Good morning, everyone, and welcome to the Third Quarter 2011 Conference Call for The Wendy's Company. Our hosts today are John Barker, Chief Communications Officer; Emil Brolick, President and Chief Executive Officer; and Steve Hare, Chief Financial Officer. [Operator Instructions] I would now like to turn the call over to John Barker. You may begin, sir.

Thanks. Good morning, everybody. This morning, we issued our third quarter 2011 earnings release, and we also filed our Form 10-Q. The agenda for today's call and the webcast will include comments from our President and CEO, Emil Brolick. Our Chief Financial Officer, Steve Hare, will then review our third quarter financial results, as well as our 2011 outlook. And then afterwards, we'll open up the line for questions. As a reminder, due to the sale of Arby's, the restaurant group, on July 4, 2011, Arby's results of operations are reflected at discontinued operations. Today's conference call and our webcast is accompanied by a PowerPoint presentation that can be found on our Investor Relations page on our corporate website, which is www.aboutwendys.com. For those of you who are listening by phone today, make sure you select the appropriate webcast player option from our website and that will make sure that you can sync up with the slides and the audio. Before we begin, I'd like to just take a minute to read you the Safe Harbor statement that is attached to today's release. Certain information that we may discuss today regarding future performance such as financial goals, plans, development is forward-looking. Various factors could affect the company's results and cause those results to differ materially from those expressed in our forward-looking statements. Some of those factors are referenced in the Safe Harbor statement that is attached to the news release. Also some of the comments today will reference non-GAAP financial measures such as earnings before interest, taxes, depreciation and amortization. Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure. As you know by now, Emil Brolick took over as our CEO of The Wendy's Company on September 12. And because this is his first quarterly earnings call with us, I'd like to provide just a little bit of background about Emil. He joined Wendy's from Yum! Brands where he had held several leadership positions including President and Chief Concept Officer of Taco Bell, President of U.S. Brand Building, Chief Operating Officer and President of A&W All-American Foods and Long John Silver's. Prior to his time at Yum!, he worked at Wendy's for 12 years, lastly, serving as our Senior Vice President of New Product Marketing, Research and Strategic Planning. During his time at Wendy's, Emil worked closely with Wendy's founder, Dave Thomas. And we are very excited to have him back. Let me turn the call over to Emil.

Thank you, John. Good morning, and thank you for joining The Wendy's third quarter earnings call. It's quite an honor to have the opportunity to lead The Wendy's brand to -- and to build upon the good work of Roland Smith, David Karam and Steve Hare. Moving forward, the goal is simple: return The Wendy's brand to the luster and performance of the 90s and 2000s, the period of time when the brand enjoyed 16 years of consecutive same-store sales growth. The turnaround of The Wendy's brand has already begun, but to sustain brand sales and profit growth will take a cohesive effort of company and franchise operators united in reigniting the brand vision of our founder, Dave Thomas, and by being true to the very high people and operating standards of brand legends, Jim Near and Gordon Teter, all of whom I had the privilege of knowing and working with. My first 2 months in position could not have been better. Franchisees and employees had been very welcoming as has been Nelson Peltz, Peter May and the entire Wendy's Board of Directors. In mid-October, we held our National Franchise Convention in Las Vegas with an all-time record attendance in both domestic and international franchisees, as well as record supplier participation. The mood was very upbeat. The Wendy's family is excited and committed to the operating effort and capital that it will take to continue the momentum that is building in The Wendy's brand. This excitement is, in large part, due to the significant success achieved by the launch of the Dave's Hot 'n Juicy hamburger line, featuring our signature fresh, never-frozen North American beef, 2 slices of cheese, crisp leaf lettuce, red ripe tomatoes, red onions and crinkle-cut pickles, all on a warm butter-toasted bun. Sounds great. And customers'…

Thanks, Emil, and good morning. As Emil highlighted, North America company-owned same-store sales increased by 1.8%. This sales increase was driven by a 1.1% increase in transactions and a 0.7% increase in the average per customer check amount. Our franchisees' same-store sales increased 0.7% during the quarter. As you can see on this slide in July, we promoted our Wild Berry Frosty Parfait and Wild Berry Frosty shake, which featured fresh strawberries and blueberries. In August, we added 2 new items to our My 99¢ Everyday Value Menu, the Monterey Ranch Crispy Chicken Sandwich and the Cheesy Cheddar Burger. In September, we promoted local options such as the Spicy Chicken Sandwich. And in some markets, introduced Dave's Hot 'n Juicy Cheeseburger line. Wendy's company restaurant margin was 13.7% for the third quarter, which reflects a 30 basis point increase from a year ago despite higher commodity costs of 140 basis points. For comparison purposes, 2010 restaurant margin includes incremental advertising expenses as reported and consistent with 2011. We were able to offset higher commodity costs with strategic pricing and mix shifts that produced a net positive change of approximately 120 basis points. In addition, restaurant margin was favorably impacted 80 basis points due to a year-over-year reduction in breakfast advertising expense. Now I'd like to go into more detail on our third quarter results. Total revenues for the third quarter of 2011 increased by $10.7 million or 1.8% versus the prior year. Revenue increases were primarily a result of same-store sales increases. In addition, the increase in revenues reflects a $3.5 million benefit from Canadian currency exchange rates. Adjusted EBITDA for the third quarter of 2011 was $87 million and represents an increase of 6.5% compared to prior year. Adjusted EBITDA in the current year excludes transaction-related cost resulting from…

Thanks, Steve. Before we open up the lines for Q&A, I just want to share a little more information regarding our Investor Day that we are planning to host in late January 2012 as Emil mentioned a minute ago. At that time, when we have that meeting, we will issue a news release, plan to issue one with our preliminary 2011 results, as well as our outlook for 2012. Also at that meeting, we will plan to talk about our strategic plans for the future in terms of growth, as well as updates in our core business, some of the remodeling the units that Emil mentioned, breakfast and international. We will provide more details specifically about the location and date, time in the coming weeks. I'd also like to address the transition that is currently underway in our Investor Relations group. As some of you may already know, our current VP of Investor Relations, Kay Sharpton, has decided to remain in Atlanta to pursue a position closer to her home as we move our headquarters back to Dublin, Ohio. David Popler, who previously served as our Director of Investor Relations from 2004 to 2007 has returned to us after spending the past 4 years leading Investor Relations at Bob Evans. Kay will continue to be your primary contact for follow-up calls related to this earnings release for the remainder of the week. And then beginning next Monday, on November 14, I would ask you to contact David. He'll take over as our daily point of contact. Dave's number is (614) 764-3311. Please join me in thanking Kay for her excellent work over the past 3 years and welcoming Dave back to Wendy's. With that, operator, we are now ready to begin our Q&A. We have a large number of participants in the call today. [Operator Instructions] Operator, please open up the lines for questions.

[Operator Instructions] Your first question comes from the line of Jeffrey Bernstein with Barclays Capital.

I guess a 2-part question related to the products that you talked about earlier, Emil, it sounds like with a lot of excitement. The first was just specific to the burger rollout. I know you referenced back to 2004, the last time you saw this type of momentum. I know you had previously mentioned 2% or 3% was kind of your test number. So I'm wondering what additional color you can give in terms of what you're seeing with the actual results in terms of mix or margin on this product versus your existing, or -- and it seems to imply you're running in on the 5% range for the fourth quarter. So I'm just wondering if you can touch a little bit on the burger and then separately, the breakfast rollout. It sounds like the franchise convention went well. It seems like it's a must-have in your language. I'm just wondering if you're not going to give us the pace of unit openings, what milestones should we look for, sales of breakeven hurdles we should expect, or whether or not you help support the franchisees?

Sure. Well, Jeff, first of all, as I -- I'd characterize that we were extremely happy with the launch of Dave's Hot 'n Juicy. In fact, we purchased some incremental media to run for 3 more weeks, along with the Asiago Ranch Chicken Club. And I will say that the product did perform quite a bit better than the numbers that we saw in the test market. As we mentioned, we're not going to be giving monthly comps going forward, but we are very, very pleased with the results that Dave's Hot 'n Juicy product, as is our franchise community. So hopefully, that helps you understand that. And as we look at breakfast and we did have a very positive communication at the convention regarding breakfast. And when you look to the future, Crest looked out for 10 years, and they actually see the dinner daypart as fairly flat. They see, the lunch daypart increasing a little bit. They see continued strength in the breakfast daypart as well as the snacking daypart. And we feel that we have to find a way to take advantage of that. But as I emphasized with our franchise partners, we're going to be aggressive, but responsible. We believe that we can demonstrate again, good economics to this, solid operating attributes, as well as consumer attributes and have all 3 of those be a win. And my commitment to the franchisees was to show that result before we launched. However, we are -- one of the reasons that we are not giving numbers, as I said, is for competitive reasons. But also, the fact is, Jeff, the number we want is we want a full rollout, and that's ultimately the goal. So I think the intermediate step-stones really don't -- it don't contribute a lot. But we are convicted to doing this the right way. And as I mentioned, we believe there is an opportunity in the marketplace for a higher quality breakfast offering. And if you have the chance to have our products, I think you would agree that they fit that classification.

Is the biggest hurdle the sales level or is it more of the breakeven for breakfast on the franchisees perspective? And if it's the cost side of things, would you be willing to help them or?

Well, we -- Jeff, we know that it's going to take an incremental media effort to put against this, and we have already discussed that with them, and they support that idea. And we believe that some of the people that have had forays into breakfast that have not done as well as they would like to, and part of the reason is that they haven't put consistent pressure against the breakfast. And if you look at the approach that McDonald's takes, it's out there advertising breakfast on an ongoing basis. And we believe to be an important player in that marketplace that, that's what we're going to have to do. But we have built that into the mathematics on this idea.

Your next question comes from the line of Michael Gallo with CL King. Michael W. Gallo - CL King & Associates, Inc.: Emil, my question is, I guess if just look at the service level, the labor in the restaurant, Wendy's has always been very efficient in the drive-through. But I guess particularly with some of the surge in traffic that, at least, we observed in the month of October, it appeared servicing, moving people through the line, particularly within the restaurants, it seemed like a lot was bottleneck. So if you can give us some thoughts on just service levels in the restaurant, steps you take to improve that and how you get it where it needs to be because, obviously, there's a big sales opportunity there if you can improve that.

Well, Michael, we couldn't agree more. And I would tell you that one of my important messages at the convention was an opportunity that few people mentioned that I happen to think is a big opportunity in the business, which is the dining room business. We have been so focused on the drive-through, and I think we're doing an outstanding job there. But to some degree, I think we've taken our eye off the ball on the dining room. And by the way, this is over a long period of time. This is not something just recently. And I would tell you that the franchisees and our operating people embrace this idea very enthusiastically that we feel by paying more attention to the dining room, that we can drive business. And by the way, my sense is that demographics also favor this because as people age, they have more time, and they'd like to spend more time in restaurants. And we have always historically served that clientele very well. With an anticipated launch of breakfast at some point in time, we also know that we have to do a better job inside the dining rooms, particularly on weekends for that. So we're in the same place that you are. We see that actually as a growth opportunity in sales across all dayparts.

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

I wanted to ask about some of the new products that are coming up. You're renovating, obviously, the burger with the Dave's Hot 'n Juicy burger, and I thought next was going to be the premium chicken sandwich renovation. And then -- but instead, next is this W burger, which I'm guessing from your comments is going to be helpful to your margins, as well as perhaps sales. And then am I guessing this right that you kind -- you maybe reached into the basket of new products and pulled this one forward and maybe ahead of the chicken sandwich renovation, any thoughts on that would be great.

Sure. Well, the -- we had planned this pacing and sequencing, and we are testing chicken line innovations that I think are really quite step change. And I would tell you, they involve products that I don't believe anybody else could produce to the standard that we are going to produce them. And I think they reflect a going-forward perspective on how people are purchasing chicken sandwiches today versus maybe how that they purchased them in the past. When you look at the positioning of the W hamburger, this is going out at a $2.99 price point. And one of the things we want to do is put a product out there that we think is going to encourage people to trade up perhaps those individuals that are purchasing $0.99 item will trade up to this product. It is a very, very high-taste profile, very indulgent sandwich and did very, very well in test markets. So this is on the calendar where we've planned it, Dave, and we still have our plans for chicken sandwiches next year. I don't want to give you anymore details on those, but they are heading to the test markets, and they've done extremely well in a preliminary consumer research.

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

I have actually 2 questions, one on, Emil, sort of a bigger picture. I understand you -- The Cut Above and going back to 1969, but it's not 1969. And it's 2011, 2012 and consumers use concepts differently. So maybe if you can sort of compare and contrast your previous time at Wendy's and how you're approaching it differently? And then, I'm a little confused about the breakfast message that you're sending. It sure sounds like you're pulling back from breakfast, or you're going to take a little bit more time to maybe figure out what the right strategy is and then just maybe I missed that message, but I was a little confused on what you're were saying, what you are doing with breakfast today.

Yes, okay. Well, first of all, on A Cut Above, you're right. This isn't 1969. But I do believe that this is the natural position for the brand, Howard. And I think, unfortunately, in -- we went through a period of time as a brand that we stepped back from this position, and we have to step back into this position. And by the way, I'm not for the moment suggesting that we want to try to pretend to become a Five Guys or Smashburger or something like that because I think that would be a big mistake for us to do that. But I do believe that there's a significant opportunity in the marketplace for higher-quality products that are fresh made-to-order products. And The Wendy's brand is virtually the only brand out there that is a non-new QSR that easily customizes items. And so I think that it's very natural for the brand to get back into this position and be at the very high end of quick-serve restaurants. And I'm confident that, that is a position that we can hold quite uniquely that is defensible and is profitable. Regarding the breakfast, you should not take away from this a difference in timing or a different level of commitment. And as I mentioned, we're not giving the numbers for the reasons that I've already stated. We believe that this does represent a significant opportunity. We also know that we want our franchisees to be very enthusiastic about this idea because their commitment to this is going to make a huge difference in the level of success we accomplish with this. So they're going to move with us on this thing, and we got a very warm reception on this. And so I really believe that we're going to end up in a very good place and even a better place than ever conceived.

The next question comes from the line of Joe Buckley with Bank of America Merrill Lynch.

I have 2 questions, one on breakfast as well. I kind of get the same impression, Emil, that while you're reaffirming your breakfast commitment, you might be pulling back a bit. And I know that you mentioned the product being -- or the breakfast daypart being in hundreds of stores. But you mentioned 1,000, which is sort of the prior target. So what kind of changes or fine tuning to the program do you think it needs before you can roll ahead a little bit more aggressively?

Well, the key thing that we're working on right now, Joe, is the integration of the coffee offering, as well as bakery offerings that we also have in test and how we integrate that with our sandwich line because we want to go out there with an offering that really is very distinctive and the consumers will sense that distinctiveness. And at the same time, this is clearly going to be a QSR breakfast but a high-quality QSR breakfast because we know convenience and portability are very important at that daypart as we also know that the coffee offering is very important. And we're working with a very large supplier partner in the coffee business, and they're helping us sort through this. So again, we feel that by taking the approach that we're taking, we are ultimately going to have a much stronger, much more successful offering in this arena.

Okay. And then kind of a broader question. You talked about The Wendy's operating system as being uniquely capable of delivering differentiated product. Could you remind us sort of what is distinctive about the operating systems, the back of the house kitchen operating systems, just as a way for us to think about the capabilities?

Well, I think some of the key perspectives, Joe, is from the very beginning, Wendy's has always been a custom sandwich restaurant. And so we are used to building sandwiches on a custom basis. And while we'll have a standard build, many of our products are ordered custom by consumers. And so we do that very naturally, which is something that consumers want today. And also, you'll see when we -- when you look at the build on some of the future chicken sandwiches and the bread carriers, we're using in different items, how that we can process things in the back of the house that our competitors have a very difficult time copying those things just because of some of the equipment we have in the back of the house. And I don't want to go into too many details because I'm going to give this away. But go in other competitors and see how easy it is to order customized products versus the way it is for us to do it. Also, Joe, if you look at just our salad offerings and how we build salads to order, and when you look at the ingredient components on our sandwiches, whether it's leaf lettuce, whether it's onions that are cut in the stores or tomatoes that are cut in the store, we believe that freshness adds to the taste of the sandwich as does eating enjoyment adds to the value of it. And we give that to a much higher degree than anybody else out there. And we appreciate that food transparency is very, very important to consumers today. And we believe that we can leverage that to a much higher degree, and that is going to be an important part of the whole positioning of A Cut Above.

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

I wanted first ask about advertising, and then I had a question about capital spending. On advertising, Emil, do you believe it is -- it requires incremental advertising spending to launch breakfast, or just a reallocation of funds? And I think it was mentioned this quarter about less advertising spend on breakfast. Have you completely eliminated breakfast advertising in the near term until you've retooled the message, or you're still advertising just at a lower rate than you did last year? And I wanted to follow up.

John, we do believe that it will require incremental advertising effort and not just the reallocation. But remember, we're also expecting significantly increase in sales from the launch of breakfast, too. So that's an important part in the equation. And no, we have continued and plan on continuing to market the breakfast in the test markets that we have. We do not want to back off that effort. As I mentioned earlier, having sustained pressure in the marketplace is we believe is one of the things that is part of the commitment to the breakfast daypart.

Great and then my follow up has to do with capital spending. Steve, you had mentioned, the important part of the business model is that your ability to generate free cash flow in the business, but you also highlighted a number of remodel initiatives, and you've got a large amount of cash still on the balance sheet. So how do we think about this going forward? Is there a period of time in which your capital spending is likely to exceed the cash generation capabilities of the business? Or do you want to keep that in balance that you're always spending less than you generate and remodel pacing, therefore, will be slower based on that?

Well, John, I think the first step here, as Emil mentioned, and just showing the -- that the pictures of the 9 prototypes we've got out there, I think it's the first question we've got around this remodel opportunity, which again, we're very pleased with the early results there. But we need a little more time there to see what the sustainable lift that we're getting from these investments in providing a better customer experience, along with the better food that we're talking about, I think once we can dimension that opportunity, then I think we can then look at using some of the cash we've got on the balance sheet or this excess cash flow generation that we consistently have and apply that. And, frankly, I would like to see us apply a significant amount of additional capital to both the company stores and perhaps providing some assistance to the system overall because we're based on at least recent early results, and we're very excited about this opportunity to refresh the facilities.

Your next question comes from the line of Chris O'Cull with SunTrust Bank.

My question is regarding the same-store sales sustainability here. What indications do you have so far that the strong comps can be sustained, especially if promotional spending starts to normalize?

Well, Chris, we feel quite good about the results that we are seeing post the launch of Dave's Hot 'n Juicy, and we're now into the second week of Asiago Ranch Chicken Club. And sales have held very, very, very well. And we also are confident with the moving into the W because that is a product that we had in test market experience on, so it's not -- it's a product that we have an idea of what the performance on that is going to be. And the thing that we have done with -- the thing that we feel that we have done with the launch of Dave's Hot 'n Juicy and our refocusing on core items has really gotten us back into the business of selling large hamburger chicken sandwiches and salads as a balance with our My 99¢ Menu. And I think we probably went through a period of time as a brand that, that got a little out of whack, and we're getting that back into position. So we really feel very good about the momentum that we can sustain.

Emil, let me ask, why do you need to introduce a new mid-tier burger line so quickly after launching this new cheeseburger line? I mean, do you expect it to drive enough frequency to really offset what I would assume to be unfavorable menu mix?

Well, we do -- one of the things we're trying to do with this product and is a key part of this strategy is having price point at $2.99 that is closer to where the -- to some of My 99¢ set products are or even some of the $1.29 or $0.39 products. So we actually trade people up into that product. If, for example, that, that did not sustain on a long basis and not prove out, well then, obviously, we would make adjustments in that product. But believe me, we are going to continue on an ongoing basis to put pressure against Dave's Hot 'n Juicy as we look to next year. We've been so pleased with the success of this that we have no interest in not coming back to this product. In fact, as we look back historically, and it's always easy to look back, is that we feel by not putting pressure on some of our core hamburger and chicken sandwiches, that certainly contributed to the erosion in the sale of those products. They are the products that carry the biggest, richest equities of the brand, and we clearly are going to continue to put emphasis upon them.

Your next question is from the line of Jason West with Deutsche Bank.

Actually, Chris just asked the question I had on sustainability, so I'll ask on the cost side of things. This quarter, the cost of goods sold improved a little bit sequentially. Was there a bit of a lull in the beef pricing, you expect that cost of goods sold pressure to build again going forward, or is this more the run rate we should expect at the current level of inflation?

Yes, we saw -- we did see a little help on the beef costs recently, Jason. But again, I think when we look ahead and we look at next year, and we'll obviously share our view at Investor Day. We're still, at this point, looking at some headwinds in terms of commodity costs overall as we go into next year.

Okay. And then just one follow up. Emil, if you could talk a bit about any changes in the incentive structure that you foresee, either at the store level or at the senior management level? And within the store level, back to the question earlier about service and sort of making sure you're fully staffed to take advantage of the better traffic trends?

That's something that I have not had the opportunity to spend a lot of time thinking about as yet. So I would not have a new point of view on that at this time.

Your next question comes from the line of Phillip Juhan with BMO Capital Markets.

Yes, I was hoping that maybe you can provide the breakout between menu pricing mix impact on check in the quarter, so what was the average price increase in the third quarter, what was the mix impact on check? And then looking ahead to the fourth quarter, do you continue to see incremental pricing opportunities in the fourth quarter? And do you see sort of a continuation of the current kind of cost pressure in the fourth quarter as well?

We do not break out price separately, so the information we did give you was that we saw transaction growth for the third quarter 1.1% and then the change in average menu check, 0.7%, which should include some price, but we don't break that out separately.

Okay. And in the fourth quarter incremental price increase opportunity that you see, do you see opportunity in the fourth quarter to perhaps take incremental price, or what are you guys thinking about that now?

Well, for the entire year as we've talked about, in the face of these very high commodity costs, we try to be very strategic in our approach on pricing. Because as Emil has emphasized, our focus is really on a year where we're very pleased to see transaction growth. And so we are taking price where we can, but the idea has not been to fully offset commodity costs given the large runoff we've seen there.

That will be the last call because we're already at the top of the hour. Emil, you want to close with a few comments?

Sure. Well, thanks. Thank you, John. And again, thank you for being on the call. And I want to reinforce that we are very, very bullish on the potential for The Wendy's brand in the United States, and we think The Cut Above positioning fits very, very well. And we believe the success that we're going to have in the United States builds a wonderful, wonderful foundation for moving forward outside the United States where Darrell van Lichtenberg is doing a wonderful job of leading that organization, setting us in a position with a strong foundation to really ultimately have a business that contributes significantly to the profit growth in The Wendy's organization. So thank you again, and I look forward to seeing all of you in January in New York City.

Thank you for joining today's conference call. You may now disconnect.