.

Andrew F. Puzder

Okay thanks, Brian.

Operator

Our next question comes from the line of Chris O’Cull with Suntrust Bank. You may proceed.

Andrew F. Puzder

Good morning Chris.

Christopher O''Cull - Suntrust Robinson Humphrey

Good morning guys. Let me follow up on the premium product question. Are you finding anywhere that the new premium products require more initial incentives to get people to try them?

Andrew F. Puzder

Whenever we introduce a premium product we always…the company does. This is not and all franchisees do this and this maybe one of the differences between the franchisees results and our results now that I think about this. We always do a coupon about a week after we introduce a product. We introduce the product for a week with no advertising. We then go on air, and we either do a coupon when we go on air or a later week we do the coupon, and that’s what we have always done and the results were….and in fact this summer, when we did the prime rib $6 burger and the prime rib thick one which is our most expensive product ever and a very successful product, we followed that path and it did very well. Now, the difference I would notice is that it did very well…it did well if the whole family headed in. It did very well for a shorter period of time than I would have expected, and there could be a number of reasons for that, maybe we weren’t making it exactly right in the restaurant. It was always good when I got it and maybe it wasn’t as popular and once people had it, we hoped it would be, but what I’m noticing is you may need to do a second charge of couponing or something to generate excitement with the product if you would like to let it last a little longer. You may need to do…I think in this environment we are finding our best results when we generate excitement, when we generate interest. There are a number of ways to do that. You can do that with a really hot commercial, you can do it with a really great product. You can even do it with price point. We are trying to avoid doing it with a price point to maintain our profitability. So, it could be the…we need to do some additional couponing and we’ve been discussing that with our marketing people and I’ll let you know how that goes.

Christopher O''Cull - Suntrust Robinson Humphrey

Yeah and that’s a very common practice I think by others in this industry. And also regarding costs I know you did some pretty exciting breakfast items? Would you tell us what benefits you are seeing from the focus of breakfast at Carl’s?

Andrew F. Puzder

When I took over the company back in calendar year 2000, in September, our breakfast sales were 9% of total sales and 50% of that 9% were hamburgers. So now, we do have a breakfast burger on the menu. So, and that’s a popular product of course and it is making me hungry just to think about it. You eat breakfast burgers when you eat next time. In an environment and if you look at that page in our presentation that shows our average unit volume increases. You can see that once dinner has been improving in Carl’s since that period of time substantially. We’ve gone from $1,079,000 average unit volume when we took over, to that $1,000,529 average unit volume now and a lot of that has been growth in lunch, dinner. Despite that fact, our breakfast sales are now 15% or 16% of our total sales. So, breakfast is, because of our emphasis on breakfast we have really increased that as a percentage of our day part. Our franchisees are also seeing improved breakfast sales. So, I would say while we haven’t quantified that publicly and maybe we should do that in our next conference call. That’s not a bad thought. We have seen a significant positive result from our emphasis on breakfast.

Christopher O''Cull - Suntrust Robinson Humphrey

And given the capacity opportunity at breakfast, is that an opportunity to offer more margin-friendly lower priced not discountable, lower priced items on that day card menu to try to drive transactions at Carl’s?

Andrew F. Puzder

We are doing that and in fact we are in touch with a few products right now that we think can…they are kind of mainstream but we are trying to do them in our unique Carl’s Jr way and we’ve opened, actually we opened two restaurants in Texas with biscuits on the menu at breakfast and that’s doing very well. So, what you are saying is absolutely correct and it’s something that our marketing guys are all over.

Christopher O''Cull - Suntrust Robinson Humphrey

Okay great and then Ted, I don’t believe California has taken another minimum wage rate increase this January.

Theodore Abajian

You are correct.

Christopher O''Cull - Suntrust Robinson Humphrey

Okay good which if anything benefits Carl’s and should we expect labor costs to remain relatively flat over the next 12 months as a percentage of sales given you are taking pricing and we are seeing moderating wage rate inflation?

Andrew F. Puzder

With operators around the phone I want to say no, it shouldn’t stay flat, it should go down. The operators are not on the phone. Certainly the things that were severe pressure on labor have backed off some.

Theodore Abajian

Yeah I’d agree and obviously the most important assumption in that is what the top line looks like but I think you are thinking about it the right way. We have got the benefit of price increases and we can continue to grow average unit volumes. There are some opportunities for leverage there.

Christopher O''Cull - Suntrust Robinson Humphrey

Okay, then my last question is and this relates to the remodel programs and I understand it is probably difficult to assess the benefit, the economic benefit of these remodel programs. But can you talk a little bit about the sales spread you are seeing from the stores that you have remodeled relative to the stores that or the rest of the system that hasn’t been remodeled yet?

Andrew F. Puzder

Yeah we are seeing…we have two remodels that we are doing basically. One is interior remodel with exterior painting basically and the signage. The other one is an exterior remodel and an interior remodel. We are getting an acceptable…I’m trying it this way because we haven’t gone public with our results on remodels and it is getting harder to go public because once you have 40% of your system remodeled it is hard to find comparable restaurants which you can look to see whether how well you are performing versus a base group. But we are seeing acceptable increases in the interior remodels with the exterior painting and very good increases in the interior and exterior remodels. I said the return is better although the exterior and the interior are more expensive, the return is better, the exterior plus the interior.

Christopher O''Cull - Suntrust Robinson Humphrey

Okay great thanks guys.

Andrew F. Puzder

Thank you, Chris.

Operator

Our next question comes from the line of Keith Siegner with Credit Suisse. You may proceed.

Keith Siegner – Credit Suisse

Andrew F. Puzder

Morning Keith.

Karen for Keith Siegner – Credit Suisse

Hi it’s actually Karen for Keith.

Andrew F. Puzder

Hi Karen.

Karen for Keith Siegner – Credit Suisse

Given the incremental agreements you’ve been asked for your international units why are you staying there for longer-term lease outlook? Is it because of the financing issues or more because of economic and the arms environment in particular regions or is there something else?

Andrew F. Puzder

First of all if you were Keith, your voice has really changed, that’s the first thing. The second thing is I don’t think we were staying for a long time there though. I have got John Dunion and John Beisler and they will share with me on the phone or somewhere else. Have you been sitting at the back?

John Dunion

We did. On the international front the commitments remain as previously disclosed. I think that our international team has suggested that to be just slightly more conservative just given the world economic situation. We don’t have any direct evidence that franchisees or licensees were billed less than we previously indicated but I think it is just a nod to the current economic situation.

Theodore Abajian

I’ll tell you this in the past three four months I’ve been to Dubai, Singapore, Beijing to visit our franchisees in those regions and at least at the time periods I was there they were showing something very, very financially viable. I mean there is a lot of energy going on there. I can’t say what has happened in the last 30 days but our guys continue to build the restaurants there and continue to be very excited about the prospects.

Karen for Keith Siegner – Credit Suisse

Good thank you.

Operator

Our next question comes from the line of Chris Sipple (ph) with Blueline Capital. You may proceed.

Andrew F. Puzder

Good morning Chris.

Chris Sipple (ph) – Blueline Capital

Hi guys it is more of a I guess a question for Ted. Can you quantify the asset disposal charges that showed up in the occupancy and the other cost lines.

Theodore Abajian

Yes. Yes I can specifically at Hardee’s there was I think in 10Q and Hardee’s discussion $413,000 charge we took specific to two restaurants that we decided to basically tear down and rebuild. So, at Hardee’s specifically that was about a 35 basis point impact probably for the company as a whole, probably 15 basis or so roughly.

Chris Sipple (ph) – Blueline Capital

And that was one time in nature?

Theodore Abajian

Well, one time certainly for those two stores and to the extent we do other rebuilds that happened to have higher asset base, you would normally hope to not have very large write off costs associated with the rebuilds, but if we have a situation where we’ve got a store that is not well located on a lot, but otherwise it is an outstanding trader for us and if we can reposition it to get better drive from those attributes or a larger restaurant that can handle more business it makes sense to go ahead and reconfigure that site. So, I think the way to think about it is obviously that particular charge is a non-cash charge at the time we take it and we are excited about the prospects of rebuilding some of these locations.

Andrew F. Puzder

Chris I’ll tell you that we have not only when we rebuild our restaurants we are currently operating, we do sometimes run into a write off because when CKE bought Hardee’s and before our management team took over there were a lot done to remodel restaurants and an unsuccessful effort to kind of bring them to Carl’s Jr and we were often faced with some of those remodel costs on restaurants. It probably should have been torn down at that time and rebuilt. But I want to say that our rebuilds have been very successful. They are very economically built up. We hate to see the write offs but you get a very good result and in fact along those lines we’ve actually, we and some of our franchisees have opened old Hardee’s that were closed, when Hardee’s was a faltering brand, and those are some of our better performing units once we’ve reopened them. So, this turn on rebuilding and opening closed Hardee’s has been very productive thing for us. Even though I’m sorry we’ve to take these write offs but it really has been good for the brand.

Chris Sipple (ph) – Blueline Capital

And the 22 Carl’s and 6 Hardee’s to be opened within the next two years I’m sorry not on the new store openings but on the remodels will this come into play again in the next two years?

Andrew F. Puzder

Yeah you mean torn down rebuilds?

Chris Sipple (ph) – Blueline Capital

Yeah tore down rebuilds or just the remodels where you have to even then going in and tear it down as opposed to remodel because it is too far…

Andrew F. Puzder

On most of the…the only way we could really get a big expense on a write off on a remodel is if we put that in ten years ago or five years ago and it deteriorated and so we are writing it off. Yeah on remodels we generally don’t have a huge, the big write offs. It has really the tear down rebuilds where you’ve got to write everything off the books, and once we do more tear down rebuilds obviously we try and do them in units that have a very low tearable basis so yes this was unusual because I don’t expect because this isn’t something that I expect to see repeated every quarter, if that’s what you are trying to find out.

Chris Sipple (ph) – Blueline Capital

Yeah okay thank you.

Operator

Our next question comes from the line of Rachel Rothman with Merrill Lynch. You may proceed.

Andrew F. Puzder

Hey Rachel.

Theodore Abajian

Good morning Rachel.

Rachel Rothman – Merrill Lynch

How are you? I am sorry if I missed this but I think I should ask you anyway. Can you, I know in the past you’ve been talking about possible explorations in beverages or to try and sell with an margin opportunity and we keep on asking about it. We have seen a number of your competitors doing it. Do you have any initiatives in place in beverage?

Andrew F. Puzder

We do but I really don’t want to talk about them because we have some very unique things going on and that we are pretty excited about and I’d rather not make them public yet. I am sure you understand why? But yes we do.

Rachel Rothman – Merrill Lynch

There maybe a sense of like what is the timing for an introduction of that thing to be? Will that be effective in 2010 event or is something that’s still in kind of a concept phase?

Andrew F. Puzder

No it’s beyond the concept phase and 2010 is a possibility for some of this assuming that it goes well in tests.

Rachel Rothman – Merrill Lynch

Okay and then would you or John talk about the prospects of depricing?

Andrew F. Puzder

Before I turn it over to John, when you want to be pricing and this is due for our chain but other chains as well, you have to look not only at beef but more particularly at brown beef. As people’s taste…as people are trying to spend less money it becomes more demand for brown beef and so I’m going to turn it over to John who can discuss this much better as I can.

John Dunion

Hi Rachel.

Rachel Rothman – Merrill Lynch

How are you, John?

John Dunion

Very good, yourself?

Rachel Rothman – Merrill Lynch

People are trading down to lower quality assuming that.

John Dunion

Yeah they probably know that they simply in the forecast for cattle next year in the US, production for slaughter will be somewhere between 1% and 2% down. So, you’ve got a reduction in supply. Then you’ve got the continual demand increase for brown beef and as Andy mentioned this is the highest price I think on a retail basis we’ve seen brown beef at over three decades and yet demand is at its greatest and so people are trading off steaks they are also moving into brown beef and really the third component is the direct impact on the fat trimmings which is the cause for the great pressure that we are under now and that’s that the US feed lives have had seven consecutive months of reduced inventories and it has put a lot of pressure on the 50% and the 65% fat trim.

Andrew F. Puzder

Yeah obviously we’ve looked at our competitor’s projections of where commodity costs are going to go next year and the two with the highest I think were Burger King and McDonalds and I think that’s because like us they use a lot of brown beef. And so there probably will be pressure on brown beef next year and another wasted year would b that but I think for example Jack in the Box which has also many burgers, they sell other products as Burger King, McDonalds or Carl’s and Hardee’s per unit, wasn’t projecting as high, and I think that’s probably right.

Rachel Rothman – Merrill Lynch

Okay much appreciated, thank you so much.

Operator

As a reminder ladies and gentlemen to ask a question press “*1”, our next question comes from the line of Josh Rosen with RLR Capital. Please proceed.

Andrew F. Puzder

Hey Josh Rosen, how are you?

Josh Rosen -- RLR Capital

How are you guys?

Theodore Abajian

Good Josh.

Josh Rosen -- RLR Capital

Congratulations on a great quarter in this environment.

Andrew F. Puzder

Thanks Josh and thank you also for your e-mail this morning.

Josh Rosen -- RLR Capital

Just wanted to ask a quick question on the CapEx budget for this year, what percent is discretionary versus non-discretionary and can you just describe the weighting to the spend for the fourth quarter and the reasons why?

Andrew F. Puzder

Well I can comment Josh a little bit but you are referring to fiscal ’09 year we are contemplating?

Josh Rosen -- RLR Capital

Yeah.

Andrew F. Puzder

We do have a little heavier weighting towards the fourth quarter in terms of our new store openings, things like that. Inevitably it tends to be the case. You get a bulge of new store openings right at the end of the year. So, that will move the weighting a little more heavily to the discretionary spending at year end and in our 10Q, by the way on page, I’m gonna grab it here, page 29 on my print out, it may be slightly different when you pull it up on line. We do break out the spending year-to-date between discretionary and non-discretionary and of the 80, something around $80 million we‘ve spent year-to-date, about $51 million of that was non-discretionary and about $32 million was discretionary and I don’t have anything in front of me for the fourth quarter but I would expect that range to be a little different in fourth quarter, a little more heavily weighted towards discretionary with a higher spending on new units as we finish our plans for this year.

Josh Rosen -- RLR Capital

Okay that’s helpful and through the first two quarters of the year you are backing discretionary CapEx within about $50 million, $60 million as free cash flow is generated, and the other question is we have been extremely impressed by the fact that in the most challenging environment that we’ve seen in along time with re-franchising headwinds, record food costs, good same-store sales but pressure by competitive factors and in every quarter of this year, you’ve been actually grown EBITDA. Can you talk a little bit just from a high level about some puts and takes in the current quarter, the fourth quarter particularly after having one period of same-store sales?

Andrew F. Puzder

Well, I’m Andy, Ted will answer to that.

Theodore Abajian

I can’t talk much about fourth quarter obviously. I don’t even have any data to look at this point frankly. I will say I think it has been an incredible balancing act throughout the year between our purchasing and marketing departments who’ve been able to do their best to manage the products that we buy and we’ve made some specification changes along the way this year that we’ve made reference to previously and then we’ve been able to take price increases steadily timely as we forecast commodity price changes which has kind of helped reduce that lag if you will between the times that the input cost goes up and the time that we are actually able to begin passing on to the consumer and all that said our operators have done a much better than normal job and I think probably the best job ever of controlling every cost that’s manageable at the restaurant level and as long as I’ve been in the business out there in this company we have made the greatest effort ever to cut overhead costs without impacting our ability to run our stores and run our business. So, there is no one item I can point to you other than just the careful management of frankly every line item on the P&L and I don’t know Andy if you have anything that you want to add.

Andrew F. Puzder

No I think that’s the mood we are in and I think that’s the mood every business in the country is in as we go through this kind of crisis period. It is the somehow the same mood general Motors and Chrysler were in. Of course they have got problems with the unions which we don’t have. It is look guys we have faced this battle every day and we talk, we meet. We do everything I mean everybody is out there in the restaurants and it is something that we’ll continue to fight on a day-to-day basis, in good times and bad times and we fight a little harder now. So, I can’t really give you any perspective on fourth quarter. There are some factors beyond our control and one of them is weather. Last year we had a bad January weather wise as you may recall and I am hoping all goes right and this year things will warm up. I don’t say that