John D. Barker - Chief Communications Officer and Senior Vice President Emil J. Brolick - Chief Executive Officer, President, Director, Member of Executive Committee and Member of Capital & Investment Committee Stephen E. Hare - Chief Financial Officer and Senior Vice President

Mitchell J. Speiser - The Buckingham Research Group Incorporated Joseph T. Buckley - BofA Merrill Lynch, Research Division Jeffrey Andrew Bernstein - Barclays Capital, Research Division John S. Glass - Morgan Stanley, Research Division Michael W. Gallo - CL King & Associates, Inc., Research Division Will Slabaugh - Stephens Inc., Research Division Michael Kelter - Goldman Sachs Group Inc., Research Division John W. Ivankoe - JP Morgan Chase & Co, Research Division Eric Gonzalez - UBS Investment Bank, Research Division Christopher T. O'Cull - KeyBanc Capital Markets Inc., Research Division Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division Jason West - Deutsche Bank AG, Research Division Keith Siegner - Crédit Suisse AG, Research Division

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. Mr. John Barker, you may begin your conference.

Thank you. Good morning, everybody. Earlier this morning, we issued our first quarter 2013 earnings release, and we filed our Form 10-Q. Today, we'll start with comments from our President and CEO, Emil Brolick, who will provide an update on Wendy's Recipe to Win and the progress that we're making on the brand transformation. After Emil, our Chief Financial Officer, Steve Hare, will review our first quarter financial results. And then we'll, of course, open up the line for questions. Today's conference call and our webcast is accompanied by a PowerPoint presentation, which can be found on the Investor Relations page of our corporate website, aboutwendys.com. And for those of you who are listening by phone today, make sure you do select the appropriate webcast player option from our website. That will make sure that you can sync up the slides with our audio. Before we begin, I'd like to refer you for just a minute to the Safe Harbor statement that is attached to today's news release. Certain information that we may discuss today regarding future performance, such as financial goals, plans and development is forward-looking. Various factors could affect the company's results and cause those results to differ materially from those expressed in our forward-looking statements. Some of those factors are referenced in the Safe Harbor statement as attached to the news release. Also, some of the comments today will reference non-GAAP financial measures, such as adjusted EBITDA and adjusted earnings per share. Investors should refer to our reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measure. With that, I'd like to turn it over to Emil.

Thank you, John. Good morning, and thank you for joining our call. We are pleased to report solid first quarter adjusted EBITDA following the strong fourth quarter 2012 results. We delivered adjusted EBITDA of $77.3 million in the first quarter, a $13.4 million or 21% increase. This increase was consistent with our expectations for the first quarter and in line with our adjusted EBITDA guidance of $350 million to $360 million for 2013. Adjusted EPS increased from $0.01 in 2012 to $0.03 for the first quarter of 2013. From a same-store sales perspective, the first quarter was up 1% and 1.8% on a 2-year basis, despite holiday shifts and more severe winter weather. While the sales performance was below our expectations, we have made adjustments to our marketing calendar to better position the brand for stronger sales growth in the second half of the year. Again, we are reaffirming that we expect 2013 adjusted EBITDA between $350 million and $360 million, as the first quarter was in line with our expectations. As a result of the refinancing we've been working on in 2013 and the expected resulting interest expense savings of approximately $0.02 per share, we have raised our 2013 adjusted EPS outlook to $0.20 to $0.22 from $0.18 to $0.20. This represents an 18% to 29% increase over our 2012 adjusted EPS of $0.17. Steve will discuss the financial and refinancing in more detail. As we mentioned during our fourth quarter conference call, the investments and key actions that we took in 2012 paved the way for the solid performance we saw this quarter and will help us set out for a successful 2013 even with softer-than-expected first quarter sales. For example, you'll recall that in 2012, we conducted in-market testing to prepare for the launch of our Right…

Thank you, Emil, and thanks for the kind words, and good morning to everyone. I'd like to start off with a quick look at the first quarter. As Emil had highlighted, North America company-operated same-store sales increased 1% in the first quarter and 1.8% on a 2-year basis. Driving the same-store sales increase were a favorable product mix and the benefit of rollover pricing from 2012, partially offset by a decline in transactions. As we discussed in January, Image Activation will have a favorable impact on same-store sales this year that will offset the negative impact on sales resulting from discontinuing breakfast in selected restaurants. Company-operated restaurant margin improved 100 basis points in the first quarter to 12.8%. Restaurant margin improved with the higher sales and a reduction in beverage costs from new contracts. In addition, the elimination of unprofitable morning daypart operations in certain restaurants improved margin with a reduction in breakfast labor, food and advertising expenses. Restaurant margin was negatively impacted by a 90-basis-point increase in commodity costs. Now let's take a look at our financial summary of the first quarter. Total revenues increased $10.5 million or 1.8% versus prior year. The same-store sales increase and incremental sales from a higher year-over-year net number of company-operated restaurants were the primary drivers of the revenue increase. Adjusted EBITDA of $77.3 million increased 21% compared to the first quarter of 2012, and adjusted earnings per share increased from $0.01 to $0.03 per share. As we articulated on our last conference call, we expected the first quarter adjusted EBITDA to have the highest year-over-year growth rate with lower growth rates in the second and third quarter of 2013. We also expect lower year-over-year profitability in the fourth quarter due primarily to the anticipated expense of about $10 million from the company's…

Thanks, Steve. Just before we open up the line for questions, I'd like to take a moment to just go over some of our upcoming events on the Investor Relations calendar. In May 23, we have our annual meeting for stockholders in New York City. In June, we will introduce a new layer of our IR outreach for the investment community. We'll hold some Image Activation restaurant tours in select markets where we have a good Image Activation presence perhaps all the tiers. And we'll work on, with the sell side, to host and communicate these events and look forward to seeing you out at some of those in the near future. And then just for your planning purposes, our next reporting period for earnings is on Wednesday, August 7, where we plan to release earnings for the second quarter of 2013. Now Brandy, we are ready to open up the line for questions. If you can give instructions again, let's start the Q&A.

[Operator Instructions] Your first question comes from the line of Mitch Speiser with Buckingham Research.

My question focuses on the Right Price, Right Size Menu. Emil, you mentioned in your prepared comments that your -- that the price value component represents a challenge. I was wondering if you can maybe just go through the first quarter. It seemed like things started off pretty strong in January, then maybe softened throughout the quarter. I guess a couple of parts. Can you maybe break out maybe what the weather and holiday shifts were and maybe just give us the experience of the Right Price, Right Size Menu? Did it start off at a higher mix and then tail off? Did you see trade down to the Right Price, Right Size? Or did you see -- it seemed like, with traffic down, that you may have lost some value customers. If you can maybe just give us a little more granularity on assessing the performance of Right Price, Right Size through the first 4 months that it's been out or so.

Okay. Sure, Mitch. The -- what we had shared previously was absolutely accurate that we had a very nice start with our Right Price, Right Size Menu. And then you'll recall in the first quarter, just as a reference, we moved into 2 weeks of promotion starting February 11, with a fish promotion, obviously, to kick off Lenten season. And then we moved into what was a 5-week window of a local marketing window with a variety of messages out there. And basically, what we saw is a definite softening in the business at the end of that Right Price, Right Size pillar. And so that change occurred predominately underneath the fish message, and then specifically, most importantly, underneath that local message. We looked at the holiday shift and it's very difficult to pin down the weather. That holiday shift and some weather probably at least 0.5% impact there. And it clearly was a very challenging winter for us, particularly when you consider how non-winter weather we had in 2012. The other thing I would say, Mitch, as we look at our marketing calendar, I mentioned some refinements, that we feel that we have to evolve to a situation where we have more continuity against a price value message out there as opposed to having a pillar approach. And just because there is so much pressure against price, we don't want to move away from our high-end messages because they're serving us extremely well. As I mentioned, we're building our large hamburger, our large chicken sandwich and salad business, but it is the price value. And so we have to make sure that we're addressing that consumer. And I'll also point out that while we have the use -- some limited use of coupons, that the value menu consumer is a different consumer, generally speaking, than the coupon user. So you have to have both of these tools out there to attract those different price value consumers. So I hope that helps a little bit.

Your next question comes from the line of Joseph Buckley of Bank of America Merrill Lynch.

Can I ask for a little bit more clarification on the sustained sales comments around the 2011 concept stores and 2012 Image Activation stores? So when you say the 2011 class sustained up 20% and 2012 sustained up 18%, I guess in the case of 2011, does that mean they comped up the second year? Or are they up 20% above the initial starting point and maybe after the honeymoon period, we're actually a little bit lower?

No. They're -- what that indicates is the 25% refers to the full year including the opening phenomena of those. The 20% refers to a steady state. So if you would go back to a pre-opening period, what we're indicating is those restaurants are 20% above that pre-opening period. Does that answer the question, Joe?

Okay. Yes. So -- but there's no like year 2 benefit. I mean, I realize you're getting your honeymoon period. But is there no year 2 benefit where they would might comp up better than the average again? I mean, not that strong double-digit rates, but maybe better than the averages?

Well, but when you've added -- I would say that there's definitely a year 2 benefit when you've added that the average volumes of these restaurants are up 20%. That's a big number.

Sure. Yes. Okay, and then...

I don't think we would expect them to continue necessarily comping up at a faster rate because, again, you've gotten that benefit, but you now get that volume benefit theoretically in perpetuity.

Okay. And then just a question on the GE Capital financing you mentioned with credit support from Wendy's. Could you elaborate a little bit on what you're doing with that program?

Yes, Joe. This is Steve. What we're doing is working with them, and we'll provide some credit support in the way of some -- really some first loss protection on that program, just in the early stages, but before we have a complete database of experience on this loan portfolio. We're glad to backstop it because we think, given the returns we're seeing, we think that's going to be a fairly low-risk loan portfolio. So we're working with them in the early stages. We wanted to have something early on and on the table because our franchisees are looking to move now. So we were glad to provide that kind of credit support to help provide an early adopter financing program.

Your next question comes from the line of Jeffrey Bernstein of Barclays.

A couple of questions, just wanted to follow up on the last one with regard to the financing and the backstop. So the idea being if they don't achieve the desired result, so let's say they don't achieve the 15% lift on a Tier 2 or the 25% on a Tier 1, you guys then jump in? Or how do you determine when you are legally responsible for a portion of that?

No, Joe -- I mean, Jeff, we're talking about the loan losses. So if there was actually actual losses on the loans, we would backstop those. There's no implied guarantee of performance.

Got it. Okay. And that starts in '14? Is that...

We announced it. Actually, we just did our franchisee roadshow in the last couple of weeks, and GE was onstage with us and announced the program. So it will take effect here in the next couple of weeks.

And in fact, one of the nice provisions about this is they committed to -- they felt that -- I think the term that they used is they felt that 90% of franchisees would apply for this -- would, excuse me, would qualify for this and that they committed to responding to any loan application within a 10-day period of time. So they're taking a very aggressive posture on this.

Got it. And then just a follow-up on the Right Price, Right Size. It seems like it obviously has a pretty strong $0.99 component. So it's I guess somewhat surprising I guess that the higher end is doing well, but maybe the lower end is not doing enough for you. Can you break out how the menu plays out in terms of what you're seeing mix shift-wise, or however you can break out the $0.99 versus the higher-priced items?

Well, Jeff, I think the key is if you even go back and look at the advertising, we basically positioned this as a way of starting at $0.99, and that really struck the cord of differentiating the quality of our products from this. And again, when you look at the price value consumer, the consumer that, just because of their economic situation, needs to shop for $0.99 items, we feel that there's the messaging that needs to be sharper against specifically a $0.99 price point for that consumer just because their economics basically dictate that they have to be shopping for $0.99. And having more continuity against that, we feel, will help give us the balance that we need in our messaging. But again, the majority of our messaging, as we look at our entire calendar for 2013, will still have a much stronger portion of this against high-end messages.

But the mix shift of the total menu, I don't know if you're breaking out kind of what your -- what the entire mix shift is, for the entire menu or the components within it?

Well, actually, as we reported, what we saw is that we've actually, in the first quarter of the year, had a positive mix shift as a result of Right Price, Right Size Menu. And it has some positive margin effect along with that. Now that's a significant point because remember, we moved from a situation when we had our My $0.99 menu where we did not have a lot of continuity across the United States in terms of franchisee support. We now have significant support for this pricing structure of 6 items at $0.99, 8 items above -- between $1.19 essentially and $1.99. And what that's done for us it's given our franchise partners some pricing flexibility on those 8 items and got them more comfortable with having more continuity in terms of this decision. But again, we do feel the need to put more emphasis upon the pure $0.99 portion of this.

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

First, if I could just go back to the question asked earlier about the lifts on the Tier 1 remodel. Is -- when we talked initially about 25%, I think we all assumed that would sustain at that level and then maybe build over time, maybe not at the rate of overall comps, but build. Now you're saying it sustains at a lower level. Was that what you initially expected? Or is this maybe lower than you had thought?

No. I think this is in the -- for those 2011 restaurants, I think this is in the territory that we thought it would be in. And I would assume that these restaurants will comp at a similar rate to the overall system comps and continue to grow. We're not suggesting that they won't grow.

If a franchisee were to look at the unit economics of the investment, would they use that 18% lift and say, that's the right way to look at the returns now, not the 25%?

Yes, what we -- John, what we really anticipate as we look at Image Activation is that if you look at, first of all, scrapes and rebuilds and new restaurants, that the focus of the Tier 1 will be against that. But when I speak of Tier 1, we're continuing to learn from the Tier 2s and 3s, and we feel that there are things in the Tier 1 costs that we simply don't need to have there. They may be nice to look at, but they don't necessarily make a difference in terms of either the consumer experience or sales. So we think that we can get that Tier 1 down lower and use that to -- for new restaurants, as well as scrapes and rebuilds. And we really believe that the Tier 3 is going to become more of the workhorse of the system for the Image Activation. Because as we look at the early results that Tier 3 restaurants are achieving in terms of sales, it's very attractive. And by the way, the flow-through in the Tier 3 restaurant, just because of some labor staffing issues, is also nicely above what is in a Tier 1 Image Activation.

And you mentioned that -- did you -- I don't think you quantified in your comments what the lift you're seeing in these early results for Tier 2 and 3. Can you provide any color on what kind of sales lifts you are seeing?

John, really, it's way too early to put any numbers on that. We'll obviously share as we get some more experience with these, and we're opening quite a few of these this year. So hopefully, later, we'll be able to do that. But all I'm saying is that based upon the early results and just the patterns that we've seen in the past of how these hold up, we're very encouraged by the response we got. And as some of the graphics show you, when you look at the street presence of a Tier 2 and 3 restaurant, for most people, I'd defy you to tell the difference between a Tier 1 and Tier 2 and Tier 3.

Okay. And then just lastly, your confidence around the 2% to 3% comps, given comparisons get meaningfully more difficult at least for the next 2 quarters, so would one expect this to be a backloaded 2% to 3%, where the fourth quarter is really going to help? Or do you feel like you can overcome this tougher comparison to get into that range in the next 2 quarters?

Yes, I think the backloading is probably more realistic to look at that. It obviously, as I mentioned, is an interesting environment out there that you're seeing in the reports from a lot of people. And this was below our expectations, but we're making adjustments to recognize that. But we do believe that fundamentally, Right Price, Right Size and the approach we're taking to our business is a sound approach. And we will gain from a strong calendar. And we've got several really what we think are exceptional products coming later in the year.

Your next question comes from the line of Michael Gallo of CL King. Michael W. Gallo - CL King & Associates, Inc., Research Division: A couple of questions. Question for Steve, the G&A obviously has come down significantly. I know some of that is the breakfast spend. But that $65 million or so area that we saw in the first quarter, is that a sustainable kind of level going forward? I mean, I guess if I look at the cadence, first 3 quarters, really 4 quarters of last year was relatively similar.

No, I think if you look at patterns, I'd say the G&A in the first quarter tends to be a little bit lower just on a seasonal basis -- just like sales are lighter in the first quarter. I think if you look at the difference of the $65 million or so that we ran G&A in the first quarter versus last year, what you're really seeing is there's nothing unusual in there. But I would say there is sort of a mindset here that in the environment we're in and recognizing how tough it is from a sales and pricing standpoint, we know we've got to run a tight ship here. And I think what you're seeing is a couple of things. I think from a G&A standpoint, you're seeing us run, I think, from a staffing standpoint, a little tighter. We've completed the move from Atlanta to Dublin and the consolidation here. And so I think we're getting -- being able to realize some efficiencies from having that behind us at this point in time. We really are taking a hard look at some of the outside services that we're using. And so you saw some of those savings, but nothing of unusual or onetime nature. I really think it's a discipline we've put in into the business that, frankly, we're going to have to sustain for the full year. Michael W. Gallo - CL King & Associates, Inc., Research Division: Great. And then just a follow-up question on the reimages. I know it's early on the Tier 2s and 3s. But I was wondering if there's anything you're seeing in terms of the patterns of the consumer feedback. Again, I think we've talked about that at least from the street, the stores look very similar. And a lot of your asset base certainly is old and you have some of these markets that haven't been remodeled in some time. So it would just seem that the consumer might not notice a lot of the difference. I was wondering if you see any pattern changes in terms of the dine-in component of the business versus the drive-through, where I think that you would probably see the least difference in terms of the pickups. And then from the standpoint of returns, it would seem early on, given that difference, that the returns on the Tier 3 should be dramatically better than what you've seen on say the Tier 1s. So I was wondering if you can give us any further color on that.

Sure. The -- my sense is that the consumer response to these -- the Tier 2 and Tier 3 is very similar to the response we saw on Tier 1. And remember, Michael, that for those of us who have been in all 3 tiers, we can see some difference. But for a customer that has been, let's say, visiting very consistently a 25-year-old Wendy's restaurant, you walk into one of these and what we hear is, "Oh my gosh, I can't believe the difference." And we're also generally seeing -- and again, it's early, but the same kind of pattern where we see a very nice lift in our dining room business. But dining room, drive-through and carryout are all growing. And again, I think there's -- it's particularly powerful testament to what the Image Activation does when your drive-through business also increases because, again, essentially, that experience is very similar to what that used to be, other than you're pulling up to a restaurant that just looks fantastic. But it tells you how important that is to the consumer. The other part of this I'll emphasize as we continue to go through the people activation piece of this. And so we're working very, very hard to make sure that, that people experience that's taking place in these restaurants is very positive. And I will tell you that in the spring franchise meetings, which we held 2 in Columbus, Salt Lake City and Philadelphia and in Toronto, but in all the cases, with the exception of Toronto, we had a Tier 2 or 3 restaurant to visit for our franchisees and we had strong turnouts for those visits, they were very surprised at just how attractive these restaurants were outside, inside for the significant reduction in investment. And then lastly, to your point, yes, we do believe that the returns on the Tier 3 restaurants are going to be considerably stronger. By the way, we feel good about the returns in all the tiers, but we feel that the Tier 3 is going to be even considerably stronger.

Your next question comes from the line of Will Slabaugh of Stephens.

I wanted to ask you about the reception of your new Flatbread. You mentioned that was successful in your release this morning. And then also just in the context of your comment around the price value relationship there being a little bit challenging in the quarter.

Well, yes. And that's the interesting dynamic that we're seeing is that as you look at the consumer environment out there, that we're probably seeing an increasing bifurcation of consumers where you still have consumers that have the capacity to spend on higher-end items. And as I mentioned, when you look at units of our large chicken sandwiches, which we would put Flatbread in that, they were at a 9-year high, so that says something about the results of that. But at the same time, we have lost share in the price value arena, but basically have not had pressure against price value message since go back to the launch of Right Price, Right Size Menu in January. And that's why my earlier comment, Will, about -- it's apparent to us that this core group of $0.99 price shoppers, they're heavy users often of quick-serve restaurants, and you need to continually remind them that you have products available for them every day just because their economic situation necessitates that price point.

Got you. And just as a quick follow-up to that. Is what you've seen -- or has what you've seen in the last few months changed your thoughts around what the pipeline might look like for the rest of the year from the standpoint of offering more differentiated premium items such as a Flatbread versus maybe just a little bit more of a focus on that -- the lower end of that Right Price, Right Size?

Well, I would say that our approach to this is really what we call the power of the and. It's not stepping away by any means from the high end because you'll see that we have some outstanding products coming into the pipeline. But we feel we also have to have ongoing pressure against the price value end, which was my earlier comment about thinking about price value less in a pillar sense and more in a continuity sense. It's almost like, for some of the price value shoppers, it's out of sight, out of mind. And if they're not -- if you're not constantly reminding about your offer because, let's face it, there are a lot of other people who are -- do have pressure against these ideas and they need to be reminded of this on an ongoing basis. So we feel our strategy has to continue to put pressure against those high-end items where we clearly can differentiate ourselves, but also recognize that probably 20% of the overall business out there in quick serve is that price value shopper.

Your next question comes from the line of Michael Kelter of Golden Sachs.

Well, I guess -- first off, I just want to clarify what exactly you've been trying to convey with the various comments about Flatbread being a solid launch but price value remaining an issue. Does that essentially mean that even though you sold a lot of Flatbread sandwiches that same-store sales haven't picked up at all?

Yes. I think that it means that some of the growth that we've seen through the -- this very strong sales of Flatbread have in fact been offset by some of the share losses on the price value end of the business. And -- but as you know, Michael, we don't give specific comments on monthly same-restaurant sales.

And then you mentioned earlier that sale softened when the Right Price, Right Size messaging rolled off. And I guess my question is, how do you disaggregate how much of the deceleration was simply because you reverted to a more normal run rate of ad spend versus the large amount you spent in January to support the initiative? And I ask because as you suggested in your prepared remarks, you can't necessarily shout as loud as the larger competitors on a sustained basis.

Yes. My instincts are, Michael, that yes, there were some differences in media spend, but I think it was also -- the message to me is the key thing. So if you look at the 3 components of promotion, message, media and creative, far and away, from a consumer point of view, the most important thing is the message. You can take a C piece of creative and put it against an A message, and you're going to get great results. But if you have a C message even with an A piece of creative, it's not going to get the job done. So the message is very important. And I think when we hit the -- some of that local pillar, I just feel that the messages didn't carry the day. And by definition, you are more fragmented because the local DMAs are given options to run 3, 4, 5 different messages as opposed to having a continuity of a national message.

And then, Steve, you mentioned on G&A, because it was much lower this quarter, that a lot of it was just having a mindset about running a tight ship, and that's great. Could you break out the $7 million of delta this year versus last year first quarter, kind of what the big buckets of difference are so we understand what the moving pieces are within that?

Sure, Michael. $3.8 million of the decrease was in the category of employee expenses, so that's where I talked about running at the lower staffing levels. I think that's where you're seeing some of the efficiencies bringing the Atlanta support center together with Dublin. And sort of having that whole process behind us, we're now able to focus on efficiencies around staffing. So that's about half of the change. When you look at sort of outside services, consulting expense, we've been taking a hard look at that outside legal services. We've been doing some management of that in terms of in-house versus outside. And so about $1.5 million of that $7 million, I'd say, would be in the professional services arena. And then another $1.7 million is really just a lot of small items that net up. But I think it just brings to light the internal process we really started last year, which was really trying to look at G&A spending overall and try to bring that into more of a best-practices approach to looking at our total G&A, recognizing we got pressures at the top line.

Yes. And I'll add, Michael, they just -- that we also do some competitive benchmark and then we look at our G&A as a percent of revenues or on an average restaurant basis and things like that. And we felt that it's a little bit above where it needs to be, just as we look at it even in a competitive context. And so we feel that we can't be out of whack with where other people are in the business.

Your next question comes from the line of John Ivankoe of JPMorgan. John W. Ivankoe - JP Morgan Chase & Co, Research Division: The question is on the Image Activation. And I'm just wondering if you're targeting a sales to investment type of ratio that we can think about, especially for the Tier 2 and Tier 3, I mean, it does seem like -- I mean you're not -- obviously, you're not seeing a commensurate sales drop based on the investment costs that your spending in the Tier 2 and Tier 3. But what is it that you're targeting, and what do you think an acceptable level is for franchisees to invest? In other words, do you spend $1 -- or I mean I guess, do you spend $3 in investment cost to get $1 of sales, for example? How are you thinking about it?

John, this is Steve. Let me take a crack at that. I think what we've really been focused on is, as we selected the company restaurants for Image Activation, taking a broad spectrum of restaurants at different AUV levels, different markets across the country and really seeing how the concepts work with both consumers from a reaction standpoint and then really focus on the sales lift. And as we'd start transitioning and talking about as we have more experience, the sustainable sales lift I think is really the key I think as a starting point in looking at the overall returns on investment. When we talk about sustaining our sales lift in that 18% to 20% range, the incremental profit flow-through on that kind of sales lift is certainly well above our average restaurant margin. So it really does produce a nice flow-through on that existing asset. And we think it's hopefully something that can be sustained over a long period of time, given the dramatic change of these restaurants. As Emil's talked to you, when you see even the Tier 2s and 3s, it's a dramatic change from the condition of the restaurant, if it was an average 20-year-old restaurant. So we think the -- from an overall financial return attractiveness standpoint, that we can sustain those high teens of sales lift, really get a high incremental margin flow-through on that sales lift overall and continue to bring the cost of these investments down, so that we can get that Tier 2 and 3 down to very attractive levels. We think that's a compelling financial case. John W. Ivankoe - JP Morgan Chase & Co, Research Division: And it is a classic way to look at least at new unit development and I think remodels as well, like the sales-to-investment ratio. But if you're not ready to talk about that yet based on your experience, I guess that's fine.

Yes. We tend to look at that more of a new unit, so we could talk about that. We know we've got some Image Activation new units as well. I'd like to get a little more seasoned sales data, and then we could talk about that maybe on the next call.

Well, the other reason is that when you're providing an incremental sales like this, the flow-through on those incremental sales is different than if you're building a new restaurant. So that does make a big difference in the calculation. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Of course, which is why I even phrased it the way I did, maybe it is $3 of investment for $1 of sales. And given your flow-through, that would probably still make sense. And can I ask something else, maybe just to clarify, what level of income statement G&A do you expect for 2013? I mean, some of the comments that I think you've been making to a variety of questions suggest that first quarter is more or less carryforward, maybe with the exception of the fourth quarter given the incentive? But I mean, what should we expect from an income statement G&A perspective for '13 that puts with your guidance?

John, we've not broken that out as part of our overall guidance. I mean, you do know that we're going to have about $10 million of incremental G&A just from the franchisee incentive program. So in the fourth quarter, we've highlighted that will impact our quarterly flow of EBITDA, and that expense runs through G&A. I'd say other than that, what we're trying to do is, as I've said, sort of tighten the belt versus last year. And hopefully, we can show a small decrease year-over-year on the core G&A, but recognize we'll have that $10 million add-back in the fourth quarter.

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

This is actually Eric Gonzalez in for Dave Palmer. I think you mentioned in the prepared comments that the absence of breakfast might negatively impact comps in 2013. I was wondering if you might quantify the impact that it had on 1Q on both sales and margins. And then just real quick on reimaging, what impact is reimaging having so far on company same-store sales? And given the outlook for reimaging, how might that ramp through the rest of the year?

Well, I'll -- what we've shared previously -- and we're not giving specific comps on the breakfast impact or the Image Activation impact. But what we've shared previously is that for this year, we expect to have the impact of breakfast removal about offset by Image Activation, and we saw that basically taking place in the first quarter of the year. So in other words, they're almost identical.

Your next question comes from the line of Chris O'Cull of Keybanc.

Steve, did you say how many of the 100 applications for the incentive program have been approved and are expected to be converted to reimage restaurants in '13?

No, I did not. I did not go into that. What we've got is we're probably up to about, after going around the country on this franchisee road show and having the Tier 2s and 3s open, where people can touch these restaurants and see exactly what Emil talked about, is that there's -- it's hard to tell the difference, in some cases, between the 1s and the 2s and the 3s. I think that's added some enthusiasm out there. So we're up to about 130 franchisees now that are signed up. In terms of actual openings, it's not a big number. We had 2 last year, we've had 2 open already this year and we've got 2 that I think are very near completion. But it's a little bit hard. It's through the construction process. I think that we're probably, if I look at the pipeline we're working through now, we probably have 25 that are in their early stages of the permitting construction process. And as we've said, we're working very hard to try to get 100 company restaurants done and 100 franchise done by the end of this year.

And I think that's the key, is that we're still committed to the 100 company and the 100 franchise.

Okay. And then just as a follow-up to the remodel economics we talked about earlier, it looks like, just using some simple math, that Tier 1 remodels are boosting pretax cash by maybe $90,000, I'm assuming a 35%, 40% flow-through. So if they cost $700,000, is it reasonable to assume a payback could be 10 years?

Yes, Bill -- Chris, we've gone through those economics with the franchisees. I think when you look at the cost of the Tier 1s, and I think that's what Emil was alluding to, we've got to continue to bring the costs down. We've got a lot of features in those restaurants, and I think there are some opportunities to continue to bring that cost down. The other opportunity we've got is around the flow-through on those restaurants. That $90,000 of cash flow, for example, would assume an incremental lift of around 30%, I think, if I'm following your math. And that is generally below the kind of incremental flow-through we'd like to see for that kind of sales lift. So I think there's an opportunity as we -- especially as we come down the learning curve on how to manage and operate these Image Activation. We're having some higher operating costs initially. Part of the learning we're gathering as we go through and do more of these is how to operate these even more efficiently. So I think the flow-through will go up over time and make it, I think, a more attractive return. However, your point is well taken. I do think that the opportunity here is for the Tier 2s and 3s to have even higher relative returns than the Tier 1s.

Okay. And just one last one. Has GE Capital agreed to provide financing for all 3 tiers?

Yes.

Your next question comes from the line of Sara Senatore of Sanford Bernstein. Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division: Just a few follow-ups and a couple of tactical and one maybe strategic. From a tactical perspective, what I hear what you're saying about marketing, it sounds like when you do global marketing, it's not as effective. And I think we heard that in December also, the franchisees may be weren't quite as much onboard with value. You lost some traction there and then regained it in January. So is there any opportunity for you to shift the marketing spend to be more national or just be more consistent? So that's part one. And then I had another question about commodities. It seems like they've come in. Is there any potential that there's an offset there if top line is lighter than you expect?

So first of all the -- in regard to your question on shifting from local to national, the large pillar is the only local pillar we have, but DMAs do spend some money on a local level which typically is in support of the national message. And one of the things that we're looking at is asking them to spend more of that money against a more targeted price value message to have more continuity against price value as I spoke about earlier. And certainly, there's the possibility of us also having a conversation with them about converting that local pillar and taking those dollars and converting that to national, and that's something that is under consideration. And I'm sorry, what was your second question, Sara? Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division: It's about commodities.

We saw a 90 basis points of commodity impact in the first quarter. And if you look at our guidance for the year that we had projected 90 to 120 basis points. And so, obviously, it'd be wonderful if it can continue to come in at 90 basis points or even lower than that. But I think it's too early in the year to really -- to know exactly. Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then just one sort of strategic question and that is, just in terms of thinking about the overall, you get a lot of questions about capital use, with respect to the portfolio of owned versus franchised or company-operated versus franchised, and recently you've actually I think been buying in some franchisee -- franchise units to turn them around. Would you think about maybe re-franchising a little bit more aggressively, given how tough the demand environment seems to be and that the kind of sort of high levels of capital you see a need for the reimaging?

Yes, Sara. As we look at our growth pyramid, we've got that one piece of that which talks about system optimization, and that is something that we do have an active thought process around. And we do want to optimize the system. And we mentioned that over time, we expect it to probably have 400 restaurants fewer than we do now, but do that in a way that really works extremely well for franchisees, use that as an opportunity to put those in the hands of some great operators. And some of those operators may be inside the system currently, some may be outside the system, and also make sure that what we're thoughtful about as we do this that we do this in a way that encourages both new restaurant development, as well as Image Activation. Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division: And should we expect to see that in the near term or that's more of a medium-term goal?

I think that we're going to continue to work on that, and I think you'll see activity on that yet this year.

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

Just one thing back on the Tier 2s and 3s. I believe those have just opened in the first quarter, the first couple of those. I may be wrong on that. And then how many of those do we have open so far?

Yes, those were opened in the first quarter this year. We did not have any open -- and Steve, I don't know if you have an exact count on those?

Let's see. Give me a second, Jason.

Yes, I'd say Jason, the number is probably under 10 or about 10 right now.

Okay, got it. So it really just don't have a lot of data yet?

But I would tell you that as we look across the spectrum of those openings, I will tell you that we're seeing consistently good sales performance on those.

And Jason, we're really right -- in the next couple of weeks, we will open up a fair amount of these.

We've got an explosion.

So we will begin to get a lot of data coming from these very quickly.

Okay, got it. And then on the GE commitment, what is the size of the commitment you guys are making as a backstop in terms of, I don't know how you want to define it, in terms of total at-risk capital? Or how much -- how many deals or Image Activations this might represent, something like that?

Yes. No, the program itself, I think, is going to start in total a $100 million program, but we would expect that to be increased depending on demand for this particular loan product. Our backstop, we're providing a partial credit support of this, which is really not material from a financial standpoint to Wendy's. But I think it's important from a timing standpoint. I think it was a helpful piece of the puzzle to get GE to commit early in the process which was important to us.

Okay. So your at-risk capital is a little bit -- some fraction of the $100 million?

Exactly.

Okay. And then on the D&A guidance of 15% to 20% D&A growth, it was obviously a lot higher than that in the first quarter. Does that exclude the reimaging piece or is that the actual GAAP guidance?

Yes. So let's spend a minute because I know that depreciation is a little confusing because of the Image Activation impact. But what we talked about is that if you look at our D&A from last year, we reported $146 million of depreciation. And we said in the earnings release, just to give you some guidance because of this unusual sort of onetime write-off as we go through Image Activation, that, that increase should be around 15% to 20% for the year, so say $20 million to $30 million of higher total depreciation. But in that one table, you can see we recognized $14.5 million of, call it, this accelerated depreciation on just the Image Activation piece. And for the year, we think that will be a $20 million to $25 million. So of $20 million to $30 million increase, $20 million, $25 million of that will be related to these write-offs that we take when we renovate these restaurants.

Okay, got it. And as we look into next year, I'm assuming the Image Activation numbers are going to go higher for '14. Is that D&A number, the write-off piece, going to be similar I guess next year or relatively similar to the amount of Image Activations that you're doing?

Yes. So $20 million, $25 million is our number this year on 100 remodels. We're going to shoot for 200 next year. So it may not completely double, but it will move in that direction. And the reason it may not completely double is that when you drop down to a Tier 3 remodel, less of the assets are replaced, so the write-off will be a little bit lower on a per-restaurant basis.

Your final question comes from the line of Keith Siegner of Crédit Suisse. Keith Siegner - Crédit Suisse AG, Research Division: Just one quick one to cap this off. We've talked about the barbell strategy, we've talked about Right Price, Right Size and tying that into strategy. What about on the core menu? The bulk of the sales, tying it into the commodity question from before, where is the pricing on the core menu now? How are you and the franchisees thinking about pricing in this environment on the core menu?

Well, as we mentioned, there is some carryover pricing that is in the numbers for the first quarter. But as we put together our annual operating plan, we really didn't assume a lot of incremental pricing beyond what was carryover, in part, just because of the competitiveness of the environment out there and that we felt that the most effective way to get a price increase is quite honestly through our higher-end promotional products that cause a positive mix shift and increases in average check and accomplish it that way. And it's still our intent to have that be the predominant way in which we get incremental check impact. Does that help, Keith? Hello? Okay. Operator, if that's our last question, we appreciate that. Thank you all for joining today. Later this afternoon, Steve Hare and us will be talking to many of you as follow-up and look forward to catching up, and thanks for joining today.

Thank you. That concludes today's conference. You may now disconnect.