Denny's Corporation

Thank you, Susan. Good afternoon, and thank you for joining us for Denny's Fourth Quarter and Full Year 2011 Investor Conference Call.

This call is being broadcast simultaneously over the Internet. With me today from management are John Miller, Denny's President and Chief Executive Officer; and Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer.

John will portend today's call with his introductory comments. After that, Mark will provide a financial review of our fourth quarter and full year results.

I will conclude the call with a review of Denny's 2012 full year guidance.

As a reminder, we will be filing the 10-K by the due date of March 12.

Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends and any outlook on earnings provided on this call.

Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10-K for the year ended December 29, 2010, and in any subsequent quarterly reports on Form 10-Q.

With that, I will now turn the call over to John Miller, Denny's President and CEO.

Thank you, Whit. Good afternoon, everyone.

Well, I started at Denny's a little more than 12 months ago. I've since gained a thorough understanding of the Denny's brand and our customers, in addition to a more thorough understanding of the family dining segment, which is new to me.

I've spent as much time on the road as possible, getting to know members of our entire organization, including franchisees, field leaders, restaurant employees and a number of our key vendors as well.

first, is executing against America’s Diner is Always Open positioning, which provides the promise of everyday value, crave-able, indulgent items served in a come-as-you-are, friendly and inviting atmosphere; second, continuing the growth of the Denny's brand through traditional and non-traditional venues, both domestically and internationally; and third, growing earnings and free cash flow through our franchise-focused business model. This enables us to continue on our steady track record of strengthening our balance sheet, supporting franchise growth and returning value to our shareholders.

We've made significant improvements in all of these areas, which help make 2011 a successful year for Denny's.

We are pleased to report that we finished 2011 with our third consecutive quarter of both positive franchise and company same-store sales, even in the face of a challenging economic environment for our customers. Most notably, we achieved positive same-store sales and guest counts for the full year, which is the first time that all of our same-store metrics have been positive since 2004.

We now have 4, going on 5, quarters under our belt with our America’s Diner Always Open brand positioning efforts. With this as a strong foundation and framework, we believe we are at the beginning stages of effectively broadening our consumer base to guest craving their diner favorites versus the historical or narrowly focused breakfast-all-day-focused platform.

In addition, we are building frequency among our tried and true loyal customers, looking to enjoy interesting new offers on a more regular basis. Our success is being achieved through consistent brand execution, leveraging our 3 primary marketing strategies, delivering everyday affordability, creating compelling Limited Time Only product offerings and driving sales beyond breakfast.

We will continue to refine and evolve our marketing efforts to the needs of our guest with each passing quarter.

During the fourth quarter, we had significant new product news featuring our Let's Get Cheesy limited time offer campaign in October and our final marketing module of the year, the Taste of the Holidays. We are focused on offering our guest motivating LTO products for all dayparts, while combining affordable starting prices with compelling diner add-on opportunities.

Even with all the new product news, our guests continue to desire value, and our everyday affordability strategy continues to work hard for us. This is primarily driven by our $2/$4/$6/$8 Value Menu, which continues to mix in the high-teens, although it did decrease slightly from the third quarter as guests traded to the holiday Build Your Own Slam, a compelling value offer in it of itself.

Denny's promise of everyday value has been a key part of our improvement in guest traffic, and we continue to leverage this tool with new product news, supported and emphasized through broadcast and other forms of media. In 2012, we will continue to build on the improvements we have made, while listening to our consumers along the way.

To that end, we have planned 5 new marketing modules for the year, which will continue to focus on everyday affordability, premium Limited Time Only offerings and new menu products that include both breakfast and beyond breakfast diner classics, leveraging our strength as America's favorite diner.

Since our customers are watching their waistlines and their wallets with extra scrutiny this time of year, our first campaign of 2012, which launched in early January, called even more attention to our new Fit Fare options that were introduced last June, as well as the timely emphasis on our $2/$4/$6/$8 Everyday Value Menu.

Consistent with our diner theme, a whole line of our Sizzlin' Skillets were introduced as our Limited Time Only offers. In addition, our new core menu contains new classic dining -- diner offerings, such as our slow-cooked pot roast, spaghetti and meatballs, a bacon lover's BLT and a Fit Fare veggie skillet.

The $2/$4/$6/$8 Value Menu was updated and now includes a chicken spinach salad for $6 and a warm s'mores cookie skillet à la mode for $4. As you can see, we'll continue to offer new products to our customers according to their interest and in keeping within the heritage of an American diner.

Turning to unit growth. We opened 14 franchise units in the fourth quarter, including the final Flying J conversion site.

We opened 62 units in 2011 and 203 units in the last 2 years, with the net system growth of 27 units in 2011 and 134 units in the last 2 years. The Flying J conversion program, which added 123 units to the system, was a tremendous opportunity for the Denny's brand and to our franchisees.

It provided a significant increase to our total revenues and profitability. We continue to be very excited about our partnership with Pilot Flying J Travel Centers and anticipate continued travel center development through either new Pilot and Flying J openings, potential future Pilot acquisitions or new franchise growth reconversions of restaurants at mom-and-pop travel centers.

We are placing more time and resources toward building our unit development pipeline in the U.S. and abroad and continue to work closely with our franchisees and licensing partners to grow the Denny's brand through traditional and non-traditional venues.

We are quite pleased with the 11 university units that we have opened since the beginning of 2010 and the attractiveness of the Denny's brand in new distribution points. We've expanded our team to help us further penetrate these non-traditional market opportunities with our existing licensees, Compass, Sodexo and Aramark, while developing new partnerships for potential units on military bases and airports.

We believe that the Denny's brand can do very well outside the United States as evidenced by the success of our 60 units in Canada and 2 units opened with our newest partners in Honduras. At the end of 2011, we signed 2 smaller development deals to open up a total of 15 units in Mexico and the Dominican Republic and are looking forward to opening our first locations in those new opportunities in 2012.

Since we are taking a franchise-focused approach outside the United States, we are working diligently to find the right, well-capitalized and experienced international partners that can grow quickly.

California, Texas, Florida and Arizona. The loan pool allows us to support franchisee growth in new and under-penetrated geographies without lending to them directly.

We have agreed to backstop up to 12% of the loans under the program to facilitate growth in these areas. This loan program is made even more attractive in combination with our incentives towards multi-unit development, which includes lower front-end fees, lower royalties, as well as assistance in support for site development.

As a result, Denny's is recognized as one of the most attractive franchising opportunities in the United States as noted by our top-10 ranking on Entrepreneur Magazine's Franchise 500 list. We believe we can continue to attract new franchisees to the system, while also encouraging our existing franchisees to grow the brand.

Although the restaurant industry has faced challenging times over the past few years, with headwinds from a difficult consumer economic environment, inflationary pressures and intense competition, Denny's has been able to grow sales, profitability and free cash flow. This has enabled us to continue making investments in the brand, while strengthening our balance sheet through debt repayments and returning cash to our shareholders through our share repurchase program.

My first 12 months has confirmed what I already knew to be true. Denny's is a great brand, with an energized group of franchisees who have talented and dedicated employees and a local and a loyal customer base from which I'm confident we can continue to expand.

We remain focused on differentiating Denny's in a crowded marketplace and executing successfully on our strategies to further strengthen our position as America's favorite diner in 2012 and beyond.

With that, I'll turn the call over to Mark Wolfinger, Denny's Chief Financial Officer and Chief Administrative Officer.

Thank you, John, and good afternoon, everyone. Our fourth quarter performance was highlighted by positive same-store sales at both franchise and company units, with an 86% increase in adjusted income before taxes and a $17.7 million increase in free cash flow.

Driven by our franchise-focused business model, our growing profitability and free cash flow has enabled us to further strengthen our balance sheet through debt repayments, while also returning value to shareholders through share repurchases.

In the fourth quarter, Denny's opened 14 new franchise units, closed 6 franchise units and sold 17 company-owned units to franchisees, leading to net system growth of positive 8 units this quarter. In the fourth quarter, system-wide same-store sales increased to 1.6%.

Same-store sales at franchised restaurants increased to 1.8%, and same-store sales at company restaurants increased 1%. This is the third consecutive quarter that both company and franchise same-store sales have been positive.

Looking at the details for company sales performance. Guest check average increased by 0.3%.

The higher guest check average was driven by a core menu price increase implemented in June, partially offset by an increase in same -- in store level discounts compared to the prior year quarter. In the fourth quarter, company same-store guest counts increased 0.7%, contributing to a 0.5% 2-year same-store guest count increase, which demonstrates continued same-store improvement beyond what was generated by the relative improvement in weather compared to the prior year quarter.

Denny's total operating revenue, including company restaurant sales and franchise revenue, decreased $5.7 million compared to the prior year quarter, primarily driven by a decline in company restaurant sales in the quarter. The decline in company restaurant sales reflects the continuing impact of our Franchise Growth Initiative, or FGI, as company sales decreased $5.3 million or 5%, primarily due to 17 fewer equivalent company restaurants compared with the same period last year.

This decrease was partially offset by the 1% increase in same-store sales for the quarter.

I'll now turn to the quarterly operating margin table. The fourth quarter company restaurant operating margin of 12.8% represents a 0.5 percentage point increase compared to the prior year quarter and was primarily impacted by the following items.

Product costs increased 0.1 percentage point to 25.1% of sales, primarily due to the impact of increased commodity costs. Payroll and benefit costs decreased to 1.5 percentage points to 40.4% of sales due to improved scheduling of restaurant staff, selling at lower performing units through FGI and a $500,000 or 0.5 percentage point of unfavorable workers' compensation claims development in the prior year period.

Occupancy costs increased 0.6 percentage points to 6.9% of sales, primarily due to favorable general liability claims and property tax accruals in the prior year quarter. Other operating costs increased 0.3 percentage points to 14.8% of sales, driven by a 0.6 percentage point increase in marketing expense accruals and a 0.5 percentage point increase in legal settlement expenses related to favorable claims development in the prior year quarter.

These increases were partially offset by the reduction in new store opening expenses resulting from opening 14 company-owned units in the prior year quarter.

In summary, the gross profit from our company operations decreased by $200,000 on a sales decline of $5.3 million. For the fourth quarter of 2011, Denny's reported franchise and license revenue of $31.8 million compared with $32.2 million in the prior year quarter.

The $400,000 decrease in franchise revenue was primarily driven by a $1.7 million decrease in initial and other fee revenue associated with opening 36 Flying J conversion units in the prior year quarter, offset by $1 million increase in royalties from 61 additional franchise equivalent units and the effects of higher same-store sales in the current year quarter.

Franchise operating margin increased $200,000 to $20.9 million in the fourth quarter. This increase was primarily driven by the $1 million increase in royalties, a $600,000 increase in occupancy margin and a $300,000 decrease on direct franchise costs, primarily offset by a $1.7 million decrease in initial and other fee revenue.

Franchise operating margin as a percent of franchise and license revenue of 65.5% represents a 1.2 percentage point increase compared to the prior year quarter. The franchise side of our business contributed 62% of the total operating margin in the fourth quarter, which is $8.3 million more than our company restaurants.

The income shift to a franchise-focused business model allows us to increase the predictability of our earnings.

For the quarter, adjusted EBITDA margin as a percentage of total operating revenue was 15.3%, an increase of 4.0 percentage points compared to the prior year quarter. Total general and administrative expenses for the fourth quarter decreased $1.3 million from the prior year quarter.

General and administrative expenses, excluding share-based compensation, decreased to $1.5 million, primarily due to a decrease in performance-based compensation accruals relative to the prior year period.

Depreciation and amortization expense declined by $1.1 million compared with the prior year quarter, primarily as a result of the sale of company-owned restaurants over the past 2 years. Net operating gains, losses and other charges, which reflect restructuring charges, exit costs, impairment charges and gains or losses in the sale of assets decreased to $4.6 million compared to the prior year quarter, primarily driven by the lower gains in the sales of assets.

These gains, the gains on sale of assets were $3.8 million lower due to a decrease in gains associated with the sale of company-owned units to franchisees and the sale of real estate in the prior year quarter.

We sold 5 company-owned Flying J conversion units to franchisees in the fourth quarter. All told, we have sold 6 of the 29 Flying J conversion units opened by the company to franchisees.

Impairment charges were $1.5 million higher than the prior year quarter, primarily driven by the 2 fast casual café R&D units opened in the fourth quarter of the prior year.

Operating income for the fourth quarter decreased $2.3 million from the prior year quarter to $11.8 million, primarily due to the decrease in net operating gains, losses and other charges as mentioned previously. Below operating income, interest expense for the fourth quarter decreased $1.8 million or 28% to $4.7 million as a result of the lower interest rates under our repriced credit facility and a $41.5 million reduction in total gross debt over the last 12 months.

In the fourth quarter, we recorded an $89 million net deferred tax benefit from the release of a substantial portion of the valuation allowance on certain deferred tax assets. This release is primarily based on our improved historical and projected pretax income.

We paid $1.1 million in cash taxes in 2011, which were reduced by the utilization of certain net operating loss carryforwards. We will continue to utilize additional net operating losses in income tax credit carryforwards to eliminate the majority of our cash taxes for the next several years.

We believe the best measure of the ongoing earnings of our business is adjusted income before taxes. In the fourth quarter, adjusted income before taxes was $9.5 million, an 86% year-over-year increase.

And for the full year, adjusted income before taxes increased 37% to $37.3 million from $27.3 million in 2010.

Moving on to capital expenditures. Our full year cash capital spending was $16.1 million, a decrease of $11.3 million compared to the prior year.

This decrease was primarily driven by lower new construction expenditures reflecting the impact of opening 24 company-owned units in the prior year. In addition, we completed 49 facility refreshers at company-owned units in the prior year.

Our franchisees refreshed or remodeled 200 units in 2011, completing our facility refresh program. More than 60% of our system is on the current scheme, including almost 250 new units opened in the last 3 years.

Starting in 2012, we will return to our traditional 7-year remodel cycle and refocus on full-scale remodels. The transition to a franchise-focused business model and improved operating performance has allowed us to generate a significant improvement of free cash flow.

We generated $12.7 million of free cash flow in the fourth quarter, an increase of $17.7 million compared to the prior year quarter. And for the full year, our free cash flow more than doubled, as we generated $47.6 million in 2011 compared to $22.4 million in 2010.

The free cash flow has allowed us to continue to strengthen our balance sheet as we repaid $12 million in term loan debt in the fourth quarter, bringing our total debt repayment for the year to $42 million. We reduced total debt by $331 million or 60% since early 2006 and now have outstanding term loan debt of $198 million.

Our total debt to adjusted EBITDA ratio is now 2.69x, which is almost a full term lower from the 3.57x ratio at the end of 2010. By achieving the 2.75x threshold in our debt agreement, we have increased the flexibility for our use of cash.

In addition to repaying debt, we have been able to return value to shareholders through share repurchases. We repurchased 634,000 shares in the fourth quarter, bringing the total shares repurchased under the 6 million shares stock purchase program to 3.7 million shares.

We maximized our share repurchase availability in 2011 and purchased 5.7 million shares. When you include the 3 million shares stock repurchase program approved in November 2010 and completed in the first quarter of 2011, we have repurchased a total of 6.7 million shares in the last 5 quarters.

We will continue to balance the use of our free cash flow between debt repayment and share repurchases, as we seek to both make us a stronger franchisor and return value to our shareholders. In the next 2 years, we are targeting to move our total debt ratio below the 2.25x threshold in our debt agreement, which will ultimately allow us to maximize our cash use options as permitted in the agreement.

That wraps up my review of our fourth quarter and full year results. I'll now turn the call over to Whit, who will speak to our 2012 guidance.

Thank you, Mark, and good afternoon, everyone. I would like to take a few minutes to expand upon the business outlook section in today's press release.

The following estimates for full year 2012 are based on 2011 results and management's expectations at this time. We expect full year franchising company restaurant same-store sales to perform between flat and positive 2%.

We remain cautious of the seemingly choppy economic recovery and its impact on our customers. Regardless, we believe that we have the right strategies in place to build on the momentum we established in 2011.

We expect commodity inflation to continue to impact our business in 2012. In 2011, commodity inflation was a little more than 5%, with significant increases in cooking oils, coffee, orange juice, pork and eggs.

Based on our current thinking, we believe that commodity cost pressure will be in the 3% to 5% range this year. As a result of the commodity increases we are seeing, we took a loss of 1% price increase with our new January core menu.

This is an addition to the loss of 1% price increase we took in June of last year when we launched our new core menu. We expect to open between 45 and 50 new restaurants in 2012, which is a 15% to 28% increase compared to our 2011 new unit openings without the 23 Flying J conversion units.

Almost all of these units will be opened by our franchisees and licensing partners. We expect more than 2/3 of our franchise unit openings in 2012 will come from our pipeline of 217 domestic unit commitments.

The remaining portion will come from non-traditional sites, international locations and travel centers.

We are currently expecting to open one more company-owned unit this year as we have secured space in the Neonopolis development in downtown Las Vegas. As many of you know, Denny's does extremely well in the Las Vegas Strip, where we currently have 5 company-owned units that generate some of the highest unit sales volumes in the entire system.

We currently expect to achieve net system unit growth of at least 10 units in 2012 as we anticipate that between 30 and 35 system units will close this year. This is around 2% of the system and is consistent with what we have seen over the last 5 years.

Our adjusted income before taxes, adjusted EBITDA and free cash flow guidance is presented based on metrics, which we detail in our earnings releases. Adjusted income before taxes is our internal profitability metric, which we believe most closely represents our ongoing business income.

We also utilized adjusted EBITDA as it is the metric that most closely aligns with the calculation of our debt covenants under our credit facility. The free cash flow metric reflects the positive impact of our franchise-focused business model.

Please refer to the historical reconciliation of these metrics to net income in today's press release.

Our adjusted EBITDA estimate for 2012 is $80 million to $84 million. It is important to note that the FGI refranchising program that Denny's began in 2007 has contributed to our rising adjusted income but has placed downward pressure on EBITDA for the past 4 years.

We anticipate completing this program by the end of 2012 by selling 25 to 30 units to franchisees as we continue to streamline our company geographic footprint and stimulate new unit development.

Our adjusted income before taxes is expected to be between $41 million and $45 million, which is an annual growth of 10% to 20%. Key contributors to this increase include lower interest expense, positive impact from our FGI program and increase in same-store sales and non-incurring investment costs associated with company-owned Flying J conversions.

We expect net interest expense to decline in 2012 and be between $16 million and $17 million, with net cash interest expense to be between $13 million and $14 million. This decrease is driven by the $42 million of term loan repayment in 2011 and the repricing of our credit facility which occurred in the first quarter of 2011.

Turning to capital expenditures. In 2011, our cash capital expenditure was $16.1 million, which included $6 million spent on the company-owned Flying J conversions.

Our estimate for 2012 is between $15 million and $16 million, which includes the cost of building the new company-owned unit in downtown Las Vegas, and additional remodel capital as we get back into our full remodel cycle.

Since we released a substantial portion of the valuation allowance on certain deferred tax assets, we currently expect to have an effective tax rate between 30% and 35% in 2012. As Mark mentioned, we will continue to benefit from certain deferred tax assets and expect our cash taxes to be between $2 million and $4 million in 2012.

Based on these components, our free cash flow guidance is $48 million to $52 million, which reflects a modest year-over-year increase compared to the $47.6 million of free cash flow we generated in 2011.

That wraps up our guidance commentary. I will now turn the call over to the operator to begin the Q&A portion of our call.

My question is on the international front. I know you've talked about the opportunity there.

I was wondering if you're actively recruiting franchisees and what we should expect to see in terms of the pipeline there, and whether you have any additional SG&A cost as a result of that kind of embedded in your 2012 plan?

Mike, this is John. Good to hear from you.

We do have -- we have, as we said in the comments that we've made, stepped up our investment. We believe there's tremendous potential.

And to get rocking, we want to make sure -- and there is considerable interest, but we want to make sure we've selected the right partners with the right capital, the right infrastructure, the right sort of will to do the things to succeed in the restaurant business. And so we are -- I'd say we've stepped up our efforts to secure a more solid pipeline and future for international development for Denny's.

As far as the pipeline itself, I think I'll leave that to Whit or Mark to speak specifically about the development pipeline and how that's coming along.

So Mike, we have -- currently have 39 unit commitments in our international pipeline, 10 of which have been opened to date. And that includes, we mentioned, the new smaller agreements we signed for additional units in Mexico, Dominican Republic.

It also includes units in -- additional units in Central America and Canada, as well.

Wonder if you could talk about the success of promotional strategies throughout the holidays, your LTOs, the Arthur's Christmas promotion, just how those perform relative to expectations internally there? And then on the back of that, if you would just kind of touch on the success of LTOs as they've gone quarter-to-quarter?

It feels like they've been building quarter-to-quarter as far as the success goes. Just wondering if you could touch on those couple of points.

Will, this is John. Great question and I think, indeed, your instincts are right.

There's a couple of things that have happened. The diner positioning seems to have paved the way for a different type of consumer response.

And so as the years unfolded, you'll recall, just to refresh all other listeners, we started out with the $2/$4/$6/$8 value proposition first quarter of 2011. We built on that with Baconalia!

and where we were a little bit more daring to move -- to clearly stay with our breakfast platform but to move away from breakfast and have more daring beyond breakfast initiatives. And then by the time the third module rolled around the Tour of America, we had some very solid breakfast offering.

We had a Midwestern meat and potato sandwich and a number -- and shakes, smoothies, burgers, core menu items, diner items. They started to move up, and we started to see some mixed migration, lunch, dinner, late-night along those lines.

Then Let's Get Cheesy seemed to really cap it all, where in a value back-to-school time of year, we expected $2/$4/$6/$8 to dial up a little bit. So we obviously kept it in our media mix, but dialed it back just such.

And we saw add-on sales in what we say, our diner-like items really take off in a much more substantial way than they had before. And then in going into the holidays, I think people take a break and they go back to traditional, and we sold a lot of Build Your Own Slams and turkey dinners.

So the -- I would say that from our franchise community to the consumer, people are getting it. We're starting to get a lot of blog.

The customer comments are qualified with, "Hey, I've been a Denny's fan for years. I love your diner positioning," or making suggestions on what goes on a diner menu.

So we're getting a lot of interest from consumers along these lines, and each successive module is gaining some traction.

I really like what's happening with the capital structure. And I just want to ask a question or 2 just what's happening with free cash flow or how we really should expect it to flow over the next couple of years here?

So CapEx looks like it's stabilizing up to $16 million run rate. And I think -- I'm not sure if it was Mark or Whit who said that you're reverting back to kind of your traditional remodel program, which I might suspect that means we'll see a more consistent type of CapEx spending going forward.

That being said, you're still getting some nice incremental increases in free cash flow. And so therein lies my question, is kind of what should we expect in free cash flow increases going forward?

Is it just kind of mimicking along with some more scale with the FGI program knowing that it's winding down, but just more so along the line of how sales progress?

Conrad, it's Mark. On the free cash flow piece, I think it's interesting.

When you look at the components of our free cash flow, obviously, as you just mentioned, FGI is winding down the sale of company units. So obviously, the organic part of free cash flow is sort of coming through now.

As it relates to CapEx and your question around CapEx, obviously, we spent in the $16 million range in 2011, and Whit provided the guidance sort of in that same type of range again. I think it was $15 million, $16 million.

So I think, as we've said, longer-term as we transition to this franchise model, that the CapEx portion of that model's sort of in that, call it, mid-teens type of category. And as far as the use of the free cash flow, obviously, I made some comments in my script about the continued focus on debt reduction and basically going past or coming through to that 2.25% type of leverage from where we are today.

We were 2.69% at the end of 2011. I mentioned that in the next 2 years, we're targeting to be under the 2.25% leverage fees.

But at the same time, we're going to continue to focus on using a piece of our cash as it relates to the stockholder's side and continue to focus on share repurchase.

Got you, okay. Just one follow-up question on the development schedule with the units.

Any sense -- I know it's going to be, I think, probably a different -- all sorts of different type of units, but is there a sense of like the average square footage of what gets developed by the franchisees?

Sorry. Conrad, are you asking about within the U.S.?

Yes, sorry.

Yes, I think we're continuing to see -- I think as we look at it, there's a couple of different components in development. If you were going to go on campus, you'd see all kinds of different square footage amounts on campus again coming down to sort of the space that's available from the universities at that point in time and different operating models on campus.

As it relates to what we have seen in the domestic U.S., when you look at what sort of the last year or so has been from a development standpoint, a couple of comments: one, more conversions of existing real estate space; and probably from a square footage standpoint, probably sort in the mid-4s range, so call it low 4,000 square feet up to sort of 4,500, 4,600 square feet, 150-seat type of restaurants. And we continue to see opportunities there on the domestic sort of traditional development front along those lines.

Got you. Last question, just curious how big that Vegas restaurant you guys are building is going to be?

It's bigger than that. Yes.

I didn't mean to be -- it's an odd shape and an odd opportunity. And so it creates extraordinary challenges, and it costs above the normal per square foot cost.

But it's one of those opportunities to really add some great exposure in Vegas and to provide this international window to the United States. It's extraordinary, and it helps our brand in a number of ways.

It's even been suggested to our marketing department, the whole thing should be in the ad fund, but I don't think that was a popular view for the marketing department. But it's about, let's say, 25% larger to 1/3 larger, somewhere in that range.

I mean, while we have seen Vegas and -- this is Mark, you've heard us say this before to John's comments is that as it comes to the Vegas area, the Vegas Strip, certainly, from a company-operated performance standpoint, the volumes are very strong in the Vegas Strip. And so from the standpoint of seating capacity and square footage, we obviously do very well and can leverage our square footage in that area quite strongly.

I'm wondering, you mentioned about you were able to avoid the cash taxes. I'm wondering what your best estimate is as to when you expect cash taxes to significantly ramp up?

Sam, it's Mark. There was a comment, I think, I briefly made in my script when I talked about the deferred tax asset, and I think Whit certainly gave some specific guidance on cash taxes for 2012.

But right now, we're anticipating that for the next several years, we don't anticipate paying a high amount of cash taxes.

So you're just not comfortable giving a year when you think that will change?

Again, I think we're comfortable with what I said in my script and that's the next several years, so not without a specific time frame attached to that.

Okay, fair enough. And one other question, I was surprised with your pace of refranchising activity in the quarter.

And I'm wondering, if you can get good prices for company-owned restaurants, might you go beyond your 90-10 goal, which you're almost at now?

The 90-10 goal, obviously, is a number we've guided to for awhile. By the end of this 2012, we expect to be there.

And then on a go-forward basis in that mid-teen CapEx range, you would expect low unit counts for company development, so it sort of would naturally somewhere out there to go beyond that number. So there's no particular reason to target a number beyond that when you look at the core of company restaurants remaining there, higher sales, tough trade areas.

And we think with the franchisee-franchisor relationship, there's tremendous benefit to having, not just the toe in the water, but skin in the game, so to speak, as an operator in the system. So I would say, at this stage, there's not a beneficial reason to go much beyond what we've currently guided.

Right. I would agree with John's comments on that, Sam.

And again, I think, that 90-10 split is going to move around a little bit based on -- obviously, as the development -- new unit development takes place, primarily in the franchise side of the business but certainly at the targeted area, again to John's point, by the end of -- at 2012 time frame.

Just a couple of kind of housekeeping questions for me. First, when do you get a 53rd week?

2014.

Okay. Second, do you have the exact numbers -- I know somebody went through it on the script, but the breakdown of the operating gains, losses and other just on impairments and what your gains...

Yes. So yes, Mark said -- this is Whit.

So for the impairment, it was $1.8 million in the quarter. The restructuring and exit cost portion was actually a gain of $125,000.

And then the gain on the sale of assets portion was a gain of $446,000.

Perfect. And then last question, just can you give us some update on commodities contracts on where you guys stand today?

Yes, Mark. We mentioned the 3% to 5% range.

So before the -- within that range for 2012, we are 50% contracted for the year. We also don't expect to lock into more than 75% of our needs for this year.

Really for us, kind of pork, ground beef and dairy, which make up more than 30% of our market basket on a combined basis, are the biggest areas of exposure for us right now. And we don't expect to be able to lock into pork, which we was something we were able to do for a portion of last year's needs.

So obviously, we're hopeful, given the volatility that we've been able -- we would like to see the lower end of that range, if not below. But given all this volatility and uncertainty in the markets, we remain pretty cautious around commodities, which is why we went ahead and took a modest amount of pricing with our January menu launch.

Thank you, Susan. I'd like to thank everyone for joining us on the fourth quarter call today.

We look forward to our next earnings call to discuss our first quarter of 2012 results. Thank you and have a great evening.