Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from John Glass – Morgan Stanley.
John Glass – Morgan Stanley
David, first, can you just maybe provide a little colour on how bad the franchise financing environment is? Is it an absolute lack of access to capital or is it just an interest rate issue?
And you put a comment in there about now letting your franchisees fail. I mean, franchisees typically don’t need the capital to operate, I presume, it’s just getting the Fs out of the system or is there some working capital access to capital needs?
David A. Brandon
I think it’s this issue we’ve got with access to capital right now is the transactional activities. For the most part, because our franchise is based in small business operators, they have not gotten particularly leveraged in their balance sheet. It’s not a function of typically, and there’s exceptions to every rule, but typically we’re not dealing with a situation where people need necessarily short term borrowing. Often times what we’re running into problems with is we have an A or B operator that wants to buy stores, distressed stores from some of our F operators and right now it’s not an interest rate issue, there just doesn’t seem to be any capital availability to finance those transactions. So the ones that are happening are the ones that are financed from people who have cash flow substantial enough to fund it out of their own cash, but the bank credit market has been very touch and that’s gotten exceedingly worse during the third quarter and I would say right now has fundamentally shut down.
John Glass – Morgan Stanley
Okay. And Dave, you mentioned ad spending. There’s a national advertising presence in 2009 versus 2008. So are you spending more, are you increasing the percentage of advertising spend or is it just another year shifting from local to national?
David A. Brandon
It’s going to be a combination of both. The truth of the matter is it’s one of our problems thus far this year is we’re getting killed in terms of sheer voice. We’re not out there at a competitive level with our national competitors and what’s happened, and again this is one of those kind of timing is working against us, as you recall we went into 2008 with a plan to shift more of our dollars into the local level, less dollars at the national level, and what fundamentally has happened is with the inflationary pressures and with the margin squeeze some of those dollars that we hoped would be spent on marketing at the local level are not being spent. In essence what we’ve done is we’ve really trimmed back our voice as it relates to our overall marketing message. At the same time we’re teeing up a lot of new products and things that are going to require more education, more communication to the consumer. So as we go into 2009 we’ve already put the plan together. We will be on national TV a substantial number of weeks more than we had as part of our planned calendar for this year. That funding will come from a variety of sources, including a shift back to a higher percent funding at the national advertising fund level because that’s just an imperative as we launch these new product platforms to have the marketing bullets we need to get them communicated.
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