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Wendy's International, Inc. (NASDAQ:WEN)

Q3 2007 Earnings Call

October 26, 2007 8:00 pm ET

Executives

John Barker - IR

Kerrii Anderson - CEO andPresident

Jay Fitzsimmons - CFO

Ian Rowden - CMO

David Near - COO

Analysts

John Glass - CIBC

Louis Parks - EP Management

Steven Kron - Goldman Sachs

Larry Miller - RBC CapitalMarkets

David Palmer - UBS

Paul Westra - Cowen & Company

Glen Petraglia - Citigroup

Tom O'Neill - Barclays Capital

Rachael Rothman - Merrill Lynch

Joe Buckley - Bear Stearns

Jason Boucher - Wachovia

Jeff Bernstein - Lehman Brothers

Operator

Good morning. My name is Crystal and I will beyour conference operator today. At this time, I would like to welcome everyoneto the Wendy's Analyst Conference Call. All lines have been placed on mute toprevent any background noise. After the speakers’ remarks, there will be aquestion-and-answer session. (Operator Instructions) Thank you. Mr. Barker, youmay begin your conference.

John Barker

Thanks, I appreciate it. Goodmorning everyone. The purpose of our call and our webcast today is to talkabout the third quarter and to provide an update on some of our key businessinitiatives. We did announce our third quarter numbers yesterday after themarket close. We also had a brief news release out this morning about some ofthe initiatives we are undertaking from a strategic planning standpoint.

The agenda for today’s call, wewill begin with remarks from Wendy’s CEO and President, Kerrii Anderson, andthen after that Jay Fitzsimmons, our Chief Financial Officer will discuss thequarter and then we will take your questions. Also on the call today, with us,our Chief Marketing Officer, Ian Rowden; our Chief Operations Officer, DaveNear; and other members of our senior management team.

I would like to refer you for amoment to the Safe Harbor statement that isattached to the news release. Certain information that we may discuss todayregarding future performance, such as our financial goals, plans, developmentis forward-looking. Various factors could affect the company’s results andcause those results to differ materially from those expressed in ourforward-looking statements. Some of those factors are set forth in the Safe Harborstatement attached to the earnings release. Finally, some of our comments todaywill reference non-GAAP financial measures, such as EBITDA, and you can findreconciliations in our press releases and on our website.

Now, let me turn it over toKerrii.

Kerrii Anderson

Thanks, John, and good morning,everyone. The financial results we released yesterday are a clear indicationthat we continue the Wendy turnaround. We are focused on exactly, what we couldcontrol, which is improvement and our core business. And improvement in ourcore business quite honestly is the best way that we can create value for ourshareholders, our franchisees, and our employees.

We continue to execute ourstrategic plan and we have delivered significantly improved results thisquarter at both the corporate as well at the restaurant level despite a verytough competitive environment and commodity pressures.

For the third quarter, wereported improving EBITDA, and income, and EPS result, and we have now producedfive consecutive quarters of positive same-store sales. Our total adjustedEBITDA from continuing operations increased 57% to $95 million for the thirdquarter, and that’s up from $60.3 million a year ago. Now this does include theexpenses that are related to the Board’s Special Committee process, which wereabout $13.4 million, restructuring charges for the quarter of $1.4 million, andfrom pension settlement charges of about $1.

Our US Company operatedrestaurant EBITDA margins improved 330 basis points to 12.6% for the thirdquarter of ’07 and that’s compared to a 9.3% in the third quarter of last yearreflects positive same-store sales for the quarter including price increases,menu management, and labor efficiency.

Our third quarter US, operatingmargins and EBITDA margins will have improved an additional 140 basis points to14%, if it worked for the commodity cost pressures and headwinds, we faced inthe quarter. These financial highlights are a clear signal that we arerevitalizing Wendy’s.

We are doing a better job oftaking care of our customers with improved operations. We are delivering newproducts such as the Baconator, the Frosty Float, and others that we havetested. And our market-based pricing strategy is working and it’s improving ourmargins. And our advertising is breaking through and gaining new attention ofour consumers.

Overall, our progress on the keyelements of our business since June has been very encouraging. Now, we expectto produce 2007 full year EBITDA and EPS near the high end of our guidancerange that we gave you in June, and that’s really reflects our improvingmargins, and our cost controls. We are very confident about our businessoutlook for the remainder of 2007. Now Jay is going to discuss our thirdquarter financial results in greater detail in just a few minutes.

From a strategic perspective, weintroduced Wendy’s recipe for success about a year ago in October of ’06. Theplan focused on initiatives to grow sales and profits in every restaurant inour system. And we have made significant progress in the last 12 months as aresult of the initiatives implemented under this plan.

And foundation of our business isstronger today thanks to the performance of our restaurant crews, of our greatoperators, our franchisees, and our field and corporate employees. We haveproduced five consecutive quarters of positive same-store sales. Storeoperations profit margins are up about 200 basis points year-to-date. And ourconsolidated earnings are improving. This is a significant progress.

Now, while we are encouragedabout the improved results during the quarter and year-to-date, we know, wemust do more. We must intensify our focus on driving growth and transactions,profitable transactions, improve our store economics, and accelerate ourprogress, and that’s exactly what we are doing in the second phase of ourstrategic plan, which we highlighted this morning with the news release.

Our leadership team hasidentified ten imperatives aimed at achieving improved results of everyrestaurant in our system. These are part of our 2008 business plan focused ondoing what’s right for our customers and our key drivers are operation,marketing, facilities and our people and made the imperatives build on top of Wendy's"Recipe for Success" plan, which is focused on Revitalizing theBrand, Streamlining and Improving our Operations, Reclaiming our InnovationLeadership, Strengthening our Franchisee Commitment, Capturing NewOpportunities and Embracing a Performance Driven Culture.

Now seven of the strategicimperatives drive growth, and the final three create efficiencies and improveour returns on invested capital. As we think about the -- just talk about thefirst seven number one, Core Hamburger. We talked a lot about of how importantthe hamburger business is to us, that the business we are in and we need to improveour large hamburger market share by increasing the appeal and buildingtransactions with our consumers.

Second initiative is the valuemenu proposition, we plan to introduce our data more effective value strategyto capture growing share of that 18 to 34-year-old customer. From a beverageperspective, we have initiative to increase our drink incidences and ourmargins. For example, we have expanded the Frosty brand very successfully overthe last year. From a late night and snacking day-part, we are focused onreenergizing our late night business and capturing afternoon and evening snackopportunities, which is clearly what we see the consumers are demanding in themarket.

Now from a breakfast standpoint,we have our new breakfast menu in more than 850 restaurants and at year end; itwill grow to about 1000 restaurants including 351 franchise restaurants. We aremoving to the next stage of our program to offer high quality premium breakfastto customers and to optimize our restaurants. This just remains the fastestgrowing segment of the QSR restaurant segment, and our major competitorsattribute breakfast of a large component of their growth.

Now from our perspective, inaddition to breakfast, what’s most important is the focus on customer service,and we are implementing in our company restaurants a total customer feedbacksystem to improve customer service both from a proactive perspective as well asthe reactive perspective.

Our seventh initiative isreinvestment. We must reinvest in our restaurants and it’s critical to meetingthe consumer needs becoming more competitive and quite honestly drivinglong-term sales improvement. From a people quality standpoint, our initiativethere is to elevate the customer experience by improving the hiring and theretention of our employees, while reducing our turnover, improving our trainingand generating savings at the store level.

Now from a refranchisingperspective, we are focused on improving the overall health of our system,while refranchising a number of stores in 2008. And lastly and probably mostimportantly store margins. We will leave no stone on turn to achieve ourobjectives to continue to expand our store margins.

In summary, our strategic planhas a bold vision for Wendy’s consumer focused, successful, more profitable inevery restaurant and growing and I’m committed to driving phase two of ourstrategic plan is the right thing to do for our customers, our employees, ourfranchisees and our shareholders.

Now finally, as we has ouroutlook for the remainder of the year, we are on target to produce 2007 fullyear EBITDA and EPS near the high end of the guidance range I have said earlierprovided to you in June. And we are confident that our business turnaround willcontinue. We remain focused on driving growth in transactions to improvingmarketing and operations.

And we are working on a number ofinitiatives to offset rising cost, as we continue to focus on improving ourmargins at every Wendy’s restaurant and system. We are committed to fiercely protectingthis great brand and improving the value of this great brand in this company,as we positioned it for future growth and profitability.

Well, that at this point, I wouldlike to turn it over to Jay to review the numbers, Jay.

Jay Fitzsimmons

Thanks, Kerrii. I would like tosummarize the quarter as follows. We had a solid financial performance in thethird quarter in a difficult and competitive environment. I think the headlinesare that if you exclude expenses related to the board’s special committee,restructuring and pension settlement charges, adjusted income from continuingoperations increased 55% to $38.6 million that’s up $24.9 million from a yearago.

Adjusted diluted EPS fromcontinuing operations increased 100.10% to $0.44 up from $0.21 in the thirdquarter of 2006. Adjusted EBITDA from continuing operations increased 57% to$95 million up from the $60.3 million a year ago. We take a look at US companyoperated restaurants, EBITDA margins, as Kerrii said they improved 330 basispoints.

Total company stores, EBITDAmargins and this includes our Canadian and International operations improved270 basis points to 12.5% in the third quarter of 2007 and that compares to9.7% one year ago. It was our fifth consecutive quarter with positive same-storesales growth with same-store sales up 0.2% at the company-operated restaurantsand up 1.3% at franchise restaurants. Another way of looking at this is thecompany's two years sales trends and they continue to improve and have averagedgot more than 4% in the past 4 months.

We are encouraged by the results,but we recognize that further opportunities exist to gross sales and improveoperating margins. As Kerri said, we have a strategic plan in place to generateeven better results in future periods.

Now let's look at some of theline items on the P&L. Cost of sales of $334.9 million or 60.4% in thethird quarter of 2007, compared to $345.8 million or 62.1% in the third quarterof 2006. The 170 basis point improvement as a percentage of sales is dueprimarily to our higher menu pricing tied to our market-based pricing strategyand improved menu management.

Now as Kerri said, without theimpact of higher commodity costs third quarter US company-operated restaurantcosts of sales margins would have improved an additional 140 basis points.

Now let's look at the commodityoutlook for the remainder of the year. Beef prices in the fourth quarter willbe down about 68% from the third quarter of this year, but will be up from thefourth quarter of last year. Chicken prices have held fairly constant in thesecond half of this year, but we are expecting the prices of French fries to bethe biggest drivers of upward pressure in the fourth quarter by going up 11% to13% as our contract take effect.

We continue to see upwardpressure on dairy cost of about 5% to 7% for the quarter and we also expecthigher grain prices to impact the quarter due to the continuing biofuel demand.Paper costs are expected to be flat. To offset these cost increases in thefourth quarter, we continue to focus on credit optimization, labor initiatives,menu management thing such as the higher priced Baconators and the FrostyFloat, which has a great food costs, Kerri, and aggressive food costsmanagement.

Now let’s talk about company restaurantoperating cost, a $148.6 million or 26.8% of sales in the third quarter of 2007that compares to $155.3 million or 27.9% of sales in the third quarter of 2006.The year-over-year improvement, as a percentage of sales is due primarily tolower utility, bonus and insurance costs. These improvements were partiallyoffset by the change in accounting that we talked about in the prior quartersfor the real estate joint venture with Tim Hortons.

As the result of this change inaccounting, third quarter 2007 company restaurant operating costs includedrental expense paid to the joint venture by Wendy’s, which in the prior yearwas eliminated in consolidation. Without this change in accounting, reportedthird quarter 2007 company operated restaurant EBIDTA margins would have been30 basis points higher or 12.7.

On the operating cost line, $6.3million in the third quarter of 2007 compared to $8.3 million in the thirdquarter of 2006. This year-over-year decrease is due primarily to a decline infranchisee rent expense; again as a result of the change in accounting forWendy’s real estate joint venture with Tim Hortons, which is no longerconsolidated.

Now, let’s move onto G&A.G&A in the quarter was 7.8% of revenue compared to 9.9% of revenue in thethird quarter of 2006. This 210 basis point improvement as a percent of revenueprimarily reflects the impact of the cost savings initiative related to thereduction of salaries and benefit as a result of the elimination of positionsin 2006 in last year’s next chapter program. It also includes $6.4 million inlower insurance costs. The decrease in insurance costs come from lower D&Oexpenses this year and favorable claim experience.

And the other income expense linethe $2.9 million of income in the third quarter reflects $3.1 million in incomefrom the 50/50 joint venture with Tim Hortons, and insurance gains partiallyoffset by store closure charges and other asset write-offs. Remember the incomefrom the joint venture with Tim Hortons is partially offset again by the higherrent expense I talked about in company restaurant operating costs. Thiscompares to $1.6 million in other income in the third quarter of 2006.

Interest expense was $1.5 millionhigher in 2007, as a result of the sale of 40% of Wendy's U.S. royaltystream for 14 months that we entered into in the fourth quarter of 2006. Thisobligation is recorded as debt on the balance sheet. In 2006 we have received$94 million in cash in return for the 2007 future royalties. In 2007, therepayment of this royalty related debt is being accounted for as a loan,comprising both the repayment of the debt principle balance and recording of theinterest expense. As a result, interest expense is up in 2007.

Interest income, the $11.7million decrease in the third quarter 2007 interest income reflects lower cashbalances, as a result from the modified Dutch auction tender and theaccelerated share repurchase completed in the fourth quarter of 2006 and thefirst quarter of 2007 respectively.

Taxes - the company’s effectivetax rate was 34% in the third quarter of 2004, but that compares to 26.5% inthe third quarter of last year. Now both quarters benefited from the settlementof prior year tax audits. The normalized rate is 38% but as you know certaindiscrete adjustments will cause that rate to fluctuate from quarter-to-quarter.

Shares outstanding lower thisquarter due to the share repurchases. Previously discussed $22.4 million fromthe modified Dutch auction tend to offer in the fourth quarter of 2006 and a $9million on the accelerated share repurchase in the first quarter of 2007. Thisresulted in a lower share count of $88.4 million average shares in the thirdquarter of 2007 compared to $118.3 million average shares a year ago.

Now, as usual, we had some unusualitems in both this ands last years third quarter. Special Committee expenses of$13.4 million in the third quarter of 2007 recorded in the line ofrestructuring and special committee related charges. These costs did not occurin the third quarter of 2006. There were restructuring charges of $2.4 millionalso recorded in that account restructuring and special committee relatedcharges in the third quarter of 2007. This compared to $2 million inrestructuring charges in the third quarter of 2006.

In the third quarter of 2007,this includes $1 million in pension settlement cost. Now, year-to-date, this iswhat, we have recorded, $18.1 million in special committee expenses, $9.4million in restructuring, which includes $6.4 million in pension settlement charges.

At the end of 2006, we indicatedthe total pension charges could be up to $60 million in total. Based on thecurrent interest rates updated assumptions and pension charges recordingto-date, we know expect remaining pension charges of up to $35 million of whichabout $10 million of that will represent a cash out flow.

The timing of these pension costsis dependent upon obtaining the necessary regulatory approvals to terminate theplan. In the fourth quarter, we do expect additional expenses related to theBoard’s Special Committee process and possible restructuring and pensionsettlement charges.

Now, going back to the outlookfor the full year 2007. As Kerrii mentioned, we expect to report 2007 full yearEBITDA near the higher end of the outlook we provide to investors in June. Thatoutlook was a range of $295 million to $315 million.

We also expect to report fullyear EPS near the high-end of the range that we provided, which was 109 to 123.Now remember these ranges exclude expenses related to the Board’s SpecialCommittee activities any potential restructuring and pension settlementcharges. As a reminder, we suspended our previous earnings guidance for 2008and 2009 due to the special committees strategic review process now underway.

Finally as you known, we can notcomment on the special committee’s strategic review process. That arecomplicated process, I know you would like to hear more that the Board’sSpecial Committee is following a very disciplined approach. Now, we acknowledgethat the process is taking longer than we originally anticipated and this isdue impart to the well publicized uncertainty in the debt capital markets. ButI assure the special committee process is continuing and we believe there willbe more clarity relatively soon.

Now, let me turn it back to John.

John Barker

Thanks, Jay. Couple of notesbefore we open up the phone lines for questions. First of all our Board ofDirectors approved our 119th consecutive quarterly dividend that will be paidon November 19th and then it will be to shareholders of record as of Novemberthe 5th. The quarterly payment is $12.5 per share. This is the fourth dividendpayment since the board voted to increase our annual dividend by 47% up to$0.50 per share.

As Jay said as we get into theQ&A, we really did not intend to provide further updates today regardingthe special committees action. We will, as we have said in the past, we reporton developments in the future, if circumstances want. We do intend on this callto talk about the results, we just reported year-to-date in quarter as well asoutlook, and our updates on operations and marketing, and we would ask that youfocus your questions on those subjects.

Now operator, we would like toopen up the call for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Yourfirst question comes from John Glass with CIBC.

John Glass - CIBC

Hi, thanks. In the implied fourthquarter EBITDA guidance it looks like margins probably also declinedsequentially, and I know there is a little bit of decline seasonally inrevenue. But is there any other reason why margins would be less -- woulddecline in the fourth quarter, is it a commodity issue is there something thatwas one-time in this quarter that doesn’t occur?

Kerrii Anderson

Jay?

Jay Fitzsimmons

I did the seasonality issue inthat as you know and also as we did point out we have continuing commoditypressures and those will be the major items.

John Glass - CIBC

Okay and specifically have youcall better much commodities impact the fourth quarter related to the third?

Jay Fitzsimmons

I think, there is a seasonalityissues in that, as you know, and also as we did point out, we’ve continuingcommodity pressures and those have been the major items.

John Glass - CIBC

Okay. And specifically, if youcall that how much commodities impact the fourth quarter relative to the third?

Jay Fitzsimmons

I think in the call, we gave yousome clues, as to what it is. My guess is, we talked about $140 million

Kerrii Anderson

140 basis points.

Jay Fitzsimmons

140 basis points in the thirdquarter that its going to be, the same maybe even a little bit higher in thefourth quarter.

John Glass - CIBC

Okay

Jay Fitzsimmons

Going up with the exceptionsequentially people becoming down, but remember it, we still be up from lastyear’s fourth quarter.

Kerrii Anderson

Right.

John Glass - CIBC

And breakfast is in above 40% ormaybe a little more of your company stores, I calculated that correctly. Howmuch do you think that’s adding to comps right now?

Kerrii Anderson

Yeah, John from your questionperspective, we had to really disclose the element of the comps related tobreakfast. We really just 12 months to the stores in the third quarter, the onething we have indicated is that we do expect breakfast actually create a smallloss at the restaurant operating level, as we in-depth in the day-part and tryto make very positive business take forward.

John Glass - CIBC

Gotcha, okay. Thank you.

Kerrii Anderson

Thanks, John

Operator

Your next question comes from[Louis Parks with EP Management]

Louis Parks - EP Management

I just wanted just to clarify,when you said that the process of the special committee that we will hear fromthem relatively soon. The announcements this morning on the strategic goals for2008, is that in anyway tied into the work of the special committee and inother words is that, something that will, is that a follow-on to their work, inother words they process is that end of the process?

Kerrii Anderson

I appreciate the question Louis.From our perspective, we build our strategic plan a year ago and really went toNew York andintroduced to the analyst. What we have the second phase as we call it PhaseII, is really it’s an evolution of our current plan and how do we take ourperformance to the next level much improvement as we have seen.

We know we have to do better andthere is tremendous opportunity, which in our core business and certainly inour company's store performance and this Phase II is just now amount of beingable to make sure that the Board does, what the opportunity are, as theyevaluate their options.

Louis Parks - EP Management

Thank you, Kerrii.

John Barker

John, you got to understand the80% of our system is franchised.

Kerrii Anderson

Right.

John Barker

So regardless of what the specialcommittee is doing. We have to in the strategic plan for both '08 and the nextthree to five years.

Louis Parks - EP Management

Okay. Thank you.

Kerrii Anderson

Thank you.

Operator

Your next question comes fromSteven Kron with Goldman Sachs.

Steven Kron - Goldman Sachs

Hi, good morning guys. A coupleof questions on same store sales, can you talk about the market-based pricingstrategy maybe if won’t give details just to how much prices currently in themenu. Can you talk about, whether there is still opportunity to raise pricesgoing forward and maybe Kerrii you can just comment on the traffic fall of theproceeding as a result of the price increases?

Kerrii Anderson

Yes, there is no doubt Steventhat from our perspective, pricing has been very key element to us being ableto gain our margins along with menu management, as well as new productsrollout. I would tell you that, we believe there is still pricing opportunityin certain elements of our menu compare to the competition and add, as David tobe may be give a little more color on that.

And your question abouttransaction certainly, given the overall focus we have had on prices as well asmenu management, it’s certainly it had an impact on our transaction in theshort-term that we know the right thing to do, but David you wanted to add alittle color here.

Dave Near

Yeah, I’d agree with what Kerriisaid. And just for context, I don’t see just doing anything materiallydifferent from a pricing perspective than a lot of the competitors that are outtoday. Just for some context there.

Steven Kron - Goldman Sachs

Okay. I guess just a follow-up staying with thesame-store sales. If I think about it, you’ve obviously been pretty outspokenabout the pricing opportunity that’s currently working through the menu you’vebeen offering some more premium products. You’ve kicked in the advertising moreaggressively in the last few months and you’ve also rolled out breakfast toquite a few stores.

So, I guess, with that ascontext, can you just talk a little bit about how the 0.2% same-store salesthat you had in the period, how that’s compares or tracks versus, what you guyshave been anticipating?

Kerrii Anderson

I guess the one thing; I’d be veryclear about what you know Steve is that last year in the month of July, Augustand September, we delivered 32, 45, and 42, 93 same-store sales comp. So, itwas the absolute strongest quarterly sales comp that we had to rollover fromlast year.

So, in that case, while, weindicate, where sales actually came out at 0.2, as you indicate, we were, I’msorry, actually, I gave you bad numbers that was the US stores franchise. Ourcompany was 36, 47, 43, 41, so we are well in over very, very strong comps and thereis some, in this business the challenge that you face. Having said that, we arevery focused on continuing to drive things, our self confident is the keydriver to this business.

Steven Kron - Goldman Sachs

Okay. And as far as the productthat you guys highlight in your phase 2 plan, the beverage platform is notgaining products, are there already new kind of products in test or it’s justkind of the beginning phases?

Ian Rowden

Steven, this is Ian. There arenew products in test. There is being some test on locally on things like FrostyShakes, which we’ve announced. We’ve done some coffee work. We continue toexpand our beverage platform. We’re deep into our value menu and redefiningthat from a transaction driving point of view. So, we’ve got a lot of news thatwe will bring to the market in the future. But we’re not ready to disclosetoday obviously.

Steven Kron - Goldman Sachs

Okay. Thanks.

Operator

Your next question comes formLarry Miller with RBC Capital Markets.

Larry Miller - RBC Capital Markets

Yes. Actually that was myquestion, but I did have a couple of others. At the meeting last spring, Kerriiyou talked about, you gave some parameters on the success of breakfastbusiness. I was wondering, if you can kind of revisit those, as you’re seeingit and specifically, can you talk about how records is mixing, as a percent ofaverage unit volumes?

Kerrii Anderson

Okay. With respect to breakfastwhat we laid out is that we would see our fair share of breakfast based onprovider market potential as about $3000 to $3300 per store, if we couldachieve our market share ownership of breakfast. From a breakeven standpoint,what we’ve indicated is and the company stores it’s more in the $1900 to $2000range and in the franchise stores because they pay royalty it’s more in the$2200 to $2300 range in order to really need breakeven.

So, you’ve got to that leveldrive your performance and exceed it, so that you build the business case tohave acceptance from a franchise perspective because they are in the businessto make money as we all are. So that’s been our area of focus Larry trying todrive towards best it fits.

We learned something from owningcomps for 10 years and that is, this is a difficult had it to break, it isimportant to really market it locally within the market, but we’ve also one ofour next phases is to really roll breakfast out to 4 or 5 DMAs, focus on itfrom a DMA perspective in order to really prove that’s the business case thatbreakfast can work for us.

But, it is not as you probablygot a sense from the overall strategic initiatives its [characteristic] on thelist and I mean that in that we have so much opportunity in our core withhamburgers and with value and with beverages and with those elements. That’sreally where our primary focus is and, quite honestly its every sources on.That I know if anybody helps to like improvement.

Jay Fitzsimmons

No, I’d just say we are in about800 to 850 stores right now. Average about 35% to send a franchisee basedstores and the plan is to be just over 1000 by the end of the year. As Kerrisaid, of which about 350 stores will be franchisee.

So, we are seeing success ingetting franchisees to come on board with the program. Our next price, as Kerrisaid will be to fully market the great work we've done in building the menu andthe program in some D&A wide activities, so we just on track as we continueto learn and move forward.

Larry Miller - RBC Capital Markets

Great, thanks. Just a follow-upon that, are you guys giving support to the franchisees of 35% that acceptingfor you?

Kerrii Anderson

Yes, we are supporting it from alocal marketing perspective, Larry.

Larry Miller - RBC Capital Markets

Okay. And then just on EBITDAguidance you read out Jay, is that assume products comps for sales in thefourth quarter. How should we think about that, what's the kind of sales or isit more cost based statement?

Jay Fitzsimmons

We are assuming in the fourthquarter both relative to the cost as well as the sales as pretty much the same.So, we are not looking for an acceleration of sales in the fourth quarter. Andthe forecast we gave you, of course we would like to see acceleration in sales,but we forecast based on the current run rate and the commodity cost pressures,which we were able to identify, we talked about in the call.

Larry Miller - RBC Capital Markets

Okay. Thank you guys

Kerrii Anderson

Thanks, Larry.

Operator

Your next question comes fromDavid Palmer with UBS.

Kerrii Anderson

Good morning, David.

David Palmer - UBS

Good morning, Kerrii. The firstquestion I’ve is on refranchising, could you perhaps give us an update on yourthinking there obviously this is a major initiative that was talked about inthe past. What’s holding you back from doing that more aggressively now?

Kerrii Anderson

Yes, David, I would say two keythings. The first and foremost, we believe, we had significant opportunity togrow improved margins. This quarter, we delivered on our ability to do that 330basis points at US company stores. For us, who have been in an accelerated moodto sell those restaurants really quite honestly with the reduced the value,that we could have captured for our shareholders because generally theserefranchising opportunities are priced on a cash flow basis.

So, as we’ve improved to kind ofmargins, we improved the opportunity to gain value for our shareholders. Sothat’s the number one, and most importantly. And then secondly, the questionwas okay, if we’d have gotten very aggressive, I think, the price on balancesheet today we’ve got $220 or $230 million of cash on our balance sheet.

Then the other question is whatexactly we will do with the cash at this point of time given the strategicreview and everything else. So, that's the other, we’ve not been in a situationwhere we cold utilize the cash perhaps and return the greatest value to theshareholders given everything that’s circling around us. So, those are the twokey reasons, we’ve really not been more aggressive at this point.

David Palmer - UBS

So, I suppose that those thingscould change with the discussion of management pretty much at any point. Imean, obviously your goals on margins are much, much higher than where you arenow, but it’s hard to believe that you would wait the amount of quarters andyears to get to that point before you start refranchising, and obviously thestrategic review is something that's going now. Is there any other sense youcan give us about refranchising and when we might kind of hitting the inflationpoint?

Jay Fitzsimmons

I think David you identified thekey point is that strategic review is underway and that’s obviously going to bea factor in this. But could potentially lead to higher leverage give you evenmore incentive to do the refranchising. We’ve also fairly public about the factthat we believe there is another 450 stores at a minimum that we couldrefranchise. So it would be a reasonable expectation that you would see therefranchise program accelerate in 2008.

David Palmer - UBS

And the second question is justrevisiting breakfast. I guess folks might have a hard time believing thatbreakfast is going all that well, obviously we have to be patient with thatday-part, but your company is rolling it out more aggressively, obviously yournew franchisees, your company comps are trailing franchisees by 0.5 or so.

You said it’s costing you moneyat this point, but when you want to quantify the lift of sales, but is thereanything you can tell us that could make us believe that is going well oranything you can talk around this?

Kerrii Anderson

I think from our perspective,Larry a couple things, in breakfast is absolutely the fastest growing day-partwith industry. We are seeing the impact it’s having on our competitor’s resultsit is going to be faster growing day-part than the dinner day-part within thenext few years.

So you look at that, as to whatthe current consumer trends are, what the consumers demanding. That said, wemake it’s important to invest in this from a long-term, it’s not a short-termimpact for us.

And quite honestly, the consumeras we have done our research says, gosh, everybody else is open a breakfast. Idon’t understand why you are at Wendy and we’re getting a lot of feedbacks fromconsumer standpoint that what consumers looking for. They want the restaurantavailable, when they want it.

So it’s more the consumer demandand we understand it’s an investment we’re not probably got a 1000 stores,we’ve always led by example it's what the company does with every initiativewe’ve we generally do that. And so, as a result, we think it’s the right thingto do for the brand and system long-term, but it's not a short-term, greatshort-term benefit.

Dave Near

David, this is Dave. I think froman operational perspective, we feel like breakfast is going very well. We feellike, we’re executing at a high level in that day part. So, certainly from anoperational perspective, we feel good about it. And we've got markets andstores in different pockets of the country; they are doing very well with it.

I think, they were continuing tolearn more and more, as the weeks and months pass as to what exactly makesbreakfast a success in the Wendy’s system. So, I think with the evolution andthe addition of new products, of new menu boards, of new POP that we’recontinuing to and getting traction with the coffee piece is really ailing usand make sure that we know what success means in respect to stay part.

David Palmer - UBS

Okay. Thanks, guys.

Kerrii Anderson

Thanks, David.

Operator

Your next question comes fromPaul Westra with Cowen & Company.

Paul Westra - Cowen & Company

Hi, good morning everyone.

Jay Fitzsimmons

Good morning.

Paul Westra - Cowen & Company

Hi, good morning, how are you.Just a few questions, just if I can start with the updates that you can give uson the remodel program give us an idea of the numbers that have been remodeledgiven data of the company’s franchise side. May be what you feel, so it’s thebacklog of the franchisee spending up for the program and any changes you’ve madeduring the year to it?

Dave Near

Paul, this is Dave. I think we’relooking for the exact numbers, as we speak. But generally what we’re doing onthe reinvestment piece it is continues to trip along on the company side andthe franchise side. We’re also in the midst of exploring some other designsright now from a reinvestment perspective from an exterior perspective.

I guess much more aggressivelythen we’ve in the past. We’ve done quite a few different remodel schemes indifferent stores throughout the country. And we continue to focus on theinterior as well, if they are different things that we need to do from interiorperspective, that we rolled out about seven years ago as well. So, it continuesto go fairly well, I think Jay may have an update on the numbers.

Kerrii Anderson

Yes, the only thing I would sayfrom our franchise’s perspective is, as you might guess Paul, without theuncertainty around what’s happening from a strategic standpoint, there is somehesitancy on behalf of the franchisees as well quite honestly, we are focusedon improving margins and cash flows certainly have been, the focus of quitehonestly most of the franchisees less improved cash flows, wait and see whathappen strategically, but with that and Jay you’ve got some specific numbers,as what’s the remodels have been.

Jay Fitzsimmons

Yeah, Kerrii, you’re right. Wehaven’t had to take up on the incentive that we provided that we originallyexpected our budget is impart because of the insecurity around the system. Butwe’ve had so far this year 186 franchise stores remodeled, another 50 companystores of 236 stores have been remodeled year-to-date.

Paul Westra - Cowen & Company

I know you had a five year goal.It’s obviously giving uncertainty, that’s a little less clear at the moment,now the entire system?

Kerrii Anderson

Yeah, that is exactly correctPaul. I will tell you we are still very committed. We know reinvestment as youheard me say and the strategic initiative is key to us. One of the things thatthe customer ends up, rating you owned in their overall experiences, what werethe facilities and the facilities each for working 65% of our gas or whateverthey see from the standpoint of their car, through the parking lot anddrive-through. And so, as a result it is important for us to continue to updateour facility to the new menu board, as well as to maintain the presence of ouroutside and inside facilities.

Paul Westra - Cowen & Company

Yeah. And there is a follow-up tothat I know some of the remodeling was tide to the beverage station moving outand perhaps [clients] of your whole beverage strategy. So, but they still linkpretty heavily or is that going to put a governor on what you can do on thebeverage, as the definition objective?

Jay Fitzsimmons

What you will see Paul, with allnew stores that are being build that we’ll certainly have the beverage stationout in the dining room. And then, as we remodel stores you will also see thebeverage station moved out there in the dining rooms as well because that’sreally from a cost perspective that’s when it makes more sense to do to makethat transition is when we’re remodeling the restaurant, the dining room, weare tearing up the floor, we can put in the floor and all that kind of goodstuff. So, that’s still on track, and that is still where we would like to be.

Paul Westra - Cowen & Company

Okay. Last two questions, one isthat your supply contract and now potatoes losing out the wheat and corn andsoybeans. Can you give us an update what it sound like you signed, you find anew one for up some of the numbers off the top of my head, which is only about10% or so? How long is the contract and it’s just about to kick in? Then lastquestion on the value combos you’ve some new strategy, I assume you’re not talkingabout price points, talking about strategies like value combos and stuff?

Kerrii Anderson

Paul, Jay is going to take yourquestion with respect to potatoes contracts. And Ian is going to talk about thevalue combo strategy.

Jay Fitzsimmons

Yeah. We don’t have all of ourfried contracts expiring at the exact same time. But we’ve just our newcontracts that will take us through 2008. So, that’s what we’re pretty wellwalked in through then.

Paul Westra - Cowen & Company

They just begun this quarter ornext quarter that new higher rate?

Jay Fitzsimmons

Yes, this quarter.

Paul Westra - Cowen & Company

Last quarter?

Jay Fitzsimmons

Fourth quarter.

Ian Rowden

And Paul just on the valuecomposition, you’re right. We understand and we’re looking at without gettingthe specifics of mixture of maybe dialogue [price shows] you combined the comboand at various products at various price points.

Paul Westra - Cowen & Company

Okay.

Operator

Your next question comes from Mr.Glen Petraglia with Citigroup.

Glen Petraglia - Citigroup

It's Petraglia. Good morning.

Kerrii Anderson

Good morning, Glen.

Jay Fitzsimmons

Good morning, Glen.

Glen Petraglia - Citigroup

It’s nothing new there. In termsof reimaging several maybe it was several quarters ago, but I think youprovided an updated in terms of what sales that you are getting from reimagedrestaurants. And it was fairly significant and I would think that if thefranchisee could capture those sorts of economics they would be happy.

Do you think that the incentivesthat you offered it was 25,000 per restaurant, is it sufficient. And how do youthink about that going forward with nearly $250 million of cash on our balancesheet that clearly you are struggling to find useful.

Jay Fitzsimmons

Glen, just kind a tag on Kerrii'scomments earlier. I don’t think the $25,000 is initiate at all. I think itsgood incentive. The big thing that is holding up more reinvestment at thispoint is simply the process that we are going through right now.

And I think that is maybe herefrom a franchise’s perspective that I want to make sure that we have claritycoming out of this process before they commit to the dollars that are necessaryto grow the business. So that’s the biggest reason and that’s obviously being goneon now for full well over year.

Glen Petraglia - Citigroup

And then just lastly in terms ofvalue Ian, if you could maybe helps us think about are you moving away from$0.99. Is it different items at $0.99 that maybe have lower margin and if youput them together in a combo similar what you did, I think earlier this yearwith the Double Junior Cheeseburger, I don’t remember exactly what you calledthis, but, as you could think about that?

Jay Fitzsimmons

Just a couple of things Glen andagain, I don’t want to get ahead about sell through, as we’re completingtesting. But McDonald’s and Burger King are very aggressive at the dollar pricepoints with products that we noted from a definition of price tag you’re veryimportant. So, we are going to be very competitive in that regard with them.

So, when come a loser thatemphasis. But yes, you’re right we’ve learned very, very positively earlierthis year and work with you without, you like to serve your meal offerings andsome other menu development work that we’ve been doing for products thatfulfill both price points and usage occasion.

So, there is an opportunity forus to expand the value proposition in that regard. So, you can expect a numberof initiatives that we’ll all work together to offer, I mean, more blendedstrengthening of the profitability and drive transactions that's the point. Andagain, I don’t want to get into specifics but, we’re very close to agreement toour business.

Glen Petraglia - Citigroup

Okay. And just one more question,Jay the $6.4 million in lower insurance cost, as part of G&A. Is thatsomething you are thinking, is sustainable I know, you mentioned better claimsexperiences is there, anything in particular that you’ve done to drive that orwas it luck?

Jay Fitzsimmons

Glen, there is a number offactors in that. First of all last years, we’ve mentioned that they were higherto D&O cost, and that’s the onetime item that actually related to TimHortons. So, that was in the amount of about $2 million, little over $2 million,so. Obviously that won’t recur. Obviously, when you’re trying to predictemployee related claims and workers comp related claims, we’ve a number ofmoving factors.

One of the factors that we hadwas the next chapter and the impact that had which maybe a little bit harder toforecast what should be in that account. I would not expect those numbers toreoccur, that we have control over the claims, but we probably have a goodidea, what your accrual should be.

And what we are seeing now, as weare seeing flat healthcare cost based upon one of our benefit plans for nextyear. And so we should be able to hold the line, where we are, but in terms ofhaving future benefits in the quarters always hard to predict, but I won’taccount on it.

Glen Petraglia - Citigroup

Okay. Thank you.

Operator

Your next question comes fromJennifer Preller with Barclays Capital.

Tom O'Neill - Barclays Capital

Yeah, it’s actually Tom O'Neillfrom Barclays Capital. The capital markets as you alluded to in your statementearlier suddenly have changed since your last call, yeah I know you can talkabout the strategic review. But can you update us really on your overallphilosophy on your capital structure, maybe in terms of your willingness tooperate with higher debt loads, what things are you doing given some companiesdon’t have a access of CP etcetera?

Jay Fitzsimmons

Well, obviously, we do not havethat this to CP because of our credit rating. What we talked about relative tothe special committee, which we did make public, is that it was our intentionto offer staple financing package, which would give them the option to put theleverage on. But it also we would give the company to put the leverage on, andas you know in today's environment investors are demanding higher leverage onthe balance sheet and likely outcome of the special committee process is thatwe will have more leverage next year than we have this year, Tom.

Tom O'Neill - Barclays Capital

Okay. This is a follow-upquestion again I know you can talk about the strategic review, but we talked inthe last call about hypothetical situation if you remember, if you were tosecuritize your stream of franchise fees. You’re taking to look at your bondindenture based on your understanding of the language in your bond indenture.Would you’ve to takeout your bonds, if you were to engage in such a franchisefees securitization transaction?

Jay Fitzsimmons

I think we would do obviouslywhat we’re required to do. And it is likely that if you entered into stake holdfinancing that we would address those existing bonds.

Kerrii Anderson

I think, we are very aware of ourobligations to our public note orders and but certainly be our commitment tobuy, and the requirements.

Tom O'Neill - Barclays Capital

Sure. So, that means that forsecuritization in all likelihood, would you have to take out the bonds?

Jay Fitzsimmons

It may be an outcome ofsecuritization.

Tom O'Neill - Barclays Capital

Okay. But obviously everythingit's still open in terms of what you may actually do?

Jay Fitzsimmons

That’s correct, Tom.

Tom O'Neill - Barclays Capital

Okay. Thank you.

Operator

Your next question comes fromRachael Rothman with Merrill Lynch.

Rachael Rothman - Merrill Lynch

Guys, a question for Dave sincemaybe he is the only one that’s been around long enough to remember. But canyou think back to a time when QSRs in general as taken as much prices, theyseem to be taking these days. And can you talk about may be what the near termand longer-term and the implications of that were from obviously traffic andfrom a shift perspective.

Dave Near

Rachel, I think pricing isslippery slope. There is no doubt about it. We all need to be very carefulabout raising our prices. Because I think, we’ve certainly been viewedhistorically and I think we’re still viewed today as a great value generallyour industry is.

In terms of historically, I’venot seen the industry take as much prices, I think that the industry has takenover the past three years, I’ll say. I think it is certainly a response towhat's happening from a commodity perspective and normally we are seeing thatin QSR; we are seeing it in fast-casual and mid-scale and all the way up anddown the chain.

So, from a historical perspectiveit is at high level for sure and again something that we’ve implemented a muchmore disciplined process than we’ve ever had at Wendy’s in terms of how we lookat price. In terms of how we look at products, in term of how we look atmarkets and that we’re doing is right thing, but again it is high in ourpriority list to make sure that, we don’t go too far with pricing item.

Rachael Rothman - Merrill Lynch

Great and then a follow-up on theremodel for Jay, could you say that the uptick on the incentive has been lower.Can you quantify for us actually how much you’ve given in incentives and whatthe average cost for the remodel has been year-to-date?

Jay Fitzsimmons

Rachael, it’s very difficult tosay what the average cost of the remodel is, because you go anywhere from justan interior to, an interior or exterior to what we call a scrape and rebuild torelocation. So, that's the question that is individualized based upon what theopportunities are.

We never gave you what the actualbudget was this year. So, I’m not going to give you what the actualexpenditures we are against that, but I will tell you that it’s less than weexpected. We’ve also opened up that, so that the new menu board, which is usedin conjunction with the breakfast comes from that and everybody is putting inthe breakfast is taking advantage of that.

And what we’ll do, after thisprocess, we’re probably reassess the program and decide what we need to do.

Rachael Rothman - Merrill Lynch

Into the point someone questionedearlier, is it the right incentive 25,000 of north. We believe that why it issubstantial, there maybe opportunities to further expand that to encouragepeople, who invest in different ways within their restaurant. And as we getthrough this process I think that’s going to open up the opportunity to do exactlywhat Jay said, which is consider other modifications for franchisees to utilizethat incentive.

And how would you think aboutbeginning that you’re in and in terms of the remodel, as the other chains havebeen remodeling now for three and four years and have already committed thatcapital to both franchising company operated assistance. To what extent doesthat putting you at a competitive disadvantage and are you just in thebeginning of your remodel program or you further along then it may appear fromthe outside. Do you feel like this is disadvantaging you or your franchisees atall?

Dave Near

Rachael, this is Dave. I think incertain respects, I don’t know, this is a disadvantage. But it’s certainly anopportunity for us to reinvest at more aggressive rates. And I think the bigthing that we all know, I mean, we see exactly what the dollars is doing outthere in the marketplace right now they are doing a lot of reinvestment, a lotof scraped rebuilds.

And I certainly think, when youlook at their sales comps that is one of the big reasons for that because Ithink on a from a facilities perspective they have certainly improved a lot ofthe stores in their system and that’s something, but again we need to befocused on as we move forward. And I wouldn’t say that we’re at the beginning,but we are probably, we’re certainly closer to the beginning then the end.

Kerrii Anderson

And I’d just also remind you thatMcDonald's really quick building stores back in the last ‘90s as they focusedon our 2000, as they are focused on improving the results from their core. Wewere still building stores as many company and franchise at 250 or 300 almost300 stores a year for the five years of 2000 to 2005 at least.

And so, from that perspectivesome of our system is newer but maybe that 20% of the system versus the 80%that’s been around. I know that half of our buildings were build prior to 1990,company and franchise. So, from that perspective it is an opportunity for us toimprove the facilities which is key and critical to our customer.

Rachael Rothman - Merrill Lynch

Great, thank you so much.

Kerrii Anderson

Thanks, Rachel.

Operator

Your next question comes from JoeBuckley with Bear Stearns.

Joe Buckley - Bear Stearns

Thank you. I just have couple ofquestions on margins and cost again. Can you quantify the impact of breakfastis add on the margins obviously negative from your comments? But have youcalculated that?

Jay Fitzsimmons

It's negligible, Joe.

Joe Buckley - Bear Stearns

Okay and then.

Dave Near

The food is actually, if youthink food cost is actually slightly lower, but given the penetration breakfastit’s not really having a significant impact on the margin.

Joe Buckley - Bear Stearns

Okay. And I know its fourthquarter the beef costs been down sequentially, how much of that upyear-over-year?

Dave Near

For the full year they will bebasically about flat.

Jay Fitzsimmons

But in the fourth quarter theywill be higher than they were in the fourth quarter of last year.

Dave Near

That’s correct.

Joe Buckley - Bear Stearns

Do you know how much?

Dave Near

Somewhere around [north] I don’tuse that.

Joe Buckley - Bear Stearns

A north down.

Dave Near

Yeah.

Joe Buckley - Bear Stearns

Okay. And then just question onFrosty costs, yeah particularly what's going on in California. Historically, wind has been verysensitive to Frosty markets any feel for whether the outfield where you see aspike there in the fourth quarter?

Dave Near

Yeah, we are seeing a little bit,but I wouldn’t call the fight. We’ve got some contracts in place that arehelping protectives on some of that as well. So, we are certainly feeling a bitof it, but not the full [advantage] that you may expect.

Joe Buckley - Bear Stearns

Okay. Alright, thank you.

Kerrii Anderson

Thanks, Joe.

Operator

Your next comes from [JasonBoucher] with Wachovia

Jason Boucher - Wachovia

Hi, it's Jason for JeffOmohundro. Just wondering if you all could provide little more commentary onyour commodity outlook for ’08 maybe for some of the key categories in additionto the French Fries. And then also, whether you’re seeing any regional salestrends across the system particularly the stores related to located in Southern California?

Jay Fitzsimmons

Broadly speaking for ‘08, I thinkthat the big pressure that we’re forecasting is really going to be on theprotein side. Obviously it’s hard to tell right now. But I think the proteinside in the beef and the chicken, it’s where, we’re expecting most of thepressure to be. Those markets have been tough. After that it just rolling overthat the French Fries would be the other piece because of the new contracts.

Kerrii Anderson

And Dave maybe from a regionalsales perspective.

Dave Near

Yeah, I mean, regarding the firesin Southern California because we are not aspenetrated in that part of the country as a lot of our competitors are. We arereally not seeing a big impact from the fires. I mean, just a couple of stores,a handful of stores are being impacted right now. But just as an aisle to,we’re doing a lot in terms of providing free meals for the firefighters andthose that have been kind of driven from their homes and things like that. So,we’re doing a lot from a community standpoint with our stores in that area.

Jason Boucher - Wachovia

Great. Thanks very much.

Operator

Your next question comes fromDavid Palmer with UBS

David Palmer - UBS

Hi, question on McDonaldsinnovation pipeline. How scary is that for Wendy’s in each of the next twoyears it looks like they are going to be aggressively pushing a big premiumsandwich that’s southern style chicken and then perhaps the third pound or[hangus]. Both would seem to be really something that would hit Wendy’s core.How are you thinking about this, is that something that you can convince uswouldn’t be a hit to your business? Thanks.

Kerrii Anderson

David, first and foremost thereis no question that the competition has stepped up generally over the lastcouple of years. And as a result of that, well we really have to take our initiativeto next levels. We continue to focus on our fresh never frozen beef and in factthat we are made order, which is something while McDonald's has rolled out likethe third the youngest burger you got to it, keep saying to yourselves go tofreezer and buy a burger or do you go to the fresh section and buy your burger.

So from that perspective, ourcompetitive difference and the quality positioning of Wendy’s is critical to uscommunicating from a customer standpoint to be able to really improve the resultsof Wendy’s going forward. So, it does mean we have to step up our game hereWendy, they are the 100 pound grow out there.

With that, I have Ian to makesome comments about some of the R&D in our thought process.

Ian Rowden

John, just to build on Kerrii’spoint there, that obviously the work that the major competitors in themarketplace is doing is going to have effect on everyone. But, we’ve gotenormous upside and our core business as it currently stands and our ability tocompete at a premium level, we’ve got great upside from a value point of viewfrom a beverage point of view.

So we’ve got a lot of things inour armory not to mention. Frosty is a desert and of course the work we will doas part of the breakfast program. That gives us confident that we can deliverstrategy Kerrii said. So, we are going to continue to be aware, be responsivewhich we have to be, but to be aggressive on our own platform of what make usthe brand we are and the business we are.

David Palmer - UBS

Okay. Thanks very much.

Kerrii Anderson

Thanks, David.

John Barker

Operator, one more questionplease?

Operator

Thank you. Your next questioncomes from Jeff Bernstein with Lehman Brothers.

Jeff Bernstein - Lehman Brothers

That’s worse than Glen Petragliaprobably, it’s Jeff Bernstein.

Kerrii Anderson

Your voice is changing Jennifer.

Jeff Bernstein - Lehmani Brothers

Getting old deeper. Couple ofquestions. First I know where we are now pushing the end of October here youput out an initial strategic plan for '08, I know, you’ve withdrawn your '09guidance, but was there anything official. I’m just wondering, if you could putout some initial thoughts in terms of sales trends perhaps, some preliminarycomp type guidance that’s just based on you’re seeing right now.

And then from a cost perspective,I know, you’ve made some comments on commodities. But just wondering from acommodity and labor standpoint, where do you see significant further offset themargins or whether a lot of the cost saving benefits have already been achievedin '07?

Jay Fitzsimmons

That’s the tough question. Yourcrystal ball is probably as good as our crystal ball. If we look to 2008 theprocess could give us different leverage ratio that’s clearly would effect theP&L. We know food costs are going up and you can probably make as good asan estimate, but you are probably talking about something in the 4%.

To the question as to whetherthere is further opportunity, we believe there is further opportunity. And Ithink, we've indicated that we've made a lot of progress this year. There arestill a lot of things that we can do. Some of the optimization we did thisyear, some of the labor initiatives that we had this year will continue intonext year.

We’ll then get a full year ofcredit root for those. So, I’m not going to give you the number. But I’mtelling that we’re obviously expecting next year on the same basis with thesame relative amount of leverage to be up from this year.

Kerrii Anderson

And I think Jay makes a very goodpoint. I mean some of the initiatives, we talk about our labor initiativesthat's fully got implemented from 3.6 managers to 3.3 in the company storesthat took place really finally in May to June. We’re going to see a rollover ofthat in the first half of next year that we didn’t experienced this year.

So, and I think there are someopportunities for us and that’s what shareholders demand that you improveresults, how do you improve result and that's what makes the high performanceteam and we know, we’re expected to deliver.

John Barker

Operator and everybody thank youfor joining our call today. If you have any follow-ups, please give me a calllater today or Marsha Gordon or Kim Messner. Thanks a lot.

Operator

This concludes today’s conferencecall. You may now disconnect.

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Source: Wendy's International Q3 2007 Earnings Call Transcript
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