Ladies and gentlemen, thank you for standing by and welcome to the second quarter earnings release conference call. (Operator Instructions) I would now like to turn the conference over to your host, Mr. Matthew Stroud. Please go ahead.

Thank you, Katy. Good morning, everybody. With me today are Clarence Otis, Darden's Chairman and CEO; Drew Madsen, Darden's President and Chief Operating Officer; Brad Richmond, Darden's CFO; and Gene Lee, President of Darden's Specialty Restaurant Group. We welcome those of you joining us by telephone or the Internet. During the course of this conference call, Darden Restaurants’ officers and employees may make forward-looking statements concerning the company’s expectations, goals, or objectives. These forward-looking statements could address future economic performance, restaurant openings, various financial parameters, or similar matters. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to materially differ from those anticipated in the statements. We wish to caution investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. The most significant of these uncertainties are described in Darden's Form 10-K, Form 10-Q, and Form 8-K reports, including all amendments to those reports. These risks and uncertainties include the impact of intense competition, changing economic or business conditions, the price and availability of food, ingredients, and utilities, supply interruptions, labor and insurance costs, the loss of or difficulties in recruiting key personnel, information technology failures, increased advertising and marketing costs, higher-than-anticipated costs to open or close restaurants, litigation, unfavorable publicity, a lack of suitable locations, government regulations, a failure to achieve growth objectives through the opening of new restaurants or the development or acquisition of new dining concepts, weather conditions, risks associated with Darden's plans to expand Darden's newer concepts, Bahama Breeze and Seasons 52, our ability to combine and integrate the business of RARE Hospitality International Incorporated, achieve synergies…

Thank you, Matthew and good morning, everyone. Darden's total sales from continuing operations increased 9.6% in the second quarter to $1.669 billion, driven by the addition of Longhorn Steakhouse and The Capital Grille and meaningful new restaurant sales growth at Olive Garden. The incremental sales from Longhorn Steakhouse and The Capital Grille totaled $100 million for the quarter. Let’s review the same-restaurant component of our total sales growth and for context, industry same-restaurant sales as measured by Knapp-Track and excluding Darden were down an estimated 5.3% for the quarter. Olive Garden's same-restaurant sales were up 0.8% for the quarter, its 57th consecutive quarter of same-restaurant sales growth and that was 6.1 percentage points above the Knapp-Track industry benchmark. Olive Garden's total sales increased 6.2%. Red Lobster had a same-restaurant sales increase of 0.3% for the quarter, which is 5.6 percentage points above the Knapp-Track industry benchmark and its total sales increased 0.2%. Longhorn Steakhouse same-restaurant sales decreased 5.7% for the quarter, while its total sales increased 2.4% because of the addition of 19 net new restaurants. On a blended basis, same-restaurant sales were down 0.2% at our three large brands, which outperformed the Knapp-Track industry average by 5.1 percentage points. The Capital Grille had a same-restaurant sales decrease of 8.7% for the quarter, while total sales grew 3% due to the addition of four net new restaurants. Bahama Breeze had a same-restaurant sales decrease of 8.0% for the quarter. The quarter was also favorably affected by the Thanksgiving holiday week shift. This week shifted from our second quarter in fiscal 2008 to the third quarter in fiscal 2009. As a result, same-restaurant sales results were positively impacted approximately 70 basis points. We anticipate that the Thanksgiving holiday shift will adversely affect the third quarter of fiscal 2009 by approximately 70…

Thanks, Brad. As has been mentioned, we were pleased to deliver solid financial performance in a very difficult environment during the second quarter and overall, we believe this performance was driven by three key factors. First, we benefit from brands that have earned competitively superior breadth of appeal and guest loyalty over many years. When consumers reduce their restaurant visits, brands like Olive Garden and Red Lobster are less likely to be dropped from the consideration set. Second, we were able to successfully strengthen our advertising and promotion plans to address the growing consumer need for increased value and affordability. And finally, our teams have identified and aggressively pursued significant new cost management opportunities across the business, in our restaurants and at the restaurant support center, without adversely affecting either the guest experience or the employee experience. Now let’s talk about the performance in specific priorities for each brand, starting with Olive Garden. Olive Garden’s key strategic priority this fiscal year is to sustain strong new restaurant growth while maintaining same-restaurant excellence and they continued to deliver against that priority during the second quarter. More specifically, Olive Garden delivered their 57th consecutive quarter of same-restaurant sales growth, achieving a 0.8% increase that exceeded the Knapp-Track competitive benchmark by more than six percentage points. They also opened eight new restaurants during the second quarter. This strong performance was driven in part by Olive Garden's value leadership in casual dining. In addition, advertising during the second quarter featured exciting food news and strong value that reminded guests why they love Olive Garden and gave them a compelling new reason to visit. Their never-ending pasta bowl promotion ran in September and October featuring a compelling price point of $8.95 and two new sauces, Tomato Basil Caprasi and Asiago Garlic Alfredo. This was followed…

Thanks, Drew. The specialty restaurant group is focused on strengthening the foundation at each of our brands and managing short-term challenges in a way that supports our long-term strategies. We continue to leverage our organizational structure to successfully manage G&A expenses, as well as efficiently share best practices and expertise across the group. Our teams are actively controlling costs without affecting the guest experience and implementing sales building initiatives, always making sure that we are protecting the core strength of each brand. Now I will go into a little bit more detail on each of the specialty restaurant group brands. In the second quarter, The Capital Grille had total sales of $60.7 million. That was 3% above prior year, driven by the addition of four restaurants. Same-restaurant sales declined 8.7%, which includes a three percentage point positive impact from the holiday shift. The sales decline reflects worsening economic headwinds, particularly for the luxury consumer, and a general decline in business travel and entertainment spending. Nevertheless, Capital Grille continues to generate competitively superior average unit volumes and a very strong return on invested capital. The team also delivered another strong performance in guest satisfaction in the second quarter, as measured by the mystery shopper program. The network of sales and marketing managers Capital Grille has deployed in every market is a competitive advantage and the company fully utilized this structure to implement sales building initiatives in the second quarter with a focus on building group and private dining sales. The brand also leveraged Darden's purchasing capabilities to launch a series of limited time unique premium culinary offerings. Capital Grille successfully opened one restaurant in the quarter, bringing the total number of restaurants to 34, and they are on pace to open three or four more restaurants this fiscal year. The team…

Thanks, Gene. I guess at the risk of stating the obvious, certainly this was a very challenging quarter, given the economic environment and we expect that it’s going to be a challenging year and I think our revised sales and earnings outlook reflects that. That said though, we do feel very good about our competitive position and that’s due in large part to the steps that we have taken over the last four years to transform the company. We think that we are better able to weather the current storm than most of our competitors and we also believe that we are better positioned to emerge from the turbulence with even wider positive competitive gaps in both sales and earnings. And so what are the things that we’ve done? Well, we put together a portfolio of proven brands that we believe collectively have a much stronger long-term sales and earnings profile compared to what we had just 18 months ago. We’ve taken steps to strengthen each of those brands. We’ve added to our scale and all the advantages that scale brings and those advantages are reflected in the cost synergies that we are realizing from the RARE acquisition. And then finally we’ve made changes in how we work, so that our scale works even harder for us. And that’s helping limit earnings erosion as sales soften in today’s environment. You’ve heard me say it before and I’ll say it again because it’s that important -- all of the progress that we’ve made, the competitive position that we’ve built, all of that hinges on one thing and that’s having great people. We are proud of the outstanding teams that we’ve got, both in our restaurants and in our restaurant support center. They are working to successfully navigate through this environment and beyond that, create a great company, longer term. And as I’ve said before, we’ve got what I think are at every level of the organization the strongest leadership teams in full service dining. Together we are all focused on creating in good times and bad times a company that truly is a leader in the full-service restaurant industry now and for generations. And with that, we will take your questions.

(Operator Instructions) We will go to the first question with Matthew DiFrisco from Oppenheimer and Company.

Thank you. My question is with respect to that 70-store opening. I heard you say 10 full-year ’09 for Red Lobsters. I did not catch the rest and what the implication is to -- or can you give us a range for full-year CapEx budget? Because I think if you go back in your script, it sounds a little low, the free cash flow number I believe that you mentioned. I don’t know if that was accurate or not. And then just also as a follow-up, I’m curious if you can give us an update since you are the first to talk about the November trends, what you might be seeing on a regional basis. Can you give us some color as far as has the knife stopped falling in Florida, and then also what you are seeing maybe in California and the rest of the country? Thank you.

Well, I’ll address the new unit opening question first and Brad can address the cash flow question but in round terms, we are looking at roughly 40 net new Olive Gardens, roughly 15 net new Longhorns, 10 Red Lobsters, and then the remainder in the specialty restaurant group, primarily Capital Grille.

And on the annual CapEx number, probably $580 million to $600 million. The cash flow numbers that I was referring to is an all-in cash flow, just prior though to our share repurchase numbers, is what I was referring to there.

Okay, so that’s taking out then the common dividend and any buying back of debt?

Correct, yes it is, yes. And then you talked about regionality and what we might be seeing there, and Brad, I don’t know if you have any specifics. I think in general, Matt, what we are seeing is weakness across the country and some of the regions that had been strong, I’m thinking Texas in particular, did soften up in the second quarter.

Okay. Thank you very much, Clarence.

And finally, it got a little worse in Florida and a little worse in California, so --

Our next question comes from the line of Brad Luddington with Keybanc Capital Markets. Please go ahead.

Good morning. Thank you. Great quarter, first off. I wanted to ask, for the first question if you can comment on any success you may have had in hedging commodities at these lower rates, looking maybe into the third quarter and definitely beyond the third quarter. And then to follow-up, just see if you can comment on Longhorn’s, if you could quantify the same-store sales lift you may have seen from those remodels.

Regarding the commodities environment out there, we have been able to take advantage of that. We have been actively involved in contracting as well as hedging our positions and our guidance on the food and beverage costs reflects our ability there. Some of those costs we already had hedged previously or contracted and so that will continue to work its way into our P&L through the course of the year. But on a number of our key proteins and commodities, we have extended those hedges and at these more favorable prices.

And I would say though just in general, it’s a balance between trying to get as much price or cost certainty as we can but also recognizing that the trends are down and so wanting to take advantage of those trends, and I think the purchasing group has done a nice job in striking the right balance there.

And regarding the Longhorn remodel, it’s a little early to put a fine point on the guest lift that we are seeing, but I would say that what encourages us is as we analyze the 10 restaurants that have been remodeled in our standard pre-post analysis against a benchmark group, we are able to quantifiably identify a lift that we are getting from this and that’s why we are continuing and look to combine it with some other items that we are doing to broaden appeal of the brand.

Okay. Thank you very much.

And your next question comes from the line of Jeff Omohundro from Wachovia.

Thanks. I just wonder if we could get a little bit more color on the monthly sales trends, the pick-up in November in particular. And specifically coming off the all-you-can-eat promos that Red Lobster and Olive Garden, which I would think would index pretty well from affordability and value, and maybe you could talk about what you think is driving that reversal in November. Were there some day parts to that or any other color? Thanks.

Beyond the Thanksgiving shift, which we talked about, I think the biggest impact at Red Lobster in the increase in November is the introduction of wood fire grills, which is a meaningful message, both to current users as well as lapsed users in terms of building culinary expertise at the brand. A very powerful commercial, one of the strongest they have developed -- a major new menu introduction, a number of new items. I think that’s part of what at least we can look to to say what caused the change, and at Olive Garden, I think just the continuing value leadership, two new items, and a new soup dish in their soup, salad, and breadstick advertising, which doesn’t sound like much but it dramatically moved the preference, the percent of guests that are trying our soup, salad, and breadstick offering, since its introduction. So it’s obviously resonating very well with people looking for value.

And as a follow-up, what are you seeing in gift card sales trends, given what I perceive is some greater competitive discounting away from you around gift card sales?

We really don’t comment too much on our gift card sales but what I would say is they have been strong for a number of consecutive years and this year continues to be a strong year as well in terms of growing the sales of those. We have over time added a significant number of new channels where those can be purchased outside of the restaurant and so we are pleased with the continued growth in that component, and we know those sales will be coming back to us in the early part of the new calendar year.

And your next question comes from the line of John Glass with Morgan Stanley.

Thanks. The first question is if you could maybe talk a little bit more specifically about some of the cost savings you have been able to implement really at the restaurant level. I think last quarter you talked about getting after some of those. I presume it’s on the labor line but if it is, how much have you been able to eliminate and such that you can maybe decouple the relationship between same-store sales and the deleveraging or leveraging in earnings, which I think in your model in particular is fairly strong.

I don’t think we can decouple it but we certainly hope to try to limit the downside deleverage, but Drew.

Well, there’s a number of areas that our restaurants as well as our restaurant support center teams have really gotten after very effectively. In restaurants, just adherence to existing standards and controllable cost management have been ratcheted up and that’s why I talked about direct labor schedule, wage management, little things in wage management like doing more annual performance reviews on time, which allows us to give more merit increases that are in guideline across our scale has a meaningful impact in wage management. So that’s one area of controllable costs. The second area is we’ve noticed with turnover reducing in our restaurants, which is a very positive thing because it saves us hiring costs and training costs, we’ve noticed our staffing par is going a little higher than we need to effectively run our restaurants, particularly in managers per restaurant. So we’ve been appropriately reducing the managers per restaurant back to target. And third, we’re beginning an effort to better control energy usage in our restaurants. That’s beginning to have an impact as well.

Great, and then as a follow-up, can you -- when you talk about the impairment testing you are doing, are you going to touch the $500 million on goodwill potentially that you’ve got on your books? And is this in anticipation of potential store closures or could you maybe frame that, please?

Well, the impairment that we talked to should not be confused with our regularly performed restaurant level impairment assessments. Those reviews that we completed this quarter resulted in no impairment charges and will not result in any restaurant closings from that. However, the steep decline in company stock price will cause companies with acquisition related good will to perform impairment testing in accordance with SFAS-142, and in our second quarter we saw an unprecedented decline in our stock price, thus triggering the need for impairment testing. We’re conducting our assessment and we’ll determine the amount, if any, of non-cash impairment charges to be recognized and should be completed in time for the following of our second quarter 10-Q in early January.

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

Good morning, guys. Congrats on the quarter. Clarence, Brad, or Drew -- fiscal ’10, I guess that’s about six months away and obviously it’s tough to talk about sales or earnings for that year but I’m wondering if two items might be coming together, and those are capital expenditures and food costs. I don’t know if I missed it on the call but -- and you might want to save some of this for your January analyst day, but is it safe to assume that both will be down and perhaps any details on that would be helpful. Thanks.

Yeah, we will get into more detail in January. I think we are in the very early stages of kicking off planning for 2010. It will be difficult to try to get a handle on the top line, and so one of our planning assumptions is that the top line will continue to be challenging. As a consequence of that, we’ll continue to be pretty focused on cost management and also on our deployment of capital. And so we’ll be looking, as Drew said, to really understand which are the highest confidence sites that we have, the highest confidence operating companies that we are delivering those sites in, and so a tougher look at capital spending likely to mean that it will go down rather than up, that’s for sure. And then on the cost side, you know, the volatility has been challenging over the last two-and-a-half years, really, but if we assume that the top line continues to be under pressure because of difficult macroeconomic conditions, I think it’s safe to assume that costs are probably going to be pretty well-contained.

And as a follow-up, you had on Olive Garden and Red Lobster an out performance of Knapp-Track by six points. I guess Longhorn was done simply like the industry and that might average out to four or five points out performance of the industry. I guess what’s striking is that you have the negative 2 to negative 4 and you expect the out performance to continue or even increase. It does speak to some pretty dire Knapp-Track assumptions for the remainder of the year.

I would say we really think it’s prudent to be pretty cautious about the macroeconomic outlook because the visibility is so limited. And Jeff talked about the trend through the quarter and the improvement from October and part of that -- part of November is October was so bad, and we have to assume though that things could get there again and so we’ve been fairly prudent we think in our planning assumption for the second half of the year.

Thanks, guys.

And your next question comes from the line of John Ivankoe from J.P. Morgan.

Thank you. Actually, somewhat of a follow-up on the previous question -- when I think about the new unit openings that you laid out for us in ’09 and obviously the trend has gone down -- 40 Olive Gardens, 15 Longhorns, 10 Red Lobsters, call it three or four Capital Grilles, I guess Longhorn, Red Lobster, Capital Grille all had traffic worse than what you originally modeled when you contemplated those sites in ’09, so should we expect a meaningful deceleration in unit development in fiscal 2010 or do you still have the attitude that hey, this is a 20-year cycle and we’re going to continue to develop into it?

No, I think what we -- again, we’ll continue our planning but we should expect that likely it will be down rather than at current levels -- how much is hard to say at this point. The way we approach things though is through a [inaudible] model, restaurant by restaurant. And so we will be looking at restaurant commitments based upon a starting point that reflects today’s volumes and applying a hurdle rate to those. I would tell you that at Olive Garden, the return on invested capital is sufficiently above the hurdle rate that lower volumes is not likely to limit the pipeline a lot. And that is actually also true of Capital Grille. That calculus doesn’t work the same way at Longhorn and Red Lobster, so we’ll have to take a hard look but even at Olive Garden and Capital Grille, as Drew mentioned, there are things outside our control. And so a lot of things in the pipeline are subject to where developers are and in many of those cases, the pace of developments has been slow.

That color is very helpful. Thank you. And also in terms of things that may be discretionary in 2010, Red Lobster remodels and also the new corporate headquarters, I mean, is it -- I mean, is this the kind of environment where big expenditures like that could get pushed out into the out year, or do you still think that we should be at least from our perspective be planning that it enters the budget in fiscal 2010?

Again, because we haven’t read the results of the remodel at Red Lobster, it’s pretty early. We’ll have a better feel six months from now as the new year starts. On the corporate headquarters, we’re pretty much completed. I mean, we’re pretty far along and from a cash flow perspective, there are tax benefits that really make it relatively neutral from here.

Do you remember what the swing, what the spend on the corporate headquarters is in ’09 versus 2010?

Brad.

In ’09, it’s about $80 million.

Okay, and it will obviously be meaningfully less than that in 2010?

I believe it drops about 40, to about $45 million, $50 million.

Okay, and just one final quick question -- you know, we saw in this quarter that you continued to buy back stock. Many companies did not. Should we assume that free cash flow kind of in the future continues to go to buying back stock or is conserving cash or debt pay-down more of a priority at any point in the future?

I think in the environment right now, as I said in my prepared remarks, we need to evaluate that as we move from here based on business conditions and the market conditions, so if those were all in the right spot, I can see us buying up to $200 million but it’s a challenging environment out there, so we’ll keep reassessing it as we go through the rest of this fiscal year.

Thank you.

And your next question comes from the line of Jeff Bernstein with Barclays Capital.

Actually, just to follow-up on that last question, if you could talk a little bit about --

Jeff, you’re breaking up on us.

Is that better?

Yes.

Great. I just wanted to follow-up on that last question actually -- if you could talk a little bit about capital allocation if comp trends were to continue to slow, perhaps prioritize your thoughts in terms of the CapEx versus repo versus dividend and debt pay-down. I don’t believe there’s any debt due before -- I think it’s $150 million in August of 2010. I’m just wondering if you can give your thoughts on pay-down versus building a cash position.

I would tell you, I mean, if the environment got appreciably worse, certainly we need to do the maintenance CapEx so the reinvestment in our business and obviously meeting our debt obligations, so interest payments comes before that but taxes and maintenance CapEx and then dividend, all of those things are the highest priorities. The other parts of the capital budget, so remodel and expansion, would be further down the priority list.

I would just add to that that we, particularly in these times, show us that our desire for and our discipline to strive for an investment grade debt profile has served us well in these times and so we’ll continue to adjust our actions to preserve that ability and that access to lower cost capital that you have with that than when you don’t have it.

Okay, and then just one other follow-up -- if you could -- just on comps; I know the question has come up about November improving, and it does look like if you adjust for the -- I think it’s 250 basis points of benefit in November, if you adjust for that shift, it seems like trends were probably more similar between October and November, both likely a slow-down from September. I’m just wondering whether -- how you would characterize your second half comp guidance. I think you said down 1.5 to down 3.5. I mean, does that reflect a further slow-down? It seems like it’s more just stabilization from here.

I would say even adjusted, November was a little bit better than October, obviously both worse than September. A lot of negative factors across the board in October. We provided a range and the bottom of that range does reflect the slow-down from here.

Great. Thank you.

And our next question comes from the line of Steven Kron from Goldman Sachs.

Thanks. Good morning, guys. A couple of questions back on the margin front, if we can. I’m trying to I guess parse through the aggressive cost management programs that you have said have helped kind of protect the margins a little bit better with the merger related synergies. I know you have a target out there of $50 million on a run-rate. Can you give us a little bit of an update on that integration and whether those costs are coming in better and higher than what you had originally planned for? And then on the second topic, the aggressive cost management, is there a level that you can -- or can you quantify a little bit for us and maybe give some indication as to where you are at this point in that cycle of realizing some of those cost saves?

I guess first starting with the acquisition related cost synergies, we are feeling very good of the progress there. They are coming in very strong. This year we’ve included $40 million of acquisition synergies. That’s $30 million above last year. And as you’ve heard us say, the pieces of getting systems in place to be able to achieve those, we’re feeling very good with so they are coming in strong. I wouldn’t say we’re at a point that we are -- we would be raising that but we are feeling very good of where those are. We also have undertaken additional, what we call business strengthening opportunities. There are opportunity costs for our business of doing those. We are not working with some of the other things but those have been significant and those are incorporated into our guidance when I talked about those, but those continue to increase from where we were in the second quarter. So we’re -- those are baked into our estimate at this point.

Okay. Related, I guess, as we think about kind of restaurant level margins, it seems by the language in the press release, Olive Garden if I read it correctly, the margins were down. Red Lobster it seems may be a little bit more flattish based on the language that you had in there. I guess it begs the question -- you talked about one of the new soups being added to the unlimited soup/salad/breadstick promotion. Did you see a big mix shift on a year-over-year basis as people sought value as opposed to maybe Red Lobster with the new wood fire grill? Is that a higher mix level of sales?

Well first off, in the release we talked about the margins as a percent of sales. If you look at Olive Garden, they were actually growing not only sales but they grew earnings as well, but the margin was a little less. The impacts of the new soup and all of that, I think there’s some there. They probably aren’t that significant though, and also we’re talking [inaudible] was introduced and has a lot of fanfare so over the course of the year, we’ve incorporated that probably not being as strong of a sales mix. And I think you had a question on Red Lobster as well -- I missed that though.

I guess what I’m just trying to get at is did you see people, as they sought value and Olive Garden obviously known for value, did the mix of ticket related to the unlimited salad breadstick promotion, did that pick up in the quarter? Are you seeing people gravitate to that more?

Well, we did see an increase in soup, salad and breadsticks preference at Olive Garden. We think that probably does reflect a value, a desire for value but we took some pricing on our soup, salad and breadstick offering this year and even with the preference increase, we were fine. The margin issue at Olive Garden was more about food costs than it was a change in mix related to value driven by soup, salad, and breadsticks.

That’s helpful. And the one on the Red Lobster side was really just the wood fire grill introduction -- I mean, what percentage of your sales, it seems like it’s gotten some decent traction. What percentage of your sales is that and is that a positive margin mix to your business? Is that priced at a higher point?

I’m not sure. There’s 14 wood fire grill items and there’s a range of price points on those items, so they are not all premium priced. But I wouldn’t think it would cause a negative mix implication for us.

All right, thanks.

And your next question comes from the line of Joseph Buckley from Banc of America.

Thank you. Just to go back to the capital spending again for a moment, would you share with us what you view a maintenance CapEx level to be at this point, for starters?

Maintenance CapEx would be around $150 million to $175 million, depending on some of the remodel activity that we are testing would be included in that. If you take that out, it’s around $150 million is what we would be looking at for this current year.

Okay, and then Brad, your free cash flow range for ’09, I think you said $10 million to $35 million, but that’s after the dividend payment, which in rough terms might be about $110 million or so -- does that sound about right?

Yes, that would be after dividends, taxes, and all of those, and the dividends would be around $110 million for the year.

Okay, and then a question on food costs -- shellfish prices seem like they have come down pretty hard from what I can see. At what point do we start seeing the benefit of that? How far ahead are you covered by either contracts or inventories? Is it possible we go into fiscal 2010 with significantly lower shellfish prices based on what you are seeing right now? Or do we see some benefit here in the back half of ’09?

We have seen some of that come into play but based on the inventory levels, I think when we look at our balance sheet, we had been buying some of that up. You saw a rise in our inventory levels that were essentially 100% covered on our shrimp usage for the remainder of the fiscal year.

Okay.

But I would say the spot market, what you are seeing there will start to show up in FY010 more than this year, and more in the back half of this year than you are seeing today.

Okay. And then one last question --

And your next question comes from the line of Bryan Elliott with Raymond James.

I would like to drill down a bit on the labor costs. You mentioned a number of things and -- including sort of reducing the par level of managers as the turnover and therefore the skill set improves, et cetera. Can you help me understand with the hourlies? It would -- from our perspective kind of hard to separate out the management and hourlies, workers’ comp, et cetera. You mentioned wage inflation is 2% to 3%. You are giving merit increases. Have labor hours for hourlies, sort of hours per operating week or hours per store, been reduced?

We have a lot of systems and expertise around labor hours and managing those to match the hours that we have in restaurants to deliver the guest experience that we expect to deliver and those are on a very scale that moves with volume, so as volumes move up or down, those are adjusted pretty quickly. It is true it’s a little bit harder to adjust those when it’s going down than when it is up but we look at it both ways. If labor can get too good that the guest experience gets shorted and that doesn’t allow us to deliver the experience that we want to have that guest return in future visits. So I think the short answer is yes, they are very variable to our guest count volumes.

How do you measure where that break point is on the service and experience?

Well, we know the steps of service and [inaudible] you could guess that we anticipate to be serving at a particular shift that we match those expectations up and staff accordingly.

And I would build on that by saying there’s some art to go with the science as well, in that we do look at guest per labor hour on the financial side, and then we also track a number of in-restaurant guest experience dimensions in terms of server attentiveness, server knowledge, pace of meal, and over time as we combine those two things and identify where guest experience is going up and what our labor productivity is in those restaurants, we have put together the model that Brad referenced. But there’s some art to it as well as science.

All right. That’s helpful. Joe Buckley just emailed me his question and it relates to SG&A.

Phone a friend -- you got a phone a friend.

And can you elaborate a bit on the $20 million drop in SG&A and how much might have been bonus reversal and how much of that is more sustainable? Thanks.

Well, I would say it was a collection of many items that drove that. First off, really starting back with just the meaningful synergies that we had talked about getting those, or coming through very meaningfully at that particular line. Our ability and the scale that we have to leverage our total sales growth is significant as well, and as Drew had mentioned earlier, the lower turnover that we are seeing and adjusting our manager, restaurant level manager pars for that has resulted in much less hiring and therefore all the training and deployment costs related to those, as well as you mentioned the benefit piece. So we’re not really getting into detailing those in general but there’s a collection of all of those that are significant and I think you would expect most of those to continue, even with the significant deleveraging of same-restaurant sales. We still would take this year and expect it to be about 30 basis points better than last year once you take out all the acquisition related cost as well.

Was there an advertising shift in Q2?

Let me double-check -- not really. Olive Garden started never-ending pasta bowl a week earlier but there’s not a substantial change.

All right, thanks.

Katy, we’re going to have to cut it off right here, I think, and we’d like to thank everybody for joining us this morning on the call. If you have some further questions, of course we’re here to answer those down in Orlando. Please give us a call. We wish everybody a happy holiday and a safe and happy new year and we look forward to seeing many of you down here in Orlando in January at our institutional investor and analyst day. Thank you.

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