Wendy's Co (WEN) 2005 Q4 法說會逐字稿

Good morning everybody, I'd like to welcome you to the Wendy's analyst and investor meeting. I'd also like to welcome everybody who's on the Webcast and the conference call.

Especially our shareholders, our employees and our franchisees. We have a full agenda today so let me take you through the details of the meeting. Following my comments, our Chairman and CEO, Jack Schuessler will present an overview of the enterprise and Jack will discuss the strategic initiatives.

Then Jack will give you an update on our brands beginning with Wendy's. And then Ian Rowden, our Chief Marketing Officer is here today and Ian is going to discuss our marketing strategy. Jack will close the business overview of the section with an update on developing brands and Tim Hortons. And then our Chief Financial Officer, Kerrii Anderson will discuss the financial implications of our strategic initiatives, she will discuss our 2005 results and our 2006 outlook. For those of you here at the Mandarin, we're going to hand out hard copies of this presentation slides and we're going to issue a news release at the end of the meeting.

Following our presentations we will hold a question and answer session. And for those of you who are at the meeting today, we're going to be serving an early lunch. We have a -- we're going to feature our new Frescata sandwiches. From a disclosure standpoint, again this year, we're going to publish our quarterly sales releases beginning with our first quarter sales release on April 6 and our first quarter earnings on April 27. Looking ahead, assuming that the Tim Hortons IPO is completed in March, we would begin financing reporting for Tim's in April. I'll be sending out more information about the reporting dates, the conference call details and Webcast at a later date.

We do have several meetings planned this year with the investment community. For several years we have held analysts days at our corporate office in Dublin, Ohio and this year those meetings will begin in June. We will continue to be active with investors and we look forward to meeting with you throughout the year. As a reminder, all of our disclosure dates, extensive information about the Company, is all available on our corporate Website.

Now before we get started with today's presentations, let me remind you of our Safe Harbor statement. Please refer to the statement that is attached to the Company's news releases and in our most recent Form 10Q. Certain information that management may discuss today, regarding future economic performance; such as financial goals, plans and development is forward-looking. It is possible that 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 set forth in the Safe Harbor statement that is attached to our earnings releases and in our most recent Form 10Q.

I would also like to note that we are Webcasting today's meeting in accordance with Regulation FD. Reg FD encourages public companies to discuss potentially material information in a public forum. Therefore, we encourage you to ask questions at the end of the presentation. Now, let me introduce Jack Schuessler.

Thanks. Well certainly good morning and welcome to all of our investors. Our team really continues to focus on creating value for all of our shareholders. We have a balanced approach to create value for all of our constituencies. Certainly our shareholders but also our franchisees, our employees, our customers and our suppliers. We're making great progress on our strategic initiatives and we're on track with the timeline that we announced in July of 2005. We are writing a new chapter in Wendy's history. Over the next three years this Company will continue to evolve and we're preparing for that change.

Today I'm going to speak on 2005 results, an update on our strategic initiatives, then business updates on; Wendy's, our developing brands and Tim Hortons. And Kerrii will talk with you later about the financial impact of our initiatives and our results. For 2005, revenues were 3.8 billion net income 224 million and EPS at $1.92. And if you really classify 2005, it was a difficult year for us. And we took charges to position all brands for improved performance and we are very, very committed to improving the performance. Wendy's had negative same-store sales for the first time in 18 years. And we were impacted by the San Jose incident and I don't think we fully got everything back so far. We had record high beef prices.

And Tim's they produced another great year, a strong year, positive sales and outstanding income growth. We announced last July a set of strategic initiatives for the enterprise with clear goals to enhance value for our shareholders today, tomorrow, and over the long term. To improve think performance of the overall Company and to improve brand Wendy's sales and profits. These are the results so far. We repaid 100 million in debt this past December, the Board approved $1 billion for share repurchase and we increased our dividend 25%. In 2006, we plan to return significant cash to our shareholders.

Now let me update you on the status of the IPO. We first announced our plans for the IPO in July of 2005. And that's an IPO of 15% to 18%, would be tax efficient and it preserves our ability to do a tax-free spin-off to Wendy's shareholders. Wendy's will retain 82% to 85% ownership of Tim Hortons's. And we've made a lot of progress over the past six months. We announced that Tim Hortons would trade on the New York Stock Exchange and Toronto Stock Exchange under the symbol THI. We filed our SI on December 1. We received comments from the SEC and filed our amended in mid-January. And our goal is to complete the IPO in March and we're still on track.

After the IPO, the market will establish a trading value for Tim Hortons stock. We're working with Tim's CEO Paul House and CFO Cynthia Devine to prepare for them operating as a public Company and building their expertise in critical areas. We are committed to a seamless transition to position Tim's for success as an independent public Company.

Looking ahead, assuming that market conditions are right, we expect to complete a tax-free spinoff to Wendy's shareholders as soon as practical, which will likely be the next nine to 18 months. This was our original timeline and our Board is committed to this approach. To ensure our tax objectives, we have concluded that a spinoff cannot occur until the end of 2006.

Obviously, after the spinoff, Wendy's will be a much smaller Company. And we're carefully planning for our future in setting a new strategic direction. So today we're announcing Wendy's combo plan. It's three tiers in three years emphasizing; same-store sales growth, margin improvement and reduction in coast. And our goal is to improvement our operating margins 500 basis points in the next three years. We are very committed to generating more profit and improved performance from the Wendy's brand. In fact, the Wendy's initiatives that we announced last July fall under this plan.

Let me update you on the progress of each one of these, since we announced it in July. We opened 56 Company units in 2005 versus the plan of 79. So, we saved $30 million in capital. We sold 171 properties to franchisees and third parties during the second half of 2005, for a pre-tax gain of $63 million. And we also took in cash for this deal -- for these deals of 164 million. Now, we have about 20 to 25 properties still to go and they will be sold during 2006, but the gains will not be significant.

We also completed the closing of 42 underperforming restaurants during the fourth quarter. This will give us $3 to $5 million improvement in segment income. And we also said we want to reduce our base of Company stores from 22%, to 15% to 18%. We have already completed an initial analysis and identified a number of markets, so we want to complete this over the next one to three years. We really want to obtain a price reflective of the value of the business,so we will refranchise our Company stores as we approve store operating results. We're on track in executing everything we announced, but I am spending most of my time right now with the Wendy's brand working closely with the leadership team and our franchisees.

Now, let's look at the business update starting with Wendy's. Wendy's is the third largest QSR chain. We finished the year with over 6,700 restaurants. We opened 211 new restaurants in 2005. And as I've mentioned before, we had negative same-store sales for the first time in 18 years and I can tell you none of us really like that. Wendy's is a very strong brand. Our restaurants average more than 1.3 million in sales per year and that's only second to McDonald's. And this is before we get into the breakfast day part.

We also have strong customer satisfaction feedback. The University of Michigan study rated Wendy's Number 2. And we've improved our ratings over the past five years, going from 70 to 75. At the heart of the Wendy's brand is a special relationship we have with our franchisees. They are our business partners. And they are 80% of the system, so we are successful only if they are. In a study by QSR Magazine, Wendy's was second in the industry in brand satisfaction as ranked by the franchisees. This is truly a competitive advantage that we will continue to leverage to build sales and profits.

To growth same-store sales over 3% annually takes great marketing and product innovation. Over the past year, we have transitioned leadership in marketing. Ian Rowden replaced Don Calhoon, a 25 year veteran, who retired. Ian joined Wendy's at the beginning of 2005. Previously, he led worldwide marketing and advertising for two of the most highly respected global brand Coca-Cola and Callaway Golf. He has got great business experience in North America, Europe, Asia and also China. He has focused over the past year on evolving our marketing strategy. Let me introduce to you Ian Rowden.

Thanks Jack. Good morning everyone. It's a pleasure to have the opportunity to share with you Wendy's new marketing strategies and direction for the coming year and beyond. Let's begin by saying, as Jack already alluded to, that I have been part of the Wendy's team for about a year now. And what an interesting year that has been. 2005 was a year of transition, both for me and for the Wendy's band. For me it was a year in which I needed to evaluate where we were and to define our strategic direction for the future. For the Wendy's brand, 2005 was something like a perfect storm.

We saw continued and rapid evolution of the consumer dynamics that have been apparent in our business for the last four or five years. We saw a changing competitive landscape where our competition aggressively built momentum. And, as you have heard already, our business was struggling due to lagging sales. The good news is we have a very, very strong brand as our foundation and we have been the leader in innovations and we will continue to be. Going forward, we're focused on rebuilding our new product pipeline to bring excitement back to our menu. We're revitalizing our core hamburger and chicken business and we're driving more effective communication with our consumers.

Today I'm going to share with you information that falls into three categories. First, I'm going to walk you through a review of 2005. I'll share with you what we have learned and what changes we have made as a result of what we now know. Next, I'll discuss our strategy development with an eye on profitable transaction growth. I'll talk to you about our retail product development process, our evolved marketing approach and our new creative direction. And thirdly, I'm going to detail for you the plan we have for 2006, which in my mind is an exciting first step in the next chapter for Wendy's. Everything I'm going to tell you about is focused on driving same-store sales growth for our system.

All right let's get started. We focused all of our work on better understand our consumer. We continue to have some major demographic issues. Never before in the marketplace have there been three massive generations with the tremendous buying power, such as those we now have. While our customer desire great-tasting food, prepared fast and at a good value; each of these divergent groups want something very different from us. Although, we are meeting many of the needs, we learned that we had an opportunity within an important growth engine in our industry, Generation M. Unlocking the potential that Gen M represents for you industry is really paramount to our future success.

Going forward, we'll be placing greater marketing emphasis on this generation. Within the huge Gen M generation, we're going to focus on the 16 to 28-year-old group. This is the group that's now finishing school, going to work, and beginning to raise families. Gen Mer's are in a stage in life when they solidify in their minds the brands they prefer. They're also greatly influencing their children's buying decisions and their future eating habits.

That's why the Gen M generation is the real battleground for us as we go forward. We'll continue to balance our learning and we'll ensure that we're in touch with all demographic groups. But our focus going forward, is going to be to increase relevance among a younger audience. And you'll see this reflected later today in the advertising I'm going to share with you.

Now let's look at how the competitive landscape changed on us. Consider that a decade ago there were 14 companies with more than a $1 billion in revenue in the restaurant industry. Now there are 24, and you can argue whether they are competitors or not, but as you know, in the consumer's minds they all provide choice. We can no longer compare ourselves just to the two chains we thought were our major competition. That's why we have completely revamped our brand measurement process.

We now measure how we stack up against 50 national and regional brands. This gives us a much deeper and more accurate look at the brand health in our business at any given point in time. We asked our customers the things that are most important to them and then validated what they've told us through our own research. We have identified core attributes that are most important to our customers. And they are grouped into four key areas; our food, the restaurant experience, price value, and the drivers that create an emotional bond and build purchase intent. These things become the baseline by which we measure our progress.

Now, in general we do a better job than McDonald's and Burger King in many of these areas but it's a different story when you compare us to a wider set of competitors. Subway has become a strong competitor in virtually all areas. We can slice and dice the brand research in lots of different ways but the point is, new high-charging players have entered our space and our core competitors have become better at what they do. They have taken a page out of our playbook and have significantly improved the quality and variety of their menu choices. They've introduced large hamburgers, enhanced their chicken sandwiches, strips and nuggets, added value salads and premium offerings and many more. Anyway you cut it, there's a convergence and category blurring that's going on in our business today.

In this new world, the law of innovation takes on a whole new level of importance for us. Now, we have always led the industry in innovation. A great example is the work we pioneered in creating late night and introduction of salads into the quick-service industry. It's clear to us that these innovations have contributed to our business in recent years. However, in today's world, innovation must also drive transaction growth with our core business. It's clear us to that the majority of growth in the last five years has come from price and check at the expense of transactions. And we're focused on stimulating transaction growth to sustain a healthier business. And we have begun to aggressively pursue this in our current plan.

So, let me tell you what we're doing in more detail. I'm going outline for you our plans going forward; a balanced marketing approach with a clear vision, a sound strategy and a mandate for growth. Our marketing efforts will drive sustainable, profitable transaction growth. We'll focus on adding value, getting more people into our restaurants and getting them to spending more once they are there. To get us there our strategy for growth is based on four imperatives that drive all our actions. We're gaining leadership in the area of new product development.

We'll continue to introduce new products and our focus will be on creating greater relevance with those products. Reinvigorating our core businesses of hamburgers, chicken sandwiches, nuggets and strips and salads. Increasing brand relevance, making greater emotional connections with consumers through advertising, public relations, co-banded programs, and the combined weight of all of our marketing mix. And enhancing the restaurant experience for our customers.

These strategic imperatives are the foundation. They are the starting point for all of our marketing actions and that's the route for our future success. One of our first marketing actions we took was to make key organizational changes to strengthen our approach to trend analysis, product research and development, market testing and advertising. The R&D function at the Company now reports directly to me in the marketing area. We have retooled and streamlined the product development process from top to bottom.

To make sure we got it right, we worked with the expects from General Electric who are famous for their long track record of success for new product launches. Our new product development process is now fully integrated with our overall marketing and strategic planning efforts. We directly connect consumer insights to the development of new products at the earliest possible stage in that process. It's a flexible process and projects are prioritized based on transaction driving potential, risk, and complexity. Bottom line, it allows us to have many more products in our pipeline. We'll have 30 to 60 products at the various stages in this process this year. We'll market test seven to 10 new products to our line extension and we'll operations test several other menu options.

In addition to strengthening our product development process, we've evolved our marketing approach. Starting in 2006, we will operate with a rolling two-year plan. This allows us to have a broader strategic view of the future of our business and it will also help us overcome the historic peaks and valleys that we have had in our business and in our sales performance over the years. We're evolving our pillar marketing approach. We will continually communicate our brand and product messages to leverage the core attributes that differentiate us from our competition. At the same time, we're taking greater advantage of the media technology that's now available to us.

We have a more flexible approach in support of new product innovations and takes us beyond what has historically been a full week process and a full week focus for us. And we're beginning to balance new product news with a clear focus on growing our core business. We're excited about the evolution of what we've called our pillar delivery system into what we now call a platform approach. With platform marketing, we're able to advertise the Wendy's brand and our attributes along with individual products. This allows us to leverage our brand strength in a way that's more powerful.

So, let's take a real-time look at an example of how this applies to our brand and our business. Recently we began a program around the idea of hamburger personalization. Personalization begins to reconfirm with our customers that there's a way for them to customize and have choice. We have redefined choice of Wendy's by empowering our customers, providing choices to them in a way they understand.

Now, this is a long-term strategic effort focused on differentiation us from our competition. What I want to do now is show you two commercials that establish this thought in a contemporary and vibrant way. [Two Commercials Played] Since that's the first time a lot of you have had a chance to see them, let's just take one more look. [Two Commercials Played]

So, you can see how we're highlighting sandwich personalization in a hard hitting and compelling way on television. At the same time this message of personalization is being communicated through many media channels, through our use of print, radio and in particular on the Internet. Our ongoing consumer research tracking is showing us that this new message resonates really well with our consumers. In recent weeks, we've seen key attribute ratings for our brand begin to rebound for the first time in two years. This is particularly exciting for us because these attributes are an indicator of future purchase intent.

So, just giving you a glimpse of our new advertising, now I'll dive into more detail on the campaign itself. In May we launched a new advertising campaign, "Do What Tastes Right." The new campaign delivers our taste message in a fresh, bold statement. It clearly defines who we are and what we stand for as a brand. It's topical and contemporary and we know already is capturing the attention of the Gen M audience. Our new creative approach, with a sharper emphasis on younger consumers, is very different from what we've done in the past. And in all our spots, we're working to reflect the wonderful diversity that is America with people of different races, backgrounds, and economic levels.

The "Do What Tastes Right" right campaign is starting to move us in the right direction based on everything we've seen so far. Our research shows we're beginning to influence consumer perceptions about quality, freshness, and variety of our food. We have sound strategic vision and direction that is reflected in the totally integrated advertising campaign. So, in essence that was 2005, our year of transition.

With the ground work laid, let's move on to 2006 and look at how we're going to drive same-store sales for the Wendy's brand. To kick off 2006, we have retooled our value menu program and returned to our $0.99 supervalue menu. Our customers have come to expect good value from us. And finding more ways to provide it every day is one of our most important business strategies. Value is delivered in many ways; the quality of our food, the menu choices we offer and the experience we provide in our restaurants. And certainly price is a key consideration for many consumers. In fact, our research shows that 20% of all consumers in our business are actively looking for a deal.

A critical factor about the makeup of that 20% is that it skews younger and in particular younger males. In the past two years we have seen substantial transaction loss amongst this market. In our restaurants, 55% of all transactions include an item from our value menu when that item is priced at $0.99. However, last year in the face of record high beef costs and added margin pressures we took a series of steps to bring immediate relief to the system. One of the steps was introducing our value choices menu in the middle of the year. We began offering several new menu options at higher price, points to strengthen our blended margins. While we revised our position, our competitors stepped up the pressure. McDonald's continues to actively support it's dollar menu. Launched in March, the $1 KFC Snacker is one of the most successful products in the brand's history. And a bunch of regional players have introduced low priced hamburgers,

And most of our competitors offered discounts and coupons as they do in the month of January. Over the years, we have demonstrated the power of $0.99 to increase sales. This is an approach we pioneered and we know from experience will help restore and rejuvenate our value business. So in December, we realigned our value menu with all products $0.99. We took this step to aggressively get back into the value dollar with our customers and drive transactions. Our results in recent weeks suggest we're heading in the right direction. We have 16 years of equity in our supervalue menu and we know our customers respond well to our value propositions. This is the first of many steps we are taking in 2006 to restore the top-line sales growth we need to our business.

We also have several fantastic new products rolling out in the first quarter of 2006. The first is Frescata, our line of specialty deli sandwiches, freshly baked on artisan bread, which as you know, you'll be enjoying later this morning. Initially, we're going to launch four Frescata sandwiches; Ham and Swiss, turkey and Swiss, Roasted Turkey with Basil Pesto and the Frescata Club.

This specialty deli sandwich category is an entirely different opportunity for us. It offers a totally new product line to a whole new consumer group. Our research confirms that this product will generate consumer interest that rivals the type of interest we got and the success we got with the introduction of our Garden Sensations products. This is a really exciting product for our system. And just so you know we're already working on the next generation of Frescata sandwiches and the one after that.

The second is innovation we're bringing to our Garden Sensation line of salads. We know that our salad customers want variety. Therefore, we'll be introducing a Chicken Caesar, a Spinach Chicken and a reformulated Taco Salad, supported by media in March. These salads were developed and confirmed through our new product development process. They tested extremely well and are the first of a number of innovations we're bringing to this particular category. We know from experience, that providing salad variety drives systems sales growth. As part of our ongoing commitment to provide nutritious choices for kids, we're adding two deli sandwiches to our kid's meals; Roasted Turkey Breast and Black Forrest Ham.

Other enhancement in our product line include a 10-piece nugget combo, which we introduced in January. And also of great importance, our test pipeline is full. Let me show you a few of the ideas that we're working on and that will come to market this year. Currently we're testing a new three-tier combo program with regular, Biggie, and great Biggie sizing options. And we know from experience again, that this will drive sales and margins in our business. If everything goes well, we'll roll this out later in the year nationally.

We started testing a new $0.99 chicken sandwich in February. With product we get the opportunity to aggressively compete in a category and at a price point currently dominated by our core competitors. Here is the advertising that's currently on air in our test markets for this product, and again, I'm going to show it to you twice. [Commercial Played twice.] It's the best $0.99 chicken sandwich you'll ever eat. And we're testing our unique double melt cheeseburger. Available as a jalapeno cheddar double melt or a cheddar bacon double melt. The sandwiches contain two patties stuffed with cheese, sauce, bacon, jalapenos and more.

This innovation on our core hamburger business creates a clear point of differentiation for us in this category. Nobody can do a product like this. And nobody can do a product like we can do thos. And it provides a long term platform for growth. Here's the advertising that supports the tests for these new products and is on air as we speak. And again, I'm going to show it to you twice. [Commercial Played twice.] I can tell you personally, as as one of many who has tasted these, they are really, really good. This is an exciting innovation for our core hamburger business and we believe this product can drive transactions and profits.

Here's some other things we're moving into tests this year, a vanilla Frosty, alternative beverages, as I mentioned already, Frescata line extensions and breakfast. Breakfast today is a $7.2 billion business all of our major competitors are in. Our competitors have built the segment, consumers have built the habit, so for us the foundation has been laid. Quick-service restaurant breakfast traffic currently makes up 15% of all restaurant traffic and it's growing at 3% annually. QSR breakfast sales represent 9% of all restaurant sales and growth is at 7% annually.

These figures point to the fastest growing day part of our business. Based on fair share analysis, the sales potential for Wendy's is more than $160,000 per store, per year. Once we launch breakfast, our target is to reach this level over a three year period. We're partnering with General Mills, Coca-Cola, Proctor and Gamble and a host of other suppliers to help us develop distinct new breakfast options that reflect our quality. We've developed an initial menu offering and are preparing our system for a full market introduction in 2007.

And finally, we're continuing to look for ways to improve the new traditional profile of our products without sacrificing taste. We know that this is critical in today's world because of the importance of health and wellbeing in all of our diets. Recently, we introduced low-fat dressings for our salads, yogurt, mandarin oranges. And we already have items like grilled chicken, chili and baked potatoes. This year we'll move to eliminate trans-fats where possible and reduce sodium content across our menu. As you can see, there's considerable activity taking place in all areas of our menu. We're actively working to return new product leadership to Wendy's.

At the same time, we're also making easier for our customers to order in our restaurants. Specifically, we're working to re-engineer our menu boards. Based on considerable consumer research and with the help from our friends at Coca-Cola, we have developed a new internal and external menu board. We have completed the testing and the design and it will be rolled out across our system starting midyear.

Lastly we have been closely monitoring the effect of combo walls in our restaurants. We'll rollout combo walls in each of our restaurants at the same time we install the new menu boards. One of the things we know; is that enhancing the restaurant experience for our customers increases their inclination to return to our restaurants more often. It also drives sales and profits in each and every one of our restaurants. We have a clear vision, a sound strategy, and a mandate for growth. We have what we believe is a powerful program in place for 2006 and beyond. One that we're confident will deliver sales growth in excess of 3% annually over the next three years.

We have an aggressive new product development plan emphasizing innovation and new news. And we have a new advertising campaign positioning our brand in a fresh contemporary, relevant and engaging way. We're building a marketing approach that's aggressive and one that's focused on propelling the business forward. This is the first of many steps we're taking to re-energize the Wendy's brand for the future. We're excited. We're passionate. And we're focused on doing all that it takes to drive profits for all of our stakeholders. Thank you, and now I'll hand it back to Jack.

Thank you Ian. We're so excited about our marketing plans that Wendy's International is investing an additional 25 million in our national advertising program this year. So, we have done the same-store sales growth; now let's talk about margin improvements. And here are six key strategies or initiatives that we have developed and we're executing as we speak. Menu strategy, restaurant development, service excellence, our double-sided grill, store automation and supply chain management. When Ian talked about all of the initiatives to drive same-store sales, this is the best thing we can do to build margins is to increase our same-store sales. This is our highest priority.

Ian talked about the product pipeline examples like the Frescata, as extension, the $0.99 crispy chicken sandwich and double melts and new initiatives such as the new menu boards and three tier combos. We're also reducing our investment costs. We looked at all of our building costs. And we have reduced our new buildings anywhere in the range of $36 to $50,000. And also our remodels to keep us fresh, we've reduced our costs anywhere from 16 to 30,000. And we slowed down the new development. The impact of that, is we saved approximately 2 million annually in expenses.

According to QSR Magazine Wendy's is Number 1 in speed of service at the pick-up window for the seventh consecutive year. But we lost 11 seconds in 2005 and I can guarantee you we're not happy with this. We'll have heightened execution throughout our system on service excellence. Now, the impact of speed is huge. For every 10 second improvement you have at the pick-up window and service that equals about 1% in sales. At the same time, we'll emphasize initiatives around accuracy and courtesy.

We are also in the midst of rolling out our double sided grill. This really improves the quality of our food, it improves the food safety and it has faster cooking times. It also a labor component. We can reduce crew labor approximately 20 hours per week, per restaurant. That's a savings of about $7,000 per year. Currently it's installed in 1,500 of our restaurants. The schedule in 2006 calls for an additional 1,400 restaurants. And we expect to complete the whole system in early 2008.

Store automation is something we can take advantage of also. We have initiatives behind back office. We can reduce our a administrative tasks by over 10.5 hours per week and we have savings of $4,000 per restaurant. Same goes for time card governance, where we can save $1,500 per restaurant. These are in the stages of testing, we're finalizing them. And we plan to be rolling these out to our Company restaurants by the end of 2006.

And supply chain can play an important part in improving our margins. We're targeting a 60 basis point reduction in food and labor and also a 50 basis points reduction in controllable costs, such as office supplies and cleaning supplies. So, we're really going after margins in all areas as we target 500 basis points improvement over the next three years.

Now let's look at our third important element to generate more profit and to improve performance G&A. The whole organization is focused on efficiencies as we're looking at how we do our jobs. We have targeted goals in G&A reduction and Booz Allen has come in and they're validating our findings. And Kerrii will take you through this in more detail a little later on.

Wendy's is a powerful brand. We have a great franchise system, we're known as superior operators and an innovation leader. And we have produced 18 consecutive years of positive sales. That's unparalleled in our industry. And we will reclaim what is truly ours. We re the innovation leader in late-night, salads, chicken sandwiches and our track record proves we know how to grow a business profitably.

Now, let's take a look at a couple of our developing brands. At Baja Fresh we have about 300 units, concentrating mainly on the West and East Coast. In 2005 our same-store sales declined by 3.7. But I can tell you we improved our economic model by 330 basis points. For 2006, we're going to concentrate on product innovation, improved facilities and continue the progress we have made with our economic model at the store level.

At Cafe Express, Wendy's controls 70%. We have 19 locations. And our AUV's finished last year at 1.7 million. In fact, in the fourth quarter of 2005, Cafe Express was positive. Now we have a buyout option in February -- coming due in February of 2007. As Wendy's evolves, we will continue to look at the long term viability of our developing brands.

Now, let me touch upon Tim Hortons for a few moments. They actually dominate the whole landscape in Canada. We have 22% share of the food service industry. And in the coffee and baked goods share, Tim's has 74%. We have 2,600 restaurants in Canada at the end of last year. In the U.S. we're a growing regional chain in the Northeast and Midwest, where we finished the year at 288 restaurants. Tremendous growth in revenues over the past 10 years, growing at a compounded annual rate of 17.4%. Growing from 238 million to 1.2 billion. And segment income has grown likewise. It's grown over 19% over the last 10 years, growing from 48 million to 279 million at the end of last year.

Tremendous record in same-store sales growth over the 10 years, averaging 6.9%. In our restaurants in Canada, averaged over $1.8 million per year. In the U.S. we have established another strong track record in same-store sales averaging, over a seven year period of time, over 9%. Tim's strategic plan is really focused on continued expansion in Canada, growth in the U.S. and build upon our competitive advantages.

In Canada we opened over 149 new units in 2005 and our long-term goal, we believe we can get to anywhere from 3,500 to 4,000 restaurants. And our new unit development is primarily in the Western provinces, Quebec and our urban centers, such as Detroit. We really have a we fit anywhere type strategies with our buildings from standard units to double drive-thus to kiosks and carts. In the U.S. we believe we have a great opportunity and our goal is to reach 500 restaurants by the end of 2008.

Let me touch upon our competitive advantages at Tim Hortons, whether it's product our balanced marketing or our vertical integration. We have a whole array of baked goods, we can do many things with our donuts. We can have themes like chocolate. We have great bagels. We've rolled out a new hot breakfast sandwich in the U.S. We're advertising that this month and eventually we'll roll it out in Canada. Great, great line-up of sandwiches and soups, whether it's a Turkey Bacon Club or the Toasted Chicken Club Combo, they really hit the spot with the consumer. And recently, towards the end of last year, we rolled out hot smoothies.

Tim's really has a balanced marketing approach. They are on-air 52 weeks a year. They are on all types of media from TV, radio and print. And Tim's was voted marketer of the year by Marketing Magazine two years in a row, both in 2004 and 2005. Now, let me show you Tim's advertising that features our products, giving back to our communities and a new two-stories commercial. [Commercials Played]. That type of stuff really forms the emotional bond with our customers in Canada.

The last area of competitive advantage we have at Tim's is our vertical integrate. Whether it's our Maidstone bakery, which supplies all of our Par-Baked goods to our restaurants. Or the coffee roaster we have in Rochester New York that supplies 1/3 of Tim Hortons restaurants and it really ensures a consistent blend of coffee. Or the new distribution center in [Guelph] where it's a $70 million center that opened in December of 2005. What a terrific business. Tim's has delivered strong, great results over the past 10 years. And it's really been my my pleasure sure to work with Paul house and his team for the past six years. And I know they will continue to leverage the strong brand and their competitive advantages going forward. And as we prepare for Tim's to become a separate reporting Company, they have my commitment and support that this will a seamless transition.

When you really look at business, it's multidimensional. It is about profit but it's also about all of our stakeholders. In business we cannot sacrifice the interest of others for the gain of one. To do anything less than a balanced approach would jeopardize our ability to create value for all. At Wendy's, we are committed to all of our stakeholders, our customers, franchisees, employees, suppliers and shareholders. We will continue to execute our plan and evolve for the future. Now, let me turn it over to Kerrii.

Well, thanks, Jack. Good morning and welcome everyone. Today, I will talk about 2005 results for the enterprise and Wendy's operating trends for the last five years and how we intend to change them. I will also discuss the financial impact of the IPO, our Wendy's combo plan and our enterprise initiatives. And finally, I will give you an outlook for 2006 and beyond.

So, let me begin. Revenues reached a record $3.8 billion up 4.1%. And net income was $224 million, and EPS was $1.92. The $1.92 of course, reflects the impact of the strategic initiatives, which was detailed in our press release on Friday. Tim's continued its strong trend of same-store sales, with an increase of 5.2% in Canada and 7% in the U.S.

Wendy's in Baja experienced a challenging sales year with negative sales growth. Our openings by brand are reflective of our decision to focus on improving return on investment by slowing growth at Wendy's and Baja. The enterprise opened up 417 new restaurants, significantly down from 597 just two years ago. Our operating margins for the enterprise were 10% in 2005. And this is reflective of both write-offs of goodwill in both years and the impact of the strategic decisions in 2005.

Tim's lower margin is reflective of the goodwill and the impairment charges in 2005. And Wendy's margins were impacted by the loss of leverage on sales and gains from properties and the closing of underperforming stores. This is a one-year review.

What I would like to focus is on the longer term trend. We know that our U.S. Company margins have declined over the last five years. And in this industry, you -- in order to maintain margins, you must grow sales 3% to 4%. There is absolutely a direct correlation between sales growth and margins. And this is why we are so focused here today on growing sales as a part of our combo plan.

In order for you to better understand the relationship between sales and margins, let's look at what has specifically driven the decline in our margin. The decline is 530 basis points over five years. The most important element impacting our margins is sales. The increase in beef costs accounted for 150 basis points. Other food and paper were about 60 basis points. And average crew wages have only increased about 2% over each year. So, the 90 basis point increase in labor reflects primarily the deleveraging impact of sales.

Operating costs have increased 230 basis points, certainly due to utilities and insurance costs over this time. But more importantly, again, the deleveraging impact of lower sales. The most important element in improving margins is top-line growth.

So, let's conclude 2005 by reviewing G&A. G&A, as a percent of revenues, was 8.5% and that's up about from 7.8% in 2004. From 2000 to 2004 we improved G&A 1500 basis points but in 2005 we had some unusual items effecting G&A. We accelerated and expensed stock options, which increased our G&A about $4.8 million. We also incurred IPO costs of $5.2 million and restricted stock expense increased $11 million over 2004. Without these unusual costs, G&A expenses would have been about 8% of revenues and 2.5% of system-wide sales. G&A reduction is one of our highest priorities.

In summary, 2005 was a year of ups and downs. It was a strong year for Tim's in Canada and a challenging year for the Wendy's brand. But management made decisions in 2005 that certainly impact the short-term results but are right for the long term. Well that completes 2005.

Now, let's review the impact of the Tim's IPO, the Wendy's combo plan and the enterprise initiatives. Let's start with Tim's IPO. There are several factors to consider when you are projecting the financial impact of the IPO such as; the timing of the event, the number of shares sold, the proceeds from the IPO and the debt issued. All must be included to accurately project the impact of the IPO. And some of these variables are still unknown today. Also, we are in registration, which does limit our ability to provide certain details.

But let me share with you what we know today. In preparation for the IPO we incurred G&A expenses of approximately $5 million in 2005 and we project 2 to $4 million in 2006, which cannot be capitalized against the proceeds. Tim's will incur new debt of approximately 500 million Canadian or 425 million U.S. in the first quarter of 2006. Interest expense will begin on that debt once it is placed, at which time the actual interest rate will be determined. After the IPO is completed, Wendy's with eliminate 15% to 18% of Tim's earnings based on the percentage of the shares sold. And our effective tax rate is expected to increase after the elimination of this minority interest in Tim's, as their income is taxed at a lower rate than Wendy's.

Clearly, we are moving forward on the IPO and we anticipate shares will go where investor demand is greatest. We plan to spin-off Tim's nine to 18 months after the IPO, assuming favorable market conditions and strong business performance by Tim's. Based on our current facts, the earliest a tax-fee spin transaction could occur would be the end of 2006. And if the spin occurred today or at the time of the IPO, there may be tax costs. However, we believe this tax cost should be eliminated if the spin occurs at year end or after.

The nine to 18 month time frame also allows us to assure there is no adverse impact from an administrative perspective for Tim's to stand alone. We are committed to a seamless transition for Tim's management. In addition the use of the SEC exemption allows a Company must be a 34 X filer for at least 90 days. Therefore assuming a March IPO, the spin could not occur before August of 2006. Well that completes the Tim's initiative.

Now let's talk about margin and G&A aspects of the Wendy's combo plan. Our focus on improving ROIC resulted in our decision to slow Wendy's new store development and in 2005, we did just that. We opened 56 Company restaurants with a further reduction of 35 to 40 in 2006. As a result of the decrease in units, we improved cash flow and lowered our CapEx by $30 million in '05. With continued savings of $20 to $30 million in '06.

In connection with this initiative, we have reduced our development staff, which will generate annual savings in G&A of approximately $2 million. Our revenue growth will be impacted slightly by lower new store openings both Company and franchise. However, ROIC and ROA return on assets should improve. To improve returns, we sold off real estate owned by the Company, which was leased to our franchisees and was not generating our cost of capital. We substantially completed this initiative at the end of 2005. We realized gains of approximately $63 million and we generated cash flow of $164 million in 2005. This will lower Wendy's segment income $15 million in 2006 and future years. However, it was the right decision to improve returns over the long term.

To improve margins, we also closed 42 underperforming stores in 2005. As a result, we expect to improve our cash flow $5 to $7 million and our Wendy's segment income 3 to 5 million in 2006. We have carefully reviewed the performance of our Company's store base and their geographic locations. And we are committed to selling 250 to 450 Company stores to franchisees. This allows us to achieve a target of 15% to 18% Company store mix, which we believe is a healthy balance between Company and franchise stores. These stores will be sold as margin performance improves to obtain a price reflective of their values.

While selling these stores will reduce Wendy's segment income, these actions will improve return on assets and generate cash proceeds to return capital back to our shareholders and invest in our core business. The refranchising of these stores will reduce our Company's store base by as much as 1/3. And we recognize that this action, along with the potential spin of Tim's, creates a Wendy's of the future that will be different. We have analyzed our results with and without Tim's. And we ended 2005 as a system of almost 10,000 units. Without Tim's, we would have been approximately 7,000 units. And obviously, our revenues, our operating income and our asset base will be significantly lower.

It is therefore, clear, why we must focus on executing the Wendy's combo plan to drive sales, improve margins and reduce costs. We have targeted, by year end, an initial reduction of 40 to $60 million in overhead and G&A. The process to specifically identify these costs is underway and the opportunity may exist to exceed this number. Our priority is to communicate with our employees and our organization and then later with you the investment community. I anticipate Wendy's will incur some restructuring charges in the back half of 2006 related to this initiative, and Booz Allen is assisting us in this process.

Now as we think about the $40 to $60 million of targeted costs reduction, I believe it's important for you to have a clear understanding of our overhead structure today. Total G&A and overhead were $397 million in 2005. Now, this includes,it you go back to our numbers published, 322 million of G&A and additional $75 million of overhead from Company restaurant operating costs, the CROC line. Tim Hortons incurred about $72 million in G&A in 2005. Since those costs are specifically incurred by Tim's they would be transferred to Tim's at the time of the spin, reducing total G&A for the enterprise.

Also, included in G&A is about $20 million of stock expense related to the fact that we transitioned to a restricted stock plan two years ago and we accelerated the vesting of all of our options. We are initially targeting $40 to $60 million reduction going forward. Had we been able to achieve this savings in 2005 and the Tim spin-off had occurred; our G&A would have been $250 million, not $400 million. This initial range has been validated by Booz Allen. Also consider that when stores are refranchised a majority of the G&A associated with the store could go to the franchisee, continuing to lower our G&A.

While reducing G&A is an important element in order to improvement performance, the greatest drivers of profitability are same-store sales and margin improvement. And we are focused on all three. Ian has discussed a number of new marketing initiatives and R&D designed to consistently drive 3% same-store sales growth. Jack talked about several margin driving initiatives from labor efficiencies to supply chains. These, along with our G&A initiatives, would improve operating margins by 500 basis points. And at least -- and increasing pretax profit by at least $100 to $125 million over the next three years. By passionately focusing on all three of these elements, we ensure a successful future for Wendy's stakeholders.

Now, let us discuss the enterprise initiatives. We have focused on returning capital to our shareholders. By increasing the dividend and our share repurchases, we have returned more than $1 billion to our shareholders over the last five years. In light of the IPO and other initiatives, we are committed to continuing to return significant dollars to our shareholders in 2006. Our current dividend is $0.68 per share and our targeted pay-out ratio is 23% to 27%. In August, we completed an ASR for $98 million and purchased 2 million shares. In January of '06, we executed another ASR for $207 million and 3.75 million shares. These repurchases though, did not offset the dilutive impact of 7 million in stock options, which were exercised by our employees in 2005.

In modeling repurchases in 2006, the EPS benefit will be determined by the proceeds utilized, the market price of our stock, and the timing of our repurchases. In December of 2005, we utilized our cash position to repay $100 million of debt outstanding. The repayment of this debt will result in a positive impact to our cash flows and reduce our interest expense in 2006 by approximately $6 million. This initiative also strengthened our balance sheet at year-end. We ended the year with $393 million of cash and our long-term debt-to-equity and our debt-to-capitalization ratios both improved. As a result of our strong balance sheet, we continue to be investment grade rated by S%P and Moody's.

Now, let's look at 2006. Well first, it is important to understand what accounting issues might impact us in 2006. We will record no stock option expense going forward because we accelerated the vesting of all outstanding stock options in 2005. However, 123R does require us to record expense for our early retirement provisions. Our policy is to allow individuals who are 60 years or older and have 10 years of service to vest restrictive stock immediately upon retirement. In accordance with 123R, these awards must either be expensed at the time of grant or on an accelerated schedule. The specific accounting change will increase stock compensation expense by about $3 million in 2006.

Also, we have been working on our defined benefit plan for the last 18 months. And last week, our Board decided to freeze our defined benefit plans at the end of 2006, with possible termination in the future. Our plan is 100% funded currently. And while some form of an enhanced 401K will be considered, we believe that this action will ultimately save money and reduce volatility of earnings. And many companies have chosen this same action. The decision to freeze our pension plan will have a minimum impact on 2006. However, the amount of our prepaid pension asset, which was $42 million at the end of the year, would be expensed as a noncash charge if the decision to terminate is made.

From a financial perspective, 2006 will clearly be a transition year for the Company. And we are focused on providing transparency in our numbers. We believe it is extremely important that you understand 2005 and that 2006 be comparable to it. Only then are you able to understand enterprise performance after the IPO. We will give guidance today on key performance metrics and we will include, in our guidance, 100% of Tim Hortons's business. Subsequent guidance will be given once the IPO and the debt are completed.

Well based on the assumptions that we have just discussed, the major elements of our model as a follows; revenue growth in the range of 7% to 8%. Unit growth of 3% to 4%. Enterprise operating margins to improve as much as 75 basis points. And a G&A target of 8% to 9% of revenue. An effective tax rate of 34%, which is a 25 basis point increase from 2005. No impact from any change in Canadian currency. And lastly, average shares outstanding of 116 million.

Now, for more specifics. In looking at revenue growth the 7% to 8% increase in the top line will be driven by same-store sales growth combined with new unit growth. Assumptions for sales are as follows. Wendy's in the range of 3% to 4%. Tim Hortons Canada 4% to 5%. Tim's U.S., 6% to 7%. Now let's look at the other driver, unit growth. Our guidance for opening new stores is 345 to 395 new units throughout the system. We continue to focus on building stores that will improve returns.

As a result of the new unit outlook, we anticipate the following cash outlays in 2006. 190 to 200 million in new restaurants, which reflects a decrease in investment at Wendy's and an increase in investment at Tim's, specifically for a higher percentage of standard stores. 95 to 100 million in remodeling and maintenance of existing restaurants. Primarily focused on increasing remodels and the installation of the double-sided grill at Wendy's. $30 to $35 million for technology and other, which does include the investment in the Tim's distribution center. Total CapEx should be down about 25 to 45 million from 2005.

Well, beef does have a significant impact on our cost and our margins, so let's look at the outlook for 2006. We anticipate that our annual average beef price per pound should be down 2% to 3%. With the greatest benefit in the second to third quarters. This chart reflects the quarterly beef prices we paid in 2005. We paid $1.42 in the first quarter of 2005 and currently we are paying today $1.38. This represents a 3% decrease from last year's first quarter. The reason our price may be higher than the general market is because Wendy's beef is priced on a quarterly lag to the market. And therefore, we are slower to receive the benefit of a declining market.

Let's look at our G&A outlook for 2006. It will be a transition year for G&A. With G&A as a percentage of revenue expected to be 8% to 9%. We anticipate higher incentive cash compensation in 2006 for higher performance. Also included in G&A, is the expensing of the restricted stocks, which will increase about $8 million over the amount expensed in 2005. For a total expense of $22 to $24 million. We will be expensing restricted stock, like other companies will be expensing options.

Keep in mind that this G&A outlook does not yet reflect the $40 to $60 million reduction or the final spin of Tim's. As a result of all of these assumptions, we expect double digit growth of 10% to 13% in reported operating income for 2006. There are many factors impacting this increase. Most importantly, are the loss of $15 million in lease income by Wendy's. And our assumption of no benefit in Canadian currency, which was $26 million in 2005. Remember, the reduction of interest expense of $6 million is not included in the 10% to 13% outlook; as interest expense is below the operating income line.

Our business is undergoing a dramatic transformation. And from a financial perspective, 2006 is a transition year. We are focused on completing the IPO for Tim Hortons, which we believe is driving shareholder value. Future shareholder value will be driven by executing the Wendy's combo plan, a winning combination of driving sales, reducing expenses and increasing profitability. So, at this time I think we would like to have John up for Q&A and Jack and Ian.

We can bring the house lights up. Just a couple of things real quick. I know taking a lot of notes today, just as a reminder, we will have handouts of all of the slides today for those of you in the room today. We'll also have a news release that's going to be issued momentarily, so copies of those will be available for those of you in the room. And then the news release will be issued in the -- on the wire and then all of this material will be on our Website as well.

We're now ready to begin our Q&A session. For those of you what are in the room we've placed two microphones on the stands in the aisles. If you can see where those are. Just to kind of help everybody on the Webcast, we ask that you use those mikes so everybody can hear. For those of you on the conference call, you can begin queueing up with the operator and then we'll talk to you when we're ready for that. Jack will conduct the session. He'll call on investors who are in line behind the microphones. When you are called upon, we'd really appreciate it if you could state your name and the firm that you represent.

Each person we would like to ask just one question, so we can move on to the next person with the next question. We do have a number of firms' representative here today. We want to make sure that all of the analysts have an opportunity to ask questions. I'll alert the operator when we're ready for some questions on the call line. We have allotted about 45 minutes for the Q&A this morning. And as then as we said earlier, we'll be serving lunch right outside, featuring the Frescata. Following the Q&A; Jack, Kerrii, Ian and myself are going to be leaving the room here today. We have some media interviews set up after this. But don't worry, Dave Poplar and I are ready to answer your questions, as we always are. So send us your emails, call us and we'll follow up all week. Now, let me turn it over to Jack.

Mark. You've got to stand up on the microphone. I saw your hand first.

Thanks. Two questions having attended past Wendy's analysts' meetings there has been explicit EPS goals communicated for the upcoming year. Unless I'm missing something, I don't see that this year. Correct me if I'm wrong. Just curious what went into the thinking behind not providing an explicit EPS number? Also, just curious about the pricing environment within the burger segment given that Burger King may have some incentives to get aggressive on price to boost their sales ahead of their planned initial public offering?

Oh the EPS guidance, Mark, I think it was a very simple decision that first of all with the IPO in March, all of the information that goes into what effects that EPS was not known. So the idea would be to give you the operating income and then once we know the facts on the IPO, then we can give further guidance. It was that simple. And then the pricing?

Yes, on pricing with the moves we have made on the value-end of our menu, we think we have got ourselves structured aggressively there. And we have kept our prices under the key competition and we're going to watch very carefully as we go forward how we manage pricing across the whole menu.

Yes, go ahead.

Good morning. It's Steve [Arico, Locuswood Capital.] I was just curious about your stock buyback program. In particularly, with the proceeds that you expect to receive from Tim Hortons's; would you expect to return that -- how quickly do you think you'll return that to shareholders? Dividend versus buy back, are you considering perhaps a dutch tender? And could you tell me how much you currently have left on your buyback authorization? And then finally just a comment, I know we've spent a lot of money last year in buying back shares. We did not see the share count shrink. Could you give me an idea as to what your expectations would be for that in 2006?

I'll begin by trying to respond. I think we're open to all of the different methods that you have talked about, the stocks, a dividend. We want to be open minded depending on where the value is. With respect to the timing of the events, we have to first get the proceeds in. Secondly, we have to have a window in which we do not have material information. And we would be able to actually be in the market and buy the stock. So, it's going to depend on what else is going on in our business at the time. So, those are kind of two questions with respect to timing.

Your point on share reduction is a very valid one. That is the reason two years ago, we made a decision to go to restricted stocks. We had overhang on our stock of over 14% with the options outstanding. And two years ago we reduced the number of shares being awarded by providing restricted stock, rather than stock options. And we have been -- we knew we would fight that battle with options for those next couple of years. Today, we have outstanding -- we have reduced significantly. We had 13 million outstanding at the end of '04 in stock options. We're down today to about 4.5 million of options outstanding. So, we would certainly expect going forward that the dilution from options would be less but it would be our intention to offset that.

The third question was on the buyback authorization from the Board --?

I'm sorry 900 million, I'm sorry.

Still left?

Remaining today.

John?

Thanks this is John Glass from CIBC. Can you give us some detail on the Wendy's U.S. margin, what your intermediate goal is in terms of progress in either '06 or '07? Could you just remind us again how much of -- that is if you hit your same-store sales goal of 3% to 4%. And then how much are you taking out in the controllable costs? Is it 110 basis points? How much can you save just from cost cutting? How much do you need in same-store sales to contribute to get to those goals?

It's really still same-store sales mark. You have to have 3% to 4% over a period of time. On the controllables, I think we said 1000 base-- or 100 basis points. On the G&A our -- as far as that goes, you have the increase in the stock expense. So, that hits your margins. So, the first year it's up to 75, at least. And then beyond and what we didn't include was any kind of 30 to 40 million -- or the 40 to 65 million that we have targeted, that's not included in there.

And just to clarify with respect to your question on Wendy's margins this year will be a transition year for Wendy's. You've heard Jack talk about two things. One investing 25 million in marketing, which will occur at the Wendy's segment. And then secondly, we lost $15 million in lease income when we made a decision to sell the properties. So, I would say to you that Wendy's operating margins for the year might likely be flat to slightly up given those two factors. And it will be a transition year.

Yes, I can't see you, but I see your hand.

Thanks. Steven Kron Goldman Sachs. Just a couple of related questions for Ian. Competitive convergence in the QSR space is something we have heard about all year as impacting the Wendy's brand. You put up a slide talking about the increased competition within the QSR category. But if we think more broadly with the restaurants as it whole, it seems as though the QSR category may have gotten a lift during '05. Maybe during the lunch-day given some of the initiatives in the category. And I was wondering, if you think about maybe the casual diners being a lot more, maybe particularly at the lower end, a lot more value oriented? How that plays into the competitive environment. That's the first part. And then the second part, you talk about targeting Generation M. And I would think that maybe the mediums used to get to that target audience might be different than what you have done in the past. So if you could talk about of different mediums.

Sure. The convergence piece first. Very important to us because it not only effects lunch but it has an impact on dinner as well. We mentioned breakfast, which is another important initiative for us. So, we're constantly looking at how we can maintain and how we can drive differentiation from our point of view, from our brands. And that's one of the key focuses and one of the learnings we had in '05; was the need to get that done more aggressively than we have in the past. So second question?

Gen M.

Gen M. The mix that we're using, you're seeing -- as you might from a technology point of view, you're seeing the spread in our media start to be a little broader than it has in the past. Use of television, print and Internet on a national basis is important three piece pillar to what we're doing. And we're seeing the mix. We spend about 85% on television, about 8 on print about a similar set of numbers 7 or 8 on the Internet now, which is up from past years.

Yes, sir.

Hi, Mark Wiltamuth, Morgan Stanley. Just wanted a few more questions on breakfast. You've talked about it as a 2007 launch. Wouldn't this start-up enterprise put a margin drag on your recovery store that you mapped out here? And if you could give us any hints on what this would this entail? Would it be -- would you have capital investments required? And just what kind of things do you think you can side step in terms of challenges that others have had in the past on starting a breakfast?

Well, I think that's why you test. And how many partners can you have to help defray such as P&G, perhaps? They have done some initial work on our coffee so there's potential there. The idea is; as you start marketing it try to ramp it up as quick as possible so that you are at break-even. And that's our intention. And it will be thoroughly tested before we roll it out to the system. Do you have anything?

No.

John, how are you doing?

I'm fine, thanks. Let's see if I can ask these concisely. The first question is on the value choices. Now when you went -- when I guess you broke the $0.99 supervalue menu for the first time this year, we understood it was something you had to do with a margin perspective. It just -- you couldn't sell the Junior Bacon Cheeseburger for $0.99 any longer in 2005. And certainly, you couldn't sell it for that price presumably in 2005. So, could you just walk through why you went back to the $0.99 SVM and if it something that makes sense from a margin perspective?

Two things and Ian can -- I'll probably give more of a global. But we lost more transactions than we thought we would. And the transactions we lost were mainly from the Gen M. And that concerned us greatly and it concerned our franchisees. So, the decision was made to go back. That's the big picture.

And I would say to you; we saw like a 40% loss in transactions on Junior Bacon Cheeseburger. And we saw an alarming rate of traffic decline as a result of that. We also saw the commodity environment start to change as the year went on. And we have taken this step because we believe we need to be very competitive right now in the marketplace with everybody else at that price point. We're also parallel parking development from a value point of view from both a menu point of view and a pricing point of view. So, we understand where we can move going forward. But taking a 30% price increase on a product that was a core value item just simply hurt us.

And the other thing, John, is historically we don't coupon. We don't discount. And the way we deliver value is through supervalue menu and our combo choices.

Let me ask you a question Ian about the brand positioning at Wendy's. We see it's youthful, there's a lot of vitality, it has a lot of edge that we just haven't seen from Wendy's before. And then while the copy is different in the feel, it's conceptually similar to that what certainly Burger King is doing and maybe what a lot of the regional players are doing. And the point of the question is; can you juxtapose going after that youthful edginess with kind of what we've always understood the Wendy's brand to be? It's like the old-fashioned hamburgers, where it's specifically -- maybe in it's appearance that is different from the peers. So just like walk us through your thought of taking the brand to that customer.

Well, the important is we're never going to be what we have never been. We're going to stay true to what the value of our brand stands for. The reason we've taken the direction we've taken is to leverage two things. We have a brand that's based on an asset, which is quality made fresh. And that's something that goes all the way back to the foundation of the Company. I would argue with you, just from a commentary point of view that while we're putting a younger feel to our advertising, we're never going to try to create communications that are like our competition. We're going to differentiate ourselves based on the food and based on the personality we have. But the simple fact of life, is we have to engage with and be part of a next and -- the next generation if you like of people who are coming into our business. And as a 36-year-old brand, that's just part of the life stage you go through. We have grown up with a generation. We're going to have to be part of the next generation and the generation after that and so forth. So, we're doing what --.

And remember Dave -- when Dave was alive and he did our commercials he transcended all demographics. Everybody loved Dave. So, what we have now is different types of messages that are targeted to different demographics. And it's a transition we absolutely have to make.

Okay. Thanks.

For everybody on the phone that was John Ivankoe, J.P. Morgan.

Hi, Ricky Sandler from Eminence Capital. A point of clarification on the 500 basis points of margin improvement. It looks like you are talking about the core Wendy's unit including franchise and Company-owned restaurants. First question is; what portion of that 500 basis points comes from refranchising Company-owned units to franchise, presumably that's kind of of big margin positive? And then second point, it seems like that's predicated on 3% to 4% same-store sales growth for the next the years. So to the extent that you beat that, there's upside and to the extent that you fall short there's downside. Is that a fair way to think about it?

Well first of all, on the 500 basis points, selling the stores or refranchising is not included in the 500 basis points. So, that would over and above. Because when you sell a Company store a certain amount of overhead goes with the franchisee.

Okay. But you are replacing Company sales with royalty.

Right.

But that's separate.

Right.

And we can look at the core Wendy's, as you report it separately and add 500 basis points to it and that's your goal.

As we look at it today.

Today. Okay. And 3% to 4% same-store sales is implied in that.

Right.

So, upside if you beat that, downside if you miss it.

And if you have a more favorable cost environment there's upside.

Okay.

Okay. Yes, sir?

Hi, Dave Palmer UBS, hi. Just in issue on -- just in the spirit of transparency, with regard to Company restaurant margins, some investors have talked about there being massive upside given the fact you you have 1.3 million plus AUB's. Can you discuss where your margins are today at the Company restaurant level? Where they maybe should be big -- long, long-long term?

Well, the first step we said 500 basis points. And there's been some people saying 1,000 basis points or this or that and we simply don't agree on everything that people put out. At the same time, I can say that if you look at our plan and what some people have put out, we really don't have competing agendas. I think we're all pretty much in the same place where we want to go.

And do you agree with that assessment that their -- that your Company restaurant margins are 10% or lower?

No, we don't agree. No, we don't agree with that at all.

It's not true.

Right.

And where are they?

Well we've shared with you, we're down about 500 basis points. We're around 9.6 this year

That's from 15.8, wasn't that?

From 15, you are exactly right, Dave.

So, a little over 10, then.

I would suggest to you some of the facts in the information are not correct. There is G&A in those numbers that were in the white paper. And it's just a different -- but the point is we don't have competing agendas and we need to improve our margins.

So, they were all pretty close together.

And then to Ian, you were talking about improving that innovation process. And from the outside looking in it's always tough to see how these kind of virtuous cycles of innovation can get kicked up. And sometimes it's particularly striking when innovation somehow drives up or there's some stumbled. And it did see like while there was some convergence and the innovation cycles were improving at the competitors, that things did somewhat dry up. And there was even that fruit bowl, which was perhaps a stumble. Could you perhaps talk about what went wrong? Why did Wendy's seemingly dry up on the innovation?

Well, you're talking about a time before I was here, Dave.

Right.

Jack might give you some perspective and then I'll talk to you about what we're doing. And why we're doing it as aggressively as we are.

But if you take a look at what competition has done, it really hasn't been innovation they have pretty much copied our playbook. Whether it's premium salads, premium sandwiches, getting into late night three years ago, we were the only ones in late night. So, they have taken plays out of our playbook. As far as the pipeline goes, all I can say is either we took our eye off of the ball or some of the test products we put in didn't work like we thought it would. And that's -- the only two things that I can say. With Ian here, we have a lot of things in the hopper, things that we're very excited about. The Frescata we're excited about, the line extension. So, we're pretty happy with what Ian and the team achieved over the past year.

And so, what I would add to that is; what we are clearly focusing on is being smarter at understanding what it is our consumers are willing to buy from us. And then being aggressive in preparing ourselves, so we have got -- and I tell you, we have a much fuller, much richer pipeline that we have lots of options on. Which gives us options going on.

You have had three questions so we need to keep moving on.

Okay. Thank you.

Yes, sir?

Hi. Dennis Milton, Standard & Poor's Equity Research. Regarding the drive-thru service time, which dropped. They dropped not only at Wendy's but pretty much across the industry. Could you address some of the industry issues as well as the Wendy's specific issues? And number two, if you are going to be relying on innovation and personalization going forward, doesn't that create a tension with trying to improve your drive-thru times? Do you think you get the 11 seconds back and where exactly do you think --?

We're very confident in getting the 11 seconds back. And some of it is better operational training in how you approach it. And we have had a number of initiatives in our markets that we have improved our service times as we looked at personalization. As far as the industry goes, I couldn't comment on that. I know at Wendy's we just have to get better service times. And you do that by more emphasis, more training, and just wanting to be successful at dropping your service times. It's no big secret. You don't go 11 seconds in one day but what we ask our people to do is one second improvement every month. That's how you get your service times down and tracking and monitoring. Yes?

Hi. Bill [Ackman], Pershing Square.

Hi.

The importance of a rapid spin off of Tim Hortons in my opinion, assuming it can be accomplished, is that if you buy back stock immediately after an IPO of Tim Hortons; in effect, you're buying back what I think will be a very richly valued Tim Hortons plus Wendy's. If you can separate Tim Hortons from Wendy's and then do the buyback, you're going to be able to shrink the share count very very dramatically. And buying back perhaps an undervalued Wendy's that's in the process of turnaround. So, the question is; maybe you can be more specific about whatever legal restrictions or regulatory or tax or other issues that are associated with doing a spin-off more rapidly? And then, how can you address this issue? If Tim Hortons trades at a deservedly rich price, I'm frankly not that excited about buying back -- by buying back stock in Wendy's, the holding Company, in effect you're buying back stock in something you just took public at a high price. Perhaps you can kind of address that>

Well, first of all the tax -- there are specifics on that. We have advisors that says you can't do it and have it tax free. In 1995, when we merged with Tim's, our bases is only 400 million. And so if you do that spin, there's a big tax bill that shareholders don't realize -- they get penalized for it. The Company does not get the benefit of it or the shareholders. So, that's the motivation. And the other thing is, Tim's is a pretty big sizable Company and when other companies do IPO's they are pretty small. And it seems to me that a Company that is the size of Tim's, to make sure they are ready for all of the administration and regulatory, it has to be there.

Why not just have an administrative services agreement between the two Companies?

We have some of that.

In the transition. Again, I think it's just -- to make a statement, I do think it's in the best interest of shareholders if Tim's can be spun as quickly as possible so some of those IPO proceeds could be used to buy back stock in a post-Tim Hortons Wendy's.

And I think we probably just disagree, so that's our opinion.

Okay.

Joe?

Joe Buckley from Bear Stearns. I just have a couple of questions. Kerrii, the 415 to 425 million of operating income, it's up 10% to 13% but last year's number included a lot of one-time charges. Am I right if you adjust that 377, you are talking a pretty modest increase over the 405 to 410 million of operating income in '05?

I would agree with you, Joe, that the number itself when you go adjust 2005 is less than 10% to 13%. But again, I remind you we have no currency improvement, which was $26 million in operating income last year. We also had $15 million loss of lease income from the Wendy's segment. We have 8 million increase in restrictive stock expense. So there are some fairly big numbers that we have lost in -- or we have not included in '06 that might have benefited in '05 even taking out the strategic adjustments. It is a transition year.

And just a question on investment in general. If you are asking the franchisees to do menu boards and combo walls and two-sided grills, what type of total investments are you asking them to make in '06?

Well first of all, for the two-sided grill they are making the investments. As far as the menu boards and things like that that -- they probably won't have to make the full investment in there because there's going to be other ways to get those into our restaurants without franchisees incurring the cost.

Is the Company going to pay that, Jack?

No. Partners, suppliers distributors.

Just one last question. You talked about reducing the cost of both new restaurants and also remodels. What is the cost of a new Wendy's and what is the typical cost of a remodel for Wendy's?

Total cost, land, billing, and equipment, is around 1.5 million to 1.6 million. The building itself is around 600 to 550, Joe. And that really varies by what part of the country you are in. Our remodels historically, have been between 80 to 100,000 for a full-blown remodel. That's where our costs are now. We have had some remodel programs that we did in Orlando where it was higher and that's the base that we brought it off of. So it's more in our typical 80 to 100,000.

Okay. Thank you. Operator, is there any callers on the line queued up for questions? We'd be ready to take a few of those.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Chris Brown with Bank of America.

Just real quick going forward, if you look at your Company ex-Hortons I was wondering if you would give a little color on your comfort from a balance sheet perspective and leverage kind as of you operate Wendy's going forward?

Well from a leverage perspective, we just repaid $100 million in debt at Wendy's. Our next repayment would be 2011 and subsequent to that 2014. So from a near term cash requirement, I would say that Wendy's ex-Tim's is able to generate very strong cash flow, pay our dividends and reinvest back into our business. From an actual ratings perspective, I know it's our preference from an organization to maintain investment grade rating. And I think the key to that is to strong performance by the Wendy's brand.

Great. Thank you.

[OPERATOR INSTRUCTIONS] At this time there are no further questions via the telephone.

We have one here operator.

Just a quick one, Dave Palmer UPS. On the developing brands front, wondering could we see a spin-off of them in this upcoming year? Obviously, we have had two years in a row of them being a drag. Thanks.

As I said in my remarks, as we evolve, we're going to continue to evaluate our evolving brands. Yes, sir?

Jeff Bernstein, Lehman Brothers. Two questions. First on your franchise base, obviously it's been a tough year or so. You've commented margins have come down, sales have slowed a little bit. If you could just give us kind of full background or update on the franchisee relations? Perhaps what are the top questions you are hearing from franchisees, maybe their biggest concerns? And then secondly, just on the share base if I could just clarify. I believe you mentioned for '06 you are expecting a share base at the end of year of about a 116 million, roughly with where we are right now. Maybe if you could walk us through a little bit of a clarification why we wouldn't see much of a reduction at all in that share base? Thanks.

As far as franchise relations, historically, we've had very good relationships with our franchisees. We truly believe we're business partners with them. Their issues with us are pretty straightforward, it's get the sales up and lower the margins -- lower the overhead. Increase the margins and get the sales up. Those are their biggest issues. And we constantly get in front of our franchisees to talk to them, discuss their business plans. We met with them at our national convention in October. Ian and I are going out on the road at the end of February and meet with 14 -- in 14 cities in ten days to meet with all of our franchisees. It's just, you've got to stay in front of these folks. They are your partners and they have a lot of good ideas too. Share count.

As far as the share count, I did give guidance of 116 million, which is roughly where we ended the year. Again, this guidance today is assuming that the IPO has not yet occurred. So our intent would be to the -- as we have historically, we would be out there repurchasing shares to offset option exercises. And that is the assumption of the 116 before any other share repurchases.

We did say in the presentation following the IPO we will come back and update our guidance.

That 116 is as of you did not do the IPO at all this year?

Correct.

Right.

You had mentioned in the past, it would go back toward share repurchases.

Right.

Yes, Peter?

Hi, Peter Oakes with Piper. As far as brand Wendy's, you mentioned that your multi-year goal is to generate sustained 3-plus% same-store sales, yet over the last five years you have only had one year of that kind of performance. And yet '06 involves quite a bit of transition. Whether it is be transitionary product development, transitionary customer base. Why shouldn't we think of those assumptions as being aggressive? Obviously, you've got more confidence in your ability to generate that kind of comp. And then secondarily, the breakfast goal that you shared a couple of years out that's, if I remember correctly, 160,000 per unit; that would be the entire comp, which on the one hand sounds like a great opportunity. Yet, there's currently only one player in traditional QSR who can come anywhere close to exceeding that. So, to be able to make your initial foray in what is generally recognized as a highly habitual day part, seems aggressive with that also. Thanks.

Well let's go breakfast first. The 160 relates to about $3,000 per week, a little bit plus that. If you look at the breakfast day part, just looking at the number of restaurants we have and executing a good breakfast program gets you to that $3,000 per week. On the comps -- on the sales, breakfast is not figured in in any of those numbers. And while we've had one year of 3 plus, if you average the annual growth rate it's right around 3. We feel very good about our product pipeline, our marketing, where we say we can go out and build sales at 3% to 4% over a period of three years.

Yes, I would just add that I think we have got more products through the testing process this year to be ready for '06 and then we have got a continual flow beyond '06. So -- and when Kerrii talked about the transaction sense from a financial perspective, '05 was the transitional year for us from an operating point of view.

And I would just add the 160 in breakfast Peter, that Ian spoke to, he talked about taking three years to get to that level. Not coming out of the gate year one at 160.

We fully recognize how competitive it is and how habitual it is from a usage point of view. But we're obviously excited about what we've got planned.

There's one there.

Good morning Steve [Rainiery at Rayunes] Capital. I'm not a tax expert and I just wanted to confirm they understand it that it's -- the tax-free nature of the monetization of Tim's is obviously crucial given what you said in the basis. So, I'm just trying to make sure that I understand that there is no way to spin off the balance of Tim's this year without foiling that for the end of '06. I just want to make sure that's what you are saying and that I can understand it.

Again, based on our facts and our information, we believe that a spin any sooner than towards the end of the year would not result in a tax free transaction.

Is there a certain date it's -- or it's just sort of --?

It depends on how Tim's performs.

I see. Okay. Thank you.

I don't see any hands. Is that it Jack?

I can't believe this crowd doesn't have more questions? We have a couple on the line.

Okay.

Operator is there any on the line?

[OPERATOR INSTRUCTIONS] At this time there are no further questions on the telephone.

Howard, how are you doing?

Good. Howard Penney with FBR. The question is on the 500 basis points reduction -- or improvement I should say in Wendy's margins, can you achieve that goal without a 3% increase in same-store sales or what portion can you do without --?

Personally, I don't think you can do it. You certainly don't want to slash and burn and really not support your franchisees. Because they are the most important parts of our businesses, whether it's Tim's or Wendy's. Those franchisees are the ones that really have built these Companies, so if you can't support them at a proper level then good things don't happen. In a normal cost year, it takes 2% to 3% just to cover your margins. Okay? And anything over that will help your margins. We targeted 3 on the higher end because we have been in a cost environment really for the last couple of years. With the beef prices, we want to make sure we get everything covered. At the same time you still have to look at all of your processes, all of your costs and get them down. Then you would get more leverage on the 3%.

But the big driver is sales, Howard.

It has always been sales and it always will be.

Over here?

Andy Barish at Bank of America on the equity side. Two questions. First on the product launches, just so we're clear, Frescata and a bunch of salads are both coming up in the first quarter and how are you going to handle the operational complexity? And then on the financial side for Kerrii, can you give us some sense of that 400 million G&A overhead, maybe how much of that is inherently necessary to support the franchise system today? Or how you guys look at it internally, without maybe getting too specific but kind of giving us a sense of where that may be?

In March we do have a salads. It's three new salads but we're taking out three of the older salads, so the complexity really isn't there. People know how to make salads pretty good in the restaurants. The Frescata, the neat thing there, and that looks like it's going to be around April. The neat thing there is we've integrated it very well within our operating system and we have had it thoroughly tested. And we didn't see any degradation of operations. In fact it's in our sandwich line up, our sandwich board is the same as the hamburger condiments. So, for a crew member is was very easy to learn.

That's a product that benefited from two rounds of testing, so it's been assimilated really well.

And to try to help answer your question with respect to the 300 million in G&A, I would say probably at least 2/7 of that we need to support the franchisees at the right level to provide them the guidance and support, whether it's training or marketing or real estate. I think that's the other part that really changes is; what is your overhead structure once you start selling off restaurants and you have 1/3 less Company store base to support? That does change your numbers.

Thank you.

Yes, right there.

Hi, Mark Wiltamuth from Morgan Stanley again. A lot of your comments today were focused on core Wendy's and we're going to start paying more attention to core Wendy's once Tim's spins-out. If you can give us thought on your long-term goals for growth at Wendy's on an operating income basis? That would be helpful.

That's what we're putting together now as far as our next strategic plan, our projections. And I would say that , I think we need a little bit more time as far as really pinning down what our long-term growth is going to be. I don't think it's going to be in the 11 to 13's. But I do think that we need a little bit more time to really verify and validate everything we're doing. And I see that certainly by the end of the year. Yes.

Hi, Alan Anvil of Pershing Square Capital. Question with respect to your customization products, or how you're going to be customizing your burgers and other products. What kind of impact do you see or could you foresee in terms of increased wait times, increased labor costs for potential franchisees and owned stores?

Well, that's why you are testing? And if the intern -- this is a great idea, I said yes, we can build sales there but the impact, service times or some other things we just won't do it. So that's why you test. And we're open to ideas and that's-- and if they work, then you get it out in the system. So, I really won't worry too much about ideas coming in. I'm willing to test them all.

And what we have found, just on that topic already as we tested it, is that we have not seen degradation that would harm the system, because what we're doing is we're thinking about how we're going evolve this and we'll do more rounds of testing on it. As I said, it's a longer strategy.

Could you comment on sort of how many stores have been tested -- you've tested this program on so far?

Well there's two things. One is this customization, some of the work that Ian has showed you. It's just with our normal condiments.

We've been doing it.

We've been doing it since 1969. Dave was the original founder, entrepreneur of customization. So, we've been doing it since 1969.

If you have people in this room who have been on restaurant tours with me, you look at our sandwich making station, you saw it, you would know this not an issue. You can ask any of the sellers about that.

Even with customization which we have been doing since 1969, We have been number 1 in speed of service at the pick-up window for seven straight years. So, your people know how to do it. Now, if you add other things to that, that may be complexity; so then you test it then. And that's what we would do.

Thank you.

Yes, sir?

Steve Arico, Locuswood Capital again. I ask this question in light of management's focus and you have a lot on your plate with a transition year. But I was just curious, could you give us any update are you -- have you had discussions with the filer at Trian who has taken a 13-D position? And can you give us any thoughts on that?

Well, typically we don't make public our meetings with our shareholders. I can tell you as far as Trian goes, Mr. Peltz and I exchanged some letters, and I think we would both admit that there was some misunderstanding on both of our parts. As those understandings became more full, then we went into a period of registration and quiet time. And I would say to any of our shareholders, go ahead and call us and see if -- if you want to talk with me, come out and see us. Yes?

Good morning it's Paul Westra with SG Cowen. I was wondering if you could give us some more color on the $40 to $60 million G&A savings? Specifically, give us some examples of what that is and where it -- is it associated with the Wendy's P&L, majority-wise or Tim's or both? If you can give us some proportions.

Well, first the 40 to 60 is all really Wendy's because Tim's will go away, all that G&A, that's 72 million.

And a follow-up on that, is that 40 or 60 you said beginning in '06, could we -- could you give us idea of -- because your G&A guidance doesn't look like a lot of that 46 million impact.

None of it is in there.

That is correct Paul. None of it's in there for '06. As we get our -- specific guidance will be given and we will update you. But as I said, we do want to deal with our employees and our organization first. We're focused on it. We need to get it by year end. Get saving business by year end to beat --

Have it in place.

To have it in place for '07.

For '07.

For '07. And so the 40 to 60 year goal would be that you'd hit that by '08?

By '07.

For the year '07.

Great. And then a question, could you give us an idea what your tax rate would likely be when you are standalone Wendy's? You said it's higher, if you were to guess, 38?

Well, we're not giving after the IPO But it is higher and it's more in the higher end of the range 36 to 38.

Okay. Thank you.

Bill?

A question on your currency guidance, you are using in your numbers it looked like $1.21. The exchange rate is $1.14. In order for it to average $1.21, it would have to move gradually to call it $1.28 by the end of the year. So in effect, in your operating income your Tim's assumption is probably called 7% understated assuming the currency stays where it is. Maybe you can -- that to me means that Wendy's is using, as a percentage of operating income, you smaller number. The question is are you setting the bar too low or are you just being really conservative or os this where you think, plus or minus things are going to be?

I think on currency, Bill, we have never really given a lot of guidance on currency and we just kind of let it float out there and it will impact our earnings either good or bad. We don't like to make projections on it.

Right. We have always given comp to currencies just our approach. And you're right, it was $1.205, $1.21 were the average in today. And it is better today and we hope it stays. But you can talk to different experts and different people give you different views about whether it's going up or down.

But I don't want to miss a number because currency. Okay? And again, I think investors and a lot of the analysts will be able make their models according to what they think the currency is going to be, not what we think it is going to be.

And again, once the IPO occurs and we're eliminating a portion of Tim's earnings, we'll be eliminating a portion of that benefit, to the extent there should be one.

So it's very hard to predict. Yes?

Stewart [Kwon] from Zander Capital. Just a question on -- you mentioned refranchising the Wendy's Company stores. What is the effect on EBIT in '06?

There is no impact in '06 because we're assuming that the refranchising of Wendy's Company stores will not occur until operating results improve. Which at the earliest would be at the very end of '06, more likely '07.

And then secondly on closing the underperforming stores, in the slide you showed 3 to 5 million in '06. Is that the delta between '05 and '06 is a $3 to $5 million improvement?

Yes, it. Is.

Okay. Thank you.

Yes, sir?

Just a quick follow up on the refranchising. Can you just talk about the selection process in terms of how you are determining the restaurants? Are those the lower performing stores or the ones you think you get the best deals on? What is the process?

Well, those are some of the factors. These other is they may be outliers. And by outliers, I think the Company does best in running urban -- big urban markets like New York and being a partner with the franchisee. So historically, we have gone in and build in smaller towns and then refranchised, where we think a franchisee is better capable in smaller towns than the Company. But it's that -- it's what kind of performance-- you are not going to sell your crown jewels either. So there's going to be a mix there. Anything else? Okay.

Ed Garden from [Priant]. Based on your earlier comments, does that mean that you are now prepared to meet with us?

I would say that whoever makes your phone calls, can call John when he's back in the office tomorrow.

Great. Thank you.

Okay. I think that completes the analysts day and the Q&A I want to thank everybody in attendance as well as those on the call. Again, you contact Dave Poplar or I later today and the rest of this week. Thank you very much.

This now concludes today's conference. You may now disconnect.