Yum! Brands, Inc. (YUM) Q2 2011 Earnings Report, Transcript and Summary

Good morning. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Yum! Brands Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn today's conference over to Tim Jerzyk, Senior Vice President, Investor Relations. Sir, you may begin your conference.

Thank you, Ashley. Good morning, everyone, and thanks for joining us today. This call is being recorded and will be available for playback. We are broadcasting the conference call via our website, www.yum.com. Please be advised that if you ask a question, it will be included in both our live conference and in any future use of the recording. I would also like to remind you that this conference call includes forward-looking statements. Forward-looking statements are subject to future events and uncertainties, and that could cause our actual results to differ materially from these statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earning release last night and the risk factors included in our filings with the SEC. In addition, please refer to the Investors section of the Yum! Brands website to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. Finally, we would like you to be aware of a few upcoming Yum! investor events. Wednesday, August 3, we will host a YRI, Yum! Restaurants International Investor Conference in Dallas, Texas. Thursday, September 8, we will host our China Investor Conference in Shanghai. Both of these events are close to being closed out in terms of the number of attendees, so please get to us quickly. Tuesday, October 4, third quarter earnings will be released. And finally, on our call today, you will hear from David Novak, Chairman and CEO; and Rick Carucci, our CFO. Following remarks from both, we will take your questions. And now I'll turn the call over to David Novak.

Thank you, Tim, and good morning, everyone. I'm pleased to report we raised our full year EPS growth forecast to at least 12% from our initial guidance of at least 10%. We take satisfaction that 2011 will mark our 10th consecutive year of double-digit EPS growth. Our China business continues to deliver dynasty-like performance as our category leading brands just keep getting stronger. Yum! Restaurants International continues to capitalize on explosive emerging-market growth and produced solid returns. And while we would normally be thrilled with this fantastic international performance, our obviously very disappointing year-to-date U.S. results have frankly taken some of the luster away from what otherwise would be a great year. It's time like these that make us appreciate the consistent EPS performance our global portfolio generates. Our International business is clearly the growth engine that drives our company. Through the first half of this year, nearly 75% of our operating profit has come from China and Yum! Restaurants International. Our development pipeline is as strong as ever, and we continue to expect about 1,400 new units outside the United States this year. There is no question our China business is thriving and Yum! Restaurants International is producing solid gains. The good news is our International businesses are delivering these results while investing for strong growth ahead. We also expect U.S. performance to improve in the fourth quarter. Now let me take you through each of our businesses. Let's start with China, where our strategy is to build leading brands in every significant category. Based on our second quarter results, I think it's safe to say we are making it happen. Operating profit grew 25% prior to foreign currency translation benefit, as same-store sales jumped an impressive 18%. Combined with a 13% increase in units, system sales grew 28% for the quarter. Same-store transactions increased 21%. This exceptional increase in traffic gives us even more confidence that our category leading brands are stronger than ever and well positioned for sustained profitable growth ahead. Our KFC China business is on a roll. Same-store sales grew 17% in the quarter and we continue to make good progress, growing average unit volumes with 24-hour operations, delivery service and building a solid breakfast business. We have breakfast in nearly all our KFCs in China, generating 13% of total transactions. We have delivery service in 1,600 restaurants, and 24-hour operations now on over 1,300 units. While there is tremendous excitement around these initiatives, we also know we're in the very early days. We are building a solid foundation for leveraging our assets, which will provide tremendous growth opportunities going forward for increased sales and even higher unit volumes. The new news is that we built upon the strength of our brands and are now providing even better everyday value, making our brands and competitive positions even stronger. We continued our RMB 6 breakfast, which is under $1, from the first quarter, and began offering a strong value option at lunch, including a RMB 15 offer for weekday lunch, which is a little over $2. These value initiatives are unique in the market as we can offer variety like vegetables, rice and soup as side dishes, in addition to popular KFC staples like the chicken Zinger burger. We're extremely pleased that in an environment where the consumer is keenly aware of inflation, we continue to drive even more customers into our Chinese restaurants. Importantly, we continue to aggressively expand our KFC brand and we've opened 157 units in the first half of this year. We now have nearly 3,400 KFCs in China, and we're growing more than twice as fast as our nearest competitor. Now on to Pizza Hut. Pizza Hut Casual Dining in China is absolutely on fire. We had another fantastic quarter delivering 22% same-store sales growth. This marks our sixth consecutive quarter of double-digit same-store sales growth at Pizza Hut Casual Dining. Leveraging an expanded-variety platform and a semiannual menu refresh, we continue to drive results. We have 544 restaurants in over 140 cities, and we opened 17 new locations in the second quarter. Pizza Hut is finding success as it expands deeper into lower-tier cities. It is the #1 western casual dining brand in China, and now in position to expand even more rapidly. Here again, our variety with everyday value has never been stronger, as we embrace our "eat like a rich man, eat like a poor man" strategy with compelling entrée prices and half-off daily specials. We also continue to make progress developing our emerging brands. Pizza Hut Home Service now has 121 units in 11 cities and is generating steady margin improvement. East Dawning, our Chinese fast food brand, has 21 units in 4 cities and continues to improve unit economics with the goal of developing into a successful national brand. In summary, our China business continues to be the top growth story, not only in our business, but in the entire restaurant category. Heads up to Sam Su and his world-class team who are clearly delivering dynasty-like performance at each of our brands. Next, Yum! Restaurants International, where our strategy is to drive aggressive international expansion and build strong brands everywhere. Yum! Restaurants International produced solid results in the quarter, with system-sales growth of 6% and operating-profit growth of 11% prior to the benefit of foreign currency translation. Same-store sales increased 2% and restaurant margin improved 2 full percentage points. New-unit development is a key driver of growth for this business, and continued with 142 new units this quarter. Nearly 90% of these units were opened by our strong network of franchisees, and we expect to open about 900 new units at Yum! Restaurants International for the full year. We continue to produce strong results in emerging markets. System sales in emerging markets grew 11% in the quarter. We also opened 72 new units in the emerging world and remained very focused on developing these high-growth markets. Yum! Restaurants International now has over 6,400 restaurants across 67 emerging-market countries, a level that is unmatched by competitors. We continue to make progress in Russia and India, and expand our brands throughout the rest of Asia and into the African continent. We're also excited about our opportunities in developed markets. I recently returned from France and the U.K. and came away very excited about our opportunities there. In France, our KFC business performance has really accelerated. We've seen strong same-store sales growth this year and now have restaurant margins in the mid-teens. Ivan Schofield, our French GM, focused on streamlining operations through simplified menus and disciplined cost management, as well as breakthrough innovation around sandwiches. Increased scale in France has allowed for more television advertising, and we expect to advertise on national TV 17 weeks this year versus 7 weeks that we had in 2010. We have ambitious franchisees who want to develop the brand, and we expect to open 18 new restaurants this year, taking our total to over 130 restaurants. Remember, McDonald's makes more money in France alone than all of Yum! Restaurants International with almost 1,200 restaurants. That's why we are so excited that our KFC France business has the highest average unit sales and makes more absolute profit per store than anywhere else in the world. We intend to make a lot of money in France. With over 700 units, our KFC business in the U.K. has been one of our most consistent performers in Yum! Restaurants International. We have put together 21 consecutive quarters of same-store sales growth with solid operations, new product innovation and vibrant assets. The KFC team was also recently recognized as one of the top 50 places to work in the U.K. So congratulations to Martin Shuker, our KFC GM, for delivering these great results. Now, as you know if you followed our company, our Pizza Hut U.K. business has been soft, but the team is expecting a stronger second half with the launch of free salads and new individual pizzas, combined with a casual-dining operating focus. The good news is, is that we have very -- our very early results are encouraging. Our goal is to turn this business around and reinstate our re-franchising program. I was also in Vancouver in May for our Yum! Restaurants International franchise convention, and I can tell you that our franchisees around the world are extremely excited about the strength of our brands globally and the growth opportunities we've identified for the future. In summary, Yum! Restaurants International growth and development is on track and delivering solid results. We're pleased with the progress we're making with same-store sales growth and restaurant margins. Longer term, we expect our category-leading position in emerging markets to fuel continued strong growth. I'll be busy in Russia and Germany in the next couple of months, and I look forward to giving you an update on these 2 exciting opportunities as well. As I made very clear on our April call, we would have an extremely challenging second quarter in the United States, and we certainly did. Same-store sales fell 4% and operating profit dropped 28%. Now this is primarily due to Taco Bell, our most profitable U.S. brand, which had a same-store sales decline of 5% in the quarter. We also had higher-than-normal commodity inflation. As indicated on our first quarter call, the second quarter performance in the U.S. would be our low point of the year. But looking back, we under-called just how disappointing it would be. At the time of our first quarter call, I thought we would be positive at Taco Bell by now, and we're not. Our light user has been surprisingly difficult to bring back after the negative publicity surrounding the meritless lawsuit from earlier in this year. The remainder of 2011 will be challenging from a sales standpoint, but we expect slow improvement from the low point in the second quarter. Looking to 2012, we believe Taco Bell has significant category innovation in the pipeline that will re-energize the brand. Fortunately and unfortunately, we will have the benefit of overlapping this extremely weak performance next year. Our goal now is to stabilize the business and get back on a growth track, and we're confident we will do so. We remain bullish about the long-term prospects for the Taco Bell brand and are determined to turn around these unacceptable results. Believe me, all hands are on deck. So let me wrap this up. Our Yum! portfolio is delivering, and all things considered, we're pleased to raise our full year EPS growth forecast to at least 12%. We're confident the strength of our International business will make 2011 the 10th consecutive year we achieve our annual target of at least 10% EPS growth. Now let me turn it over to Rick to take you through more of the details.

Thank you, David, and good morning, everyone. Today, I'm going to provide some commentary and give some context to 3 areas: our second quarter results, headwinds and tailwinds for the balance of the year, and the implication of this year's results on our business model. In my first quarter remarks, I said Yum!'s results were a tale of 2 cities. Well, our second quarter was still a tale of 2 cities, only amplified. As David described, we had simply outstanding results in China, while U.S. performance was poor. Yum! Restaurants International performance was solid, and we also benefited from a lower tax rate than last year. When you add it all up, EPS growth totaled 13% excluding special items. China produced simply an outstanding quarter with 25% operating-profit growth fueled -- prior to foreign currency translation. System sales increased an impressive 28%, driven by new-unit development of 13% and same-store sales growth of 18%. The strong sales and transaction growth helped offset most of the cost pressures, as margins decreased by 0.5 point versus prior year, but remained quite healthy. Our YRI business had another very solid quarter, with operating profit growth of 11% prior to foreign currency translation. Sales growth was enhanced by our performance in emerging markets, where system sales grew 11%. Overall, restaurant margins improved by 2 full percentage points and are now 12.7%. Margins benefited from the strong performance in France and Thailand. Additionally, the portfolio actions we took last year, including the re-franchising of our Mexico business and the acquisition of our Russian business, also benefit margins. Pizza Hut in the U.K. remained our biggest challenge at YRI. However, we are cautiously optimistic that our results will improve, as we are in the early days of our brand relaunch there. Our U.S. business had a very disappointing quarter, and was a significant drain on our earnings. While we'd previously communicated the second quarter would be challenging and the low point of the year for our U.S. business, believe me, a 28% decline in operating profit is still disappointing. Transactions fell 8% in the quarter. Commodity inflation was $15 million and self-insurance costs were $11 million higher than last year, related to an unfavorable overlap in the second quarter of 2010. Even though each brand took menu pricing actions to offset commodity inflation, the flow-through was less than normal due to menu mix shift towards higher-cost items. Overall, U.S. margins dropped 4.4 percentage points in the quarter. Finally, overall for Yum! in the second quarter, we had a huge lift from ForEx and tax. The foreign currency translation from China and YRI provided a $19 million benefit. Our effective tax rate fell to 16.7%, which was 7 points below last year's level and provided a significant benefit to our second quarter EPS results. Now I'm going to shift gears and talk about headwinds and tailwinds for the balance of the year. In China, we head into the rest of the year with great across-the-board sales momentum, and it's also nice to see that the economy is growing at such a healthy pace. We therefore expect double-digit same-store sales growth to continue in the third quarter. Development also continues to be robust and we're on track to open at least 500 new units this year across all tier cities. Our new unit performance remains very strong, and we continue to generate cash paybacks of about 3 years. As we noted previously, we do expect cost and profit challenges in the back half of the year in China. Our commodity inflation forecast is now 9% for the full year, including 11% in the second half. We will also be overlapping a $15 million profit benefit from our participation in the 2010 World Expo in Shanghai. This event improved sales, profits and restaurant margins, primarily in the third quarter last year. A new business tax implemented late last year has about a 0.5 point negative impact on margin throughout the year. Labor inflation is also a current year margin headwind, as we expect full year labor inflation in the mid to high teens. After considering all of these factors, we believe our full year restaurant margins will likely come in below last year's level. However, we do have confidence our margins will remain very healthy, and we currently expect full year margins of over 20%. From a longer-term perspective, the statistic that impresses us a lot is the middle-class growth in China. The consuming class is expected to expand by anywhere from 200 million people to 500 million people over the next 10 years, depending on the source you look at. Whichever number you use, it's a big number and a lot of people. As the middle class grows, more people have resources to purchase our food and become loyal Yum! customers. We also expect our China 2011 results to continue to benefit from ForEx. Our current year full year estimate of ForEx is $40 million, including about $25 million in the second half. Overall, we remain bullish on our profit growth expectations in China for this year and well into the future. At Yum! Restaurants International, we are focused -- we are forecasting 900 new units this year and almost 500 net units. Because new-unit development drives a significant portion of this division's profit growth, this will aid our growth rates both in 2011 and 2012. From a profit perspective for the third quarter, we'll have a headwind of $4 million or about 3 points of profit growth, driven by the expense of our biannual franchise comp that David mentioned. Additionally, ForEx also has a big benefit to YRI. At this point, we expect full year foreign currency benefit of $40 million at YRI, including about $25 million in the second half. Finally, as David said, the U.S. business will likely continue to be a challenge for us. Given the current trends, we expect to see a decrease in sales as low as a double-digit profit decline when we post our third quarter results. Fortunately, we'd be overlapping high G&A costs from the fourth quarter of last year. This should help stabilize U.S. operating profits considerably when we get to the fourth quarter. Now let's turn to our business model. Our Q2 results and balance-of-year outlook demonstrate that our business model is evolving faster than planned. Not long ago, we projected 75% of our operating profit would come from China and YRI by 2015. As of the second quarter of this year, we're nearly there already. Admittedly, we didn't get to this point the way we wanted to as the U.S. profit decline drove some of the shift. However, having more of our profit generated in the high-growth businesses makes our growth prospects stronger going forward. Our exposure to emerging markets continues to rise dramatically. In 2000, about 10% of our operating profit came from the emerging world. This year, we expect over 50% to come from emerging markets, and we expect that percentage to increase over time. Let me use Russia and India as a small example. Currently, about 2% of sales for our Yum! Restaurants International business comes from the these 2 countries. By our estimate, McDonald's makes about $300 million in Russia alone, and we are just beginning to make a profit in these 2 countries. For the second quarter, Russia had system-sales growth of 19%, and India had system-sales growth of 44%, excluding foreign currency. As this shows, we are in the ground floor of growth in these emerging markets and we're making huge gains in growing our businesses. In summary, we believe that 2011 again demonstrates the power of the Yum! portfolio. We raised our guidance to 12% full year EPS growth despite a very soft year in the U.S. The Yum! growth equation is not only strong, but is gaining strength. With our combined strength in emerging markets, we believe we are well positioned for growth for many years to come. Back to you, David.

Okay, thank you very much, Rick, and we look forward to taking any questions you have about the quarter or our business. So...

We're ready for questions, Ashley.

[Operator Instructions] Our first question comes from the line of John Glass with Morgan Stanley.

A couple of questions. Just first on China, these value layers that you're introducing, first breakfast and now lunch, do you view these as -- are these permanent, new introductions to layers in the business? In other words, are these akin to kind of what we have, a dollar menu in the U.S.? Or are these more limited time-in nature? And can you just talk about, with the net holding commodity inflation aside, has there been a net negative margin impact from this? And when you think about margins long term, is there a change to your view on that, given the new composition of sales and traffic?

Well, let me take the first crack at that and then David may want to add a few things. First of all, when I say the theme of the initiatives on the KFC side would be more daypart-oriented. So, for example, David mentioned we have a RMB 6 value at breakfast. We also have a RMB 6 snacking offer in the afternoon. And then we also had the lunch offer he talked about. So we're trying to be -- give the right value offering to the right daypart, versus across-the-board product value offerings. We think that's a more profitable way of attacking value. So my sense or belief is we'll always have value initiatives, but we'll change them from time to time. But probably, the theme of values for different dayparts will stay there for a while. Regarding in terms of the impact on profitability in margins, first of all, a lot of these current value initiatives really drove incremental traffic. Breakfast transactions now make up, I think, 13% of transactions in the quarter, which is well up from what it had been previously. So we're definitely getting some incremental growth from it. And you saw the transaction growth that we posted. So the good news is, in these offerings, a lot of them were incremental. In terms of the overall margins, again, there's obviously a lot of moving parts there. And then we took modest pricing at the end of January, and you see that the combination between that and these targeted value initiatives really work from an overall P&L perspective. So we're very comfortable with our longer-term margins in China.

Yes, I think that the big thing with KFC is we're focused on building all the big components that build your image, build the big brand and take us in the future. We basically lead our competitors across every major dimension you could look from a brand-building perspective. The one thing that we believe is very strategic for us is just to make our brands very affordable on an ongoing, everyday basis. And because as Rick mentioned in his speech, depending on the survey that you're looking at, you got the consuming class going from 200 million to 500 million, so we have a lot of people who will be coming into the marketplace. So everyday affordability and access is really the name and the game, and the China team has found a very successful way to do that by focusing on the dayparts, as Rick pointed out. So I think what -- when you can have the leading brand and competitive pricing, it gives you a pretty unassailable position in the marketplace. So we have up to 3 value items at each of our dayparts to really leverage our asset throughout the day.

And if I could just, unrelated, make -- I just have one unrelated follow-up. On Taco Bell, is there any sign yet that, that business actually has stabilized? I think last quarter you commented that it hadn't. To note, I just wondered if the 5% represents a stabilization? And then I understand your view on how maybe the incidents earlier in the year may have set off a chain reaction of sort of the light user abandoning the concept. But is there any evidence that -- throughout your 3 brands you had negative same-store sales -- that really it's the QSR consumer now that's maybe finally reacting, or is reacting at an accelerated rate to the economy? Is there any -- how much of it is macro underlying? And it would seem to me that that's probably the bigger issue, but I don't know if you have any specific insights on how much of it is just the change in what the consumer behavior is versus maybe a brand specific issue.

Why don't I just talk about what we said about sales, and I'll hand it to David to talk about the brand going forward. What we said about sales is -- again, you saw the number, minus 5% in the second quarter. We said that would be the low point of the year. We haven't seen a turnaround. So I've also said that total U.S. would be negative in the third quarter. You could read that into there for Taco Bell will be negative in the third quarter, but not as bad as the 5%. David also said in his speech, he sort of expects sales to get better when we -- or hopefully dramatically better when we launch a product, which is right to our target towards the end of the first quarter next year. With that, I'll let David talk about what he sees with the brand.

I think to put the Taco Bell brand into perspective here, I mean there's no question when we just look at our overall research that Taco Bell remains an extremely strong brand. We all know it's the second most profitable brand in our category. It continues to have the #1 value image. It's highly charismatic. It's highly differentiated with no national competitor. And as you recall, we did start the year out fairly strong and then we took a big hit with a bogus lawsuit on our meat quality. And what we found in this economic environment -- macro-environment, was that our heavy users really stuck with us, but we did lose, as I mentioned earlier, frequency with our light users. So we still have a challenge getting our light user back in the fold. And frankly, the negative sales that resulted from the lawsuit has lasted longer than anyone of us thought it would. Even though when we look at -- historically at food quality-related issues in our industry, it takes about 6 months to get a full recovery. I think all of this, to your point about the macros, is exacerbated by the fact that when you look at Taco Bell, our unemployment of our primary target audience of 18- to 24-year-olds is about 17%, and you've got high gas prices. And I think these 2 factors is making it harder for us to recover. One of the things I take a lot of pride in on our company is we don't really like storytelling. Stories equal excuses. I mean, as far as we're concerned, the meat issue is over, okay? The economy is something we have to deal with and we just need to be doing a better job building this brand going forward, and that's what we're really focused on. Right now we're in the midst of trying to deal with the macroeconomic environment by focusing on a Spend Less Summer at Taco Bell. We've got product news coming in, in the balance of the year. We're working hard to make our advertising more insight-driven and more compelling, while we continue to focus on building our operating capability, which the good news is getting better and better. So I think we clearly have a short-term issue here we've got to address. We are all over it and we're going to stay all over it. You'd mentioned our other U.S. brands. I think when we look at Pizza Hut, we actually feel fairly good about the Pizza Hut performance because remember, we had a tremendous turnaround in sales last year with our value program. We've retained our value positioning and, by and large, most of the sales, so we really haven't had a boom splat. We've got innovation and more value coming as we go into the balance of the year. So we think Taco Bell is -- I mean Pizza Hut's in pretty good shape in the U.S. And in fact, this will be the first year that we're going to have net new-unit development in Pizza Hut because we've made a lot of progress and we've got some things in the work that are exciting there. KFC continues to be a difficult challenge for us in the U.S. We are focused on turning this business around. We just relaunched our Kentucky Grilled Chicken. We're optimistic about that product continuing to build the brand in. We've got a multiyear challenge here, as we talked about, in terms of improving our assets and our operations. But the big driver of U.S. profitability is Taco Bell, as we pointed out. That is priority #1, and we're all over it. We've got a great team committed to building the business and we will get this business turned around again. As Rick mentioned, we've got some significant innovation that we think is going to be breakthrough as we celebrate our 50th anniversary in 2012, so we have that coming. And we've got a lot of things in the works. But this year for Taco Bell is going to be disappointing, below our expectations. And we're going to stabilize it. That's the goal, and then build from that point. One thing about this is that we will have the benefit of overlapping these unacceptable results.

Our next question comes from the line of Joe Buckley with Bank of America.

First, just a question on the tax rate. Was it unusually low for any like specific onetime reason? Or did the earnings mix shifting to International have a role on that? And what are you expecting for the full year tax rate just roughly?

Yes, I mean, what we said Joe, I guess, starting 1.5 years ago is we said over a 3-year period, 2010, '11 and '12, that we'd have a tax rate of about 26%. We said there could be annual and quarterly volatility there. Last year came in, in that range, a little over 25%. So we expect to be in the range of that, and that's what's built into our guidance. In terms of the low rate in the second quarter, the second quarter historically is a seasonally low quarter. It is the time at which certain taxes with authorities get reconciled. And so the way the tax rules work, that frequently will deliver a lowest -- lower rate. So actually if you go back in time, the quarterly rate last year was higher than normal. This type of rate is not atypical to what we've gotten over the last 3 years.

Okay. And then a question again on China from a pricing value trade-off or balance. As that food inflation forecast goes higher, do you expect to take more price? And if you do so, how do you balance that with still featuring value?

Yes, just to remind people with where we are there, you obviously have to keep balancing the value with the transaction driving that David talked about. We ended up -- well, if you do the math, Joe, that we had -- we sort of said we'd have commodity inflation in the 9% level for the first year. We said mid to upper teens for labor. If you take those growth rates on top of what proportion of the P&L they represent, it's basically about a 5.5-point piece that you have to make up somewhere. We took pricing in the 2 to 3 range, probably like -- more like the 3 range at the end of January, the same time we put in these initiatives. So all things being equal, that would be the gap that you'd need to come over. However, we've had such a strong response to our initiatives and just the market being strong that we are getting some leverage on -- through our transaction growth on the fixed part of our P&L. So we're able to make the numbers work right now. Obviously, if we continue to get inflation, at some point you have to look at pricing, but we're not planning on doing anything in the very near term.

I think the other thing, Joe, is that when you look at these value items it's around 10% of our mix, so we think we have a great balance of our menu in terms of what's on the low end and what's higher-priced items. So we think we're managing that well, and we will continue to do that. And I think, as we all know, the stronger your brands are, the more flexibility you do have in the marketplace as it comes to managing your pricing.

Just one more on the China value. So are these items new items that have been introduced specifically for the value offering? Or were they existing menu items you marked down in price?

It's a combination.

Yes, it's both.

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

I have a question on U.S. and Taco Bell. You mentioned that there's some innovation coming in 2012. I'm just curious, do you believe that there's anything proactive that Yum! and Taco Bell particularly can do to repair that brand this year, to make sure you get back to growth in 2012? Or is this something that your instincts and research tell you that you're going to throw money at it and these light users really don't want to hear it, and it's going to be really the time that repairs this brand and gets you the benefit of those comparisons in 2012, and the messaging is probably a waste of money at this point?

I think that -- first of all, I think we need time, okay? There's no question that we've impacted it. So there will be some benefit that only time can provide. But the minute we say we're going to wait to figure out how to grow this business is the minute somebody needs to get rid of me and everybody else that's in the company. So we're going to work as hard as we can to get the business turned around. We're not going to throw good money after bad. But we think we have a great brand, lots of things that we can do to stabilize the business, and we're very confident that we can get the brand stabilized, ready to go and have the benefit of overlap in the weak performance next year. So we definitely think there are things we can do.

And one quick one on Pizza Hut U.K. You have a new menu going out there right around now. Maybe you can give an update about that. Is it too early to tell how that is doing or will do? Could that be something that helps the second half for YRI?

Well, the early results are, as I sort of said, are encouraging. There's a lot of noise in the results because we're overlapping a particularly weak part last year, so we want it to settle down a little bit before we sort of talk about performance. We think it's the right direction from a brand perspective. The freestyle has gotten a lot of publicity, modernizes the brand. So there's a lot of buzz around the brand right now, which had been lacking there. So as I said, so cautiously optimistic. What we'll also hopefully do is if you look at the -- we talked about the margin performance at YRI, which took a good turn for the better. And we did that despite a drag on Pizza Hut U.K. So what I'm hoping, at least from a profit standpoint, is it will stop being a drag on our margins for the balance of the year.

Our next question comes from the line of Howard Penney with Hedgeye Risk.

In the past, McDonald's has been able to take some of the lessons learned in some regions of the world and apply it to other parts of the world that are underperforming. Is this -- is there something structural about the business at KFC and Taco Bell that you can apply the lessons learned in China and other parts of the world and apply that to the U.S. to help performance?

I think that -- Howard, first of all, I think that's a good point, and it's a good challenge. And one of the things that we're very focused on in our company is sharing know-how and the lessons learned, and building capability just through leverage and the scale of all the resource and experiences that we do have around the world. I think that what you got with KFC outside of the United States is a much more dynamic, big-box format that is much more akin to McDonald's. And I think there's just been a lot more innovation and breadth built into the menu in KFC in most countries outside the United States, because I think Colonel Sanders kind of set the U.S. up with a heritage of small-box chicken on the bone, stay focused on your knitting. And so I do think that it's a little harder for us to transform the brand, or it's a lot harder for us to transform the brand into a multi-variety, multi-daypart brand that we have in -- especially in the emerging markets. So there is a structural issue there. And frankly, we don't have a franchise system that is as enlightened as our franchisees are outside the United States as well. So that's something that we have to deal with as well. I think as far as Taco Bell goes, Taco Bell is a great brand. We're taking a hit at this point in time. I wouldn't trade Taco Bell for any other U.S. brand. I mean, this is a fantastic brand and we're going to grow it. We know that this business is built on great operations. And one of the things that Taco Bell has done over time -- if you look at the majors, it's improved its operations dramatically. We're in the top tier in both accuracy and speed on drive-thru. We're continuing to focus on the operations, and it's driven by innovation and news. And we think that our pipeline at Taco Bell -- while we've been working on things, we haven't had a big news item in quite a while. We've got some things in test market that we're very excited about and encouraged about, but we think that, that end of the innovation that drives the rest of our world can certainly work at Taco Bell as well, and we've got some coming. So I think we understand the business. We share the knowledge that we have. We're getting there, but there are some structural differences with KFC, but there certainly isn't anything that's holding us back at Taco Bell.

Our next question comes from the line of Michael Kelter with Goldman Sachs.

I wanted to ask you about the China business and the value strategy. I guess I'm curious, would you say there's maybe a risk at all that, when you start driving the business on value, that it opens you up? That someone else could come along and offer maybe a marginally better value, you start competing on a metric that's not own-able. And then again even against yourselves, next year you're being -- you'd be forced to offer a better value than you did this year. Is there any sort of risk that maybe you're taking and driving traffic in this way? Or do you think that's not something that we should be concerned about?

Yes, I think it would be a real disservice to what's going on right now in China to describe our strategy as a value strategy, okay? I think our strategy -- well , I know our strategy is a brand-building strategy and an asset-leverage-building strategy. So what we're really trying to do is just make our brand as compelling and as relevant and as ubiquitous as you possibly can make it. And if you look at the real success factors in this category, you have a broad menu, you leverage your asset throughout the day, and you make your products affordable on an everyday basis. Now we're doing this, and we're doing it with great margins. And what we're not doing, though, is executing a value strategy that's going to force us to get lower and lower and lower, and getting into this downward spiral where we're not going to make any money. I think if there's one thing that we know how to do in China -- I think it's our biggest strength by far and away -- is we have a great team of people who know how to build a brand. These people are brand-builders, and they're doing a fantastic job doing it. We have operational excellence that is, I think, the best certainly within Yum!, and maybe in all of retail in China. And we're building the brand. And anybody that knows our category knows that part of that is making your products affordable. And that's what we're doing and we're very excited about that. But meanwhile, we've got category-leading advertising, we've got category-leading variety, we've got daypart extension and leverage, and then we've got to go with the value. So it's part of the overall package.

All right. That's helpful clarification. And the other thing I wanted to ask is again about the U.S. And I guess it sounds like for Taco Bell, you have some new product news coming. But other than that, I don't know, it sounds I guess less like there's anything specific in place now, that there's some work that needs to be done. What's -- I guess, could you be any more specific about strategy and what's going to turn the business around, not just for Taco Bell, but all 3 were negative. And so could you be any more specific? Or is it something that's just not -- you're not comfortable talking about in this forum?

No, I'm totally comfortable about talking about the business and the brand in this forum and any forum. I just did, basically. I think that what we have, #1 value image in the category and a taste that people love, okay? It's different. We have different taste at incredible amount of value. And so that's our strategy. We want to keep driving home the unique taste that we have at Taco Bell and the incredible value, and we will do that. We have, I think -- at the balance of the year, we have some product news, but it's not like earth-shattering product news, okay? It's more of the blocking and tackling that we do at Taco Bell. Now we do have some things in test market that we're very excited about, that we do think are category innovations and a significant breakthrough coming for 2012, but I think we're going to have to just do a better job of doing -- operating our business on a day-to-day basis, and then doing as compelling as we can, marketing around what we stand for while we get the gift of time that will allow us to get through this beef issue that we have.

Our next question comes from the line of David Tarantino with Robert W. Baird. David Tarantino - Robert W. Baird & Co. Incorporated: Just wanted to ask a few questions on the financial model for 2011. First, Rick, could you clarify what tax rate you're assuming for the second half of the year?

Well, we said sort of a full year rate in that 26 -- 25%, 26% range. David Tarantino - Robert W. Baird & Co. Incorporated: Okay, great. I just wanted to clarify that. And then I guess when you take a step back and look at the guidance that you're giving, you increased it after fairly modest operating-profit growth in the first half. I just was wondering if you could give color on why -- what are the factors that led to the guidance increase after the first half results. Is it more optimism about the second half in the international businesses? Or perhaps if you could clarify, that'd be great.

Well, I'd say it's a few things. First of all, keep in mind the way our business model works is we usually -- our math gets us to a number higher than 10. We say at least 10, but usually it's -- look at how our model plays out. That's how we've been able to do 13%-plus historically. In terms of why we took it up at this point, there's really, I think, 2 driving factors. One is China performance that we talked about. The second is ForEx is a huge tailwind for us, the full year number in the $80 million range. And a lot of that we're quite confident about, because we had a fairly large amount year-to-date and the balance of the China year for us, we're extremely confident about. So that -- if you combine those things, that gives us a positive -- we mentioned in the fourth quarter, we expect better results. We had sort of higher-than-usual expenses in some items there that we identified at that point in last year that we feel pretty good about our fourth quarter overlap as well.

Our next question comes from the line of Jeff Omohundro with Wells Fargo.

Beyond pricing and check initiatives, though, could you update us on other avenues to manage some of this margin pressure in China that you might be pursuing? And I'm thinking perhaps areas such as labor scheduling or supply-chain improvements and so forth.

Yes, I mean, the team there just does an excellent job. David talked about great operations, and the team -- you should take that in a very broad sense. I mean the team does first-rate jobs in all those areas related to that, the setting up of their backup house system, their purchasing. We own our distribution system there. So that team is always focused on delivering innovation and productivity through the line. So we don't have any special, blow-away productivity initiatives in place. We just continue to do the day-to-day cost management throughout the P&L.

Our next question comes from the line of Rachael Rothman with Susquehanna.

This is Jake Bartlett in for Rachael. I was hoping you can dig a little deeper into the labor inflation in China. By my math, it looks like average store labor increased about 30% in the quarter. It was up from about 22% in the first quarter. Just wondering how that squares with the double-digit -- or the kind of mid-teens labor inflation you talked about? Anything else going on there? Any sort of preparation for future growth? Anything that's kind of affecting the labor per store.

I have to go back and double-check the math, but I assume it's mostly driven by labor rate and the volume increases.

This is -- so -- but I'm just looking at 18% same-store sales and de-leveraging of 150 basis points. And just kind of looking at that math, it looks like you had, I guess, 25% to 30% kind of growth in labor per sales unit.

If you look at the components, as Rick said, basically, we're experiencing 15% and 20% wage-rate inflation, and you had a 21% increase in transactions. So you got to look at both of those combined to get to the per-store labor cost. Those are the base factors. There's really nothing else that's going through that.

Okay, and then a clarification on COGS in China. Can you give us -- for the year you're increasing the inflation from 7% to 9%. Can you tell us what it was in the first and second quarter? I know on what you're expecting, about 11% in the back half. Just wondering the kind of pace there.

Yes, we'll get it for you. do you have another question, while we're...

It was in about the 6% range in the first half of the year.

Okay, so -- but in the second quarter I'd assumed it maturely -- 6% for the first half, okay.

And the second quarter. The second quarter and the first half were 6%.

They're both 6%, okay. The last question is just on YRI. You're getting -- I understand you're getting a benefit from mix shift with the re-franchising in YRI. But just looking at COGS line, it looks like you're getting pretty decent leverage there. I'm just wondering how that's working. Maybe you can give us an idea of the commodity inflation that you saw in YRI in the first and the second quarter, and just kind of what's driving expansion there or kind of leverage on COGS.

Commodity inflation in YRI is much lower than we are experiencing in China and U.S. It's low single digit. The big driver of the year-over-year change there is more of a portfolio factor. The Thailand business has been very strong and that's driving lower cost of sales. You've got to keep in mind, YRI is a big portfolio of different company businesses.

Okay. And then last question. Last quarter, you gave us an inflation target in the U.S. of, I think, what, 6%? If you could give us an update in the U.S., that'd be great as well.

7%.

Our next question comes from the line of Jason West with Deutsche Bank.

Yes, just wanted to go back to the China strength again, and just wanted to get you guys' thoughts on how the comps have progressed this year. And I know you talked a lot about the value initiatives and other things going on there, but were you surprised at the strength you've seen? I'm assuming you were. And can you talk about how significant the value changes were versus what you've been doing in the past? And how much of this was maybe macro-driven as well? And if you just could give a little more color as to sort of how this thing has played out, which has been pretty impressive.

We don't have great industry information on a real-time basis, so we don't know. We could only assume that we're above -- significantly above the market, which when you're the leader above the market you feel good about. We saw that McDonald's sort of posted at about double digits for the time that they talked about, but on the lower end of double digits. We were obviously at the higher end. So it's hard for us to put exactly how much is the economy versus us. But I'd sort of say clearly by 2/3 of it, so the economy, the rest of it has this big, big amount given the size that we've got. And of that, I think that the 2 biggest pieces, one David talked about in his presentation. But reminder, the daypart initiatives, things like KFC delivery, breakfast, 24-hour, those probably add about 4 points of growth by themselves. So you have that plus the economy and so the rest of it, I'd say, would be the other initiatives that we've taken.

Our next question comes from the line of Omar Sayeed [ph] with Song Asset Management [ph].

I just wanted to see where the acquisition with Little Sheep stands from an execution perspective. And I was also wondering about the plans for the brand inside and outside of China, and what we should model in, in terms of estimated synergies or EPS impact.

Yes, we're not ready to discuss that because we thought that the 2 hurdles we discussed last time -- the 2 hurdles that we still have to go through is government approval in China and shareholder approval in Hong Kong. And so neither one of those is done yet. I do expect we'd have an answer on both when we report this time next quarter.

Okay. Is everything going according to plan on those?

You can't really have a plan. This is the government, so we don't know until they answer. And you can't know the shareholders until they vote.

Our next question comes from the line of Mitch Speiser with Buckingham Research.

In China, can you give us any sense of what you might think food costs are looking like in 2012, and perhaps what the buzz is on wage-rate inflation in 2012? And also in China, on East Dawning, it seems like you're at about 20 units, put up 1 this year. I think you've closed a couple last year. Can you talk about that process of improving unit economics? It seems like you may have slowed things down a bit. Are there any particular constraints to get East Dawning growing more aggressively?

The first part of the question, we really don't have great visibility into commodities by next year in China, so we probably won't until fairly late this year. We don't buy as far out there as we do in some other markets. Regarding the labor inflation, we expect it just still be high, but probably not this high. That would be my guess. We sort of used to run in the high single digits. So I think going forward, it's probably going to run in the low double digits would be my best guess at this point. On East Dawning, in terms of the economic model, we continue to make good progress with the consumer. We still have a long way to go before we believe it's ready for rapid expansion, but we also feel good about, as we've developed the combination of what we prepare in restaurant and what we prepare in the commissary. And so we're actually probably going to try that concept in a few of the cities near where we have commissary, but not in the city proper, and see how that goes. But just don't count on anything dramatic in the next year or so.

And if I could slip just one more in on the U.S, can you give us a sense of how the category is doing and overall QSR and if you have seen an overall category slowdown?

Well, the economy is not doing great, so you sort of see the general outlines, and I'd say that's sort of similar to what we see in the categories. You sort of see some sort of good weeks and bad weeks and good months and not-so-good months. But frankly, we know we're underperforming the category, and David sort of just spelled that out in his comments. So we know it's tough out there, but we also know we need to do better.

Our next question comes from the line of Sara Senatore with Sanford Bernstein. Sara Senatore - Sanford C. Bernstein & Co., Inc.: Two questions, first about China and the second about YRI. The one about China is going to sound probably a little silly or even very premature, but people are talking about the potential for interest rates to slow down the economy. Presumably, that would also pull down inflation. Can you just talk a little bit about the cadence of if there were -- if there was a slowdown, would you be locked into prices first and have some wage pressure first maybe if your comps decelerated -- or rather margin pressure if your comps decelerated, and then maybe you could catch up? Or do you think we'd see that adjustment in your costs kind of happen simultaneously, such that -- if you look back at '09, you had slowing comps buy really good profit dollar growth. And then I'll have a follow-up question.

I'll deal with the first one. But if you look at the -- first, the economic growth and then inflation. I think, clearly, the government there is trying to balance those 2 things as best as they can. Economic growth right now, we see it picking up. I'm not sure what's going to happen in the next few years, but we feel it strengthens during the course of this year. And what we said before, it's the trends for retail I still feel very bullish about, and that is that they continue to invest in infrastructure, which obviously is this new trade zone. People keep moving from country to city as they create new cities. We're adding about 65 cities a year for KFCs. And we talked about the middle-class growth, which is huge. So for us, all those things are why we're still bullish about the future in China, but we do acknowledge to your point that there's going to be bumps from an economic perspective on that growth, as the government and whoever's running that China balance growth with inflation. In terms of inflation itself, it's hard to predict what'll happen when. As we sort of said before, I don't fear an inflation scenario, because when we have all the dayparts we talked about, we believe we have more leverage to pull than most people. We do a really good job on distribution in those areas of the business, so we feel we could handle that just about better than anyone without trying to sound cocky. So we actually don't fear inflations. The team will figure out the right pacing and sequencing of how you handle pricing in that scenario. I personally am still -- I've sort of said this before. I'm not convinced that commodities -- I do believe that labor inflation will continue high for quite a while. I think commodities are more of a wildcard in that they can move in both directions over the next several years. Sara Senatore - Sanford C. Bernstein & Co., Inc.: Great. And then just on the YRI question, I think based on when you break out emerging versus developed markets, system-wide sales growth in emerging of 11%, I think you said, and unit growth in 5%, so that implies unit volumes at 6%. Is that sort of a comp you're running? Is that a mix number you're talking about? And then 6% or mid-single digits is the comp, that seems pretty good, but kind of in line with emerging market inflation. So are there areas where you have specific strength or weakness?

Yes, I can't tell you offhand, because there's a lot of countries involved, how much would be mix in that equation. We'll have to go back and check on that. Again, in emerging markets, it depends which ones. But for us, the big emerging markets -- I don't want to discount the question, but our real focus is on developing the brand and unit economics that allow expansion. We talk about how many restaurants we have per million people, and the number in India is like 0.2 versus 3 in China and versus 60 in the US. So that's really -- at least the way we look at it, our real focus is build the brand, build the unit economics with that, that allow you to expand. And overall, we feel pretty good about those things. And you saw overall our system-sales growth are very strong, and clearly, there's seems pretty good same-store sales growth in there. So I think, actually, we're doing a pretty good job on both of those areas in emerging markets.

Our next question comes from the line of Keith Siegner with Crédit Suisse. Keith Siegner - Crédit Suisse AG: Sorry, just a couple quick questions. With YRI, it was pretty clear in the release that Japan definitely had a somewhat meaningful impact on both comps and system sales as it explains in the footnotes, and what I was wondering is, since that was March, April and May for Japan, have you seen an improvement off the bottom? Did the trends get better inter-quarter? And what do you think about Japan drag on those numbers for next quarter?

It was about a 0.5 point on the past quarter. Things are getting a bit better there. Keith Siegner - Crédit Suisse AG: Okay. And then just a bigger kind of broader question. So the business model shifted very quickly to the mix of international and U.S. 2015 becomes end of 2011 pretty quickly in this scenario. You've got less cash coming from the U.S. When you think about funding like share repurchase programs and dividends and growth in those, and as you get continued growth in China, how do you think about bringing the cash back to the U.S.? And what are the repatriation issues, if any? What's going to change now that you need to bring more cash back to the U.S. to fund those programs?

Well, we've been planning this for a while and it's also happened gradually. So even though we have a big shift this year that's, to be honest, isn't that big an issue to us, but it's an ongoing issue of, how do you continue to manage your cash globally? We feel pretty comfortable that we've been able to do that. One, it gives us affordable access. So we've been able to manage the tax rate fairly effectively and we've been able to do the share buybacks and pay the dividends, the other things that our shareholders want. That's something we continue to spend time and effort on. We feel pretty comfortable we've got strategies in place that allow us to do that in a similar manner that we've done in the past for at least the next several years.

Our next question comes from the line of John Ivankoe with JPMorgan. John Ivankoe - JP Morgan Chase & Co: Just a follow-up on a lot of what's been discussed. In the quarter in China, pricing was up 3 and I guess that would imply that, that overall mix might've been down 6, because average ticket was down 3 on a 3% comp. So I was hoping you guys could give a little bit more thought or analysis on that. I mean, is that because you're attracting new lower-income customers into the store because of the new value promotions? Or are you trading down existing customers? And the reason that I ask about trading down existing customers is there have been examples, especially in the U.S., where dollar-value menus, as it were, might actually constrain your ability to take price on the high end because the lower-priced products are too cheap relative to the higher-end products. And so not having been to the market and seeing this in the last quarter, I was just hoping to get some more clarification of: one, what customers you're bringing in; and secondly, whether the value-pricing action might actually act as somewhat of a constraint in terms of your ability to take pricing on the core and premium items.

Yes, I think -- let me break the dayparts down a little bit. Breakfast is one where what we did has driven a lot of incremental people into it, right? So I mentioned before that transactions made up 13% of our mix in the second quarter. Before that, I think it was around 10%, so it's a big increase there. And they are obviously bringing in a lot of new users, so not a lot of trade-down. The reason the -- we've been very careful on the lunch daypart, so the teams spent a lot of time -- we did not chase a lot of things we could have chased on value over the years. And even though our competition is probably doing more of that than we were, we think we hit on something right now that works in terms of -- tries to get some occasions. You're going to get some trade-down there and that's why we're very careful on that daypart in particular. But you sort of see, when you look at it from the big-picture perspective, we brought -- our transactions were ahead of our same-store sales growth, which is a good sign. John Ivankoe - JP Morgan Chase & Co: And in terms of your ability to take price on the core and premium items, to the extent that you decide to do so in the future, is it your opinion like the lunch value doesn't interfere with that at all?

Yes. Again, I'm still where David is. We did talk that we're doing a better job on the value, but you shouldn't look at this as we've gone to a value menu and this is something we're looking at. We're going to be very thoughtful on pricing. As we sort of said a couple of calls ago, we're looking at it a little bit more scientific. We look at regional opportunities as well. So again, we're going to be very thoughtful on how we do that, and we want to keep the brand affordable and protect our business model.

Our next question comes from the line of Greg Badishkanian with Citigroup.

Just real quick, just maybe quick thoughts on how you think re-franchising at KFC is going to progress over the next few quarters.

KFC, we had a pretty good quarter this time actually in re-franchising, so we had some good activity. It'll continue to go along. I mean, I'd expect numbers sort of hopefully a little bit better in total in the second half than the first half, so hopefully in line with somewhat our performance in the second quarter. So we ended up, I think, with about 75 units in the second quarter. We probably will get at least a couple of hundred done this year.

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

Two questions, I guess. The first one, just kind of a follow-on as it relates to food costs and the offset of pricing. I think you mentioned in China that you don't have much -- or no plan to take near-term pricing and not much visibility on food cost going into next year. I was just wondering whether you could talk about the U.S. on that front, first as it relates to pricing and where we are right now and what your thoughts are in the near-term. And then as we look to 2011, do you -- or 2012, I should say, do we have any better visibility on the food-cost outlook and your thoughts on pricing at that point? And then I have a follow-up.

Just for context, so far we've taken about 3% pricing in the U.S. Again, the challenge there is how much of it's flowing, spinning through to us. So we'll probably continue to take pricing pretty much in line with inflation. That seems to be what the industry is doing. Don't have a lot of visibility to next year yet. Hoping it'll be a little better than this year. There's some indication to that, but it's too early to tell.

But a little better than this year, but you're still talking about -- I guess this year, the inflation basket thing is up 7, so it could still be up mid single perhaps, but not as bad as this year.

I don't really have visibility. I'll be surprised if it's in the range of this year, but we'll have to wait and see.

Okay. And then just separately on the leverage front, it looks like there was some significant pay-down in the second quarter, north of $600 million. Just wondering whether you expect such a trend to continue. We haven't seen any real pay-down in the past 6 quarters, and whether this has any impact on your long-term priority of debt pay down relative to share purchase and dividend. Or is this just more of a timing issue?

We actually had paid off some bonds that were due in the second quarter, and so we expected that.

But that's not something we should expect going forward as aggressive pay-down? We should see it till be minimal going forward.

No, there is -- I believe, Jeff, we have $250 million of maturities next year. So actually, the maturity schedule over the next 2 to 3 years is pretty good. It's really light. And we think -- as we've said in the past, we've been working towards moving our credit ratios towards BBB, solid BBB from where we were at BBB-, and we feel like we've made pretty darn good progress on that. So going forward, free cash after CapEx is really going to be focused on dividends and share repurchase, other than in the near term on the potential acquisition of Little Sheep.

Our next question comes from the line of Steve West with Stifel, Nicolaus.

My questions have already been answered.

And our last question comes from the line of Larry Miller with RBC.

I had a question on Taco Bell and maybe some of the consumer research that you may have done since the lawsuit. And the first part of it is, do you know where that light user has gone? And secondly, is there anything in the research that you can point to that would give us some comfort that it's not maybe a longer-lasting brand issue?

Well, Taco Bell users are heavy users so they're going to other -- are staying within the category, basically. Although I have to tell you I haven't seen any specific numbers myself that could give you more color on that. What was the second part of your question?

The second part is, is there anything in the data that you guys have collected that says, "Hey, this looks very temporary in terms of a brand issue"? Or maybe there's something in here that says, "Hey, these light users have told us that there's something that may be longer-lasting in terms of..."

I think the best data that we have is a history that it just takes time, and that over time that when you have issues like that, your light users will come back here, okay? That's the best data that we have. All right. Well, I want to thank all of you for your questions. As we've talked about, we're very confident we're going to have another good year at Yum! Brands, and we'll keep you posted on our progress. Thank you very much.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.