Wendy's Co (WEN) 2002 Q4 法說會逐字稿

Please welcome Wendy's vice president of investor relations John Barker.

Well, good morning, everybody. I'd like to welcome you to Wendy's analyst and investor meeting which is held at the Sofitel hotel in New York. I'd like to offer a special welcome to analysts, investors and others who are listening to today's meeting over our conference call and our webcast. For those of you on the webcast, you can follow along with today's slides via the internet. And if you've not yet logged on, you can locate the slides on our website. It is www.Wendy's-invest.com. For those of you who are in person with us here today, you should have the slides for the first part of our meeting, and the slides for the second part of the meeting will be handed out in just a while. Let me mention that the company will be issuing a news release this morning that includes some of the key forward-looking information that we will share during this meeting. That will come a little bit later. Last Friday, we published our earnings release for the fourth quarter and the year 2002.

Our agenda for today really includes three parts. In part 1, I'm going to review the investor relations calendar for 2003, discuss our investor website, and remind you about our safe harbor. In part 2, our Chairman and Chief Executive Officer, Jack Schuessler, will review the company's highlights from 2002 and progress on our strategic plan. In part 3, our Chief Financial Officer, Kerrii Anderson, will discuss our fourth-quarter and 2002 results. She will also talk about our 2003 financial outlook. And she will share with you an update on reporting transparency and corporate governance at Wendy's. Jack will wrap up our presentations and then we'll take questions from analysts here at the hotel and from those on the conference call. Finally, we will be serving lunch, for those of you that are here today. In 2003, management plans to be very accessible to the investment community once again. We spent considerable time with you during 2002 sharing our strategic plan and our progress.

Here's some of the highlights on our IR calendar for the first half 2003. Later this month, on February 25th, we will present at the Bear Stearns Retail and Restaurant Conference in New York. In early march, we're planning to meet with investors either on the West Coast or New York -- I'm still working on some details for that -- we'll send out a notice when we get that together. On March 19th, we plan on meeting with investors in Boston. That's sponsored by CSFB. Our annual meeting this year for shareholders will be conducted on April 23rd in Columbus, and will be webcasted, just as we did last year. On May 7th and 8th, we'll be back in New York meeting with investors. On June 3rd and 4th, we'll be presenting at the Goldman Sachs conference. And we are planning meetings in June in Texas and in some key Midwest cities. Finally our major analyst meeting for the year is tentatively scheduled for September 17th and 18th in California, where we plan to highlight our Baja Fresh business.

From a disclosure standpoint, we plan to continue issuing monthly sales releases, just as we did in 2002. The monthly releases will contain same-store sales results from Wendy's and Tim Hortons as well as other important information about the business. Our Baja Fresh same-store sales will be included only in our quarterly earnings releases. If you're keeping a calendar for 2003, our quarterly earnings are planned on the following dates: April 23rd, July 24th, and October 23rd. Now, to accommodate all the requests that we're getting for meetings with management, we have designated six dates this year when we'll host analyst days at our corporate office in Dublin, Ohio. Those meetings will include conversations with various members of our senior management team and visits to nearby Wendy's, Tim Hortons and Baja Fresh restaurants, where we'll highlight our restaurant operations. The dates for those are February 24th, March 17th, May 12th, August 18th, November 10th, and December 16th, and all this information is included in your handout. Please contact Meredith Russell in our investor relations department if you are interested in attending any of those meetings.

Now, let me just shift gears for a second and discuss our investor relations website. Many of you contact the company and ask for historical information about our annual reports, news releases, Form 10-Ks, and presentations. All of that information is available on our investor website. You can see the web address there. Also on the website are links to each one of our brands, Wendy's, Tim Hortons, Baja Fresh, and now Cafe Express and post promise. The quick links allows you to obtain such things as calendar of events, SEC filings and our annual reports library. Our 2002 report by the way will be posted on the website by March the 10th. And just so you know, we regularly update this site and you'll always find an updated investor presentation on that site. Overall, our goal with investor relations is to provide access to management and to practice full and open disclosure. And now, for all of you, the favorite part of the meeting, the safe harbor. Please refer to the safe harbor statement attached to the company's news releases and in our Form 10-Q and 10-K. Certain information that management may discuss today regarding future economic performance such as financial goals, plans, and development, is forward-looking. It is possible that various factors could affect the company's results and cause those results to differ materially from those expressed in our forward-looking statements. Some of those factors are set forth in the safe harbor statement that is attached to our news releases, as well as our recent Form 10-Q. Now, let me turn the meeting over to Jack Schuessler, Wendy's Chairman and CEO. Jack?

Thanks, John. And certainly good morning and welcome, everyone, to the Sofitel and everybody on our website. Glad to have you here. You know, we produced an outstanding year with excellent financial performance. At the same time, we continued to execute against our strategic plan. We had very strong performance at both Wendy's and Tim's, and we acquired the fast casual leader, Baja Fresh, and as you know, we made a number of investments during the past year. And we're also very, very confident about delivering good results in 2003. It was an outstanding year from a financial standpoint, with record highs in revenue and income. Here are the key highlights. Revenues grew by 14.2%, and topped out at $2.7 billion. Net income, 218.8 million, or a 13% increase. And then EPS was a buck 89, at 14-and-a-half percent increase. And a little bit later on, Kerrii will have more details.

But now I'd like to take just the next few minutes to talk about our strategic plan. Our strategic plan is the foundation for all our businesses. We have a very clear mission, vision, and core values. We use the plan to guide our initiatives in 2002, and I think our people did an outstanding job in executing that plan. But more important, we are focused on the future. We have initiatives in place to drive our growth and also at the same time we'll discuss these other growth things this morning. Our strategic plan is a long-term approach, and clearly number one job is to maintain focus on our core businesses of Wendy's North America and Tim's Canada.

At the same time, we're making progress on our evolving businesses which we define as our international Wendy's component and Tim's U.S. And develop new opportunities to take care of our future growth, such as Baja, our investment with Cuisine de France, Cafe Express, and Pasta Pamodoro. And the idea is to deliver 12 to 15% annual earnings growth over the long-term. Now, if you look at the classic growth cycle, Wendy's North America, Tim's Canada, and Baja Fresh is in the growth cycle, and we have other companies that we think are high potential that can enter that cycle over the next two to three years. It could be the CDF joint venture, it could be post Palm (ph) or Tim's U.S.

Now, let's look at the evolution of the enterprise, beginning with Wendy's. Tom Mueller is the president and COO of Wendy's North America. And Tom has over 25 years of experience in the restaurant business, and the last five years he's been with Wendy's. Now, just to take a little bit of time and discuss Wendy's of north Marc, our four operating tells have guided us well since 1989, but we continue to evolve.

We've added finance as the fifth operating principle. Finance works as a partner to operations, providing focus and accountability. In 2002, Jim O'Connor became CFO of Wendy's North America, reporting directly to Tom Mueller. His group is really doing a great job of implementing important programs such as margin enhancement tools for our franchisees.

Operations will always be central to everything we do. Our other principles work to support it. We believe these principles position us for our future growth. At the end of 2002, total Wendy's restaurants were over 6200, of which about 350 are in international. We believe we have significant growth opportunity for Wendy's in North America. Last year, we opened 303 new units, and we believe that our long-term goal, we could have a total of anywhere between 8500 and 9500 restaurants. Most of these will be standard units, but we've also had some very successful tests in the last year on double drive-throughs and smaller buildings. And we continue to use mapping technology to bring more efficiencies to the process.

System-wide sales at the end of last year was 7.5 billion, and over a 10-year period of time, the compounded annual growth rate was at 7.6%. Last year, we increased same-store sales by 4.7, and our AUVs for the system topped out at a million two eighty and our 1100 company restaurants, just shy of 1.4 million, at 1,390,000. We build sales better than anyone in the QSR arena over the last 10 years. From 1990 to 2001, we added three $388,000 to our top line, or a 3.6% annual growth rate, and you can look down the list, what KFC did at 2.6, Taco Bell at 1.3, and McDonald's at .7.

You know, I'm often asked in meetings like this, 'How can Wendy's deliver these kinds of results year after year after year?' And I simply say that, you know, we look at our competitive advantages and then execute against them. One of the most important competitive advantages is our long-term approach to the business and system unity. You know, at Wendy's, it's all about the food, whether it's our salads, our hamburgers, or chicken. This past year, as now, we introduced garden sensations which was very successful. It was an excellent menu addition. It had higher than normal check average. Product mix during the media period was at 10% plus and later on this year, we'll introduce a new promotional salad called Southwest Chicken Caesar and you'll have a chance to taste this at lunch today.

You know, when the consumer asks, 'Who has the best salads?' Wendy's leads the way at 67%, and our next closest is McDonald's at 19%. You know, super value menu has been in the system for over 14 consecutive years, and we really view it as a long-term strategy, not a tactic. And the reason it works so well is because it's familiar and predictable to the consumer, and it truly represents quality and value. Over the last 14 years, we've spent more than $315 million on national advertising behind super value menu. And this has really paid off.

When the consumer is asked, 'Who has the best value for the money,' Wendy's is number 1 at 42%, and you can look at the beginning of this in 1998, Wendy's was last at 26. So super value menu has really paid off. And our success to food quality is really due to our commitment to research and development. Our R&D process is the gold standard for the industry. It had unparalleled success in introducing new products for over the past 15 years. For example, last August we tested chicken strips, and now we're currently looking for counter placement for the back half of 2003. And come April of this year, our new R&D facility in Dublin, Ohio, will be open.

You know, another area that's an advantage to us is operations. For the fourth year in a row, QSR magazine in their survey named Wendy's number one in speed of service at the drive-thru. We made a 7-second improvement to 127 seconds, and you can see chick if I lay is number 2 at 151, McDonald's at 162 and Burger King at 173. And this is something our operators are quite proud of.

If you look at some of the attributes on operations and the gain in the last five years, our drive-thru accuracy has increased 16 points. Drive-thru speed has increased 12 points. And our attributes in the dining room, like accuracy , plus 9, and dining speed, up 9. You know, the people excellence program that we put in has also paid off. And it really helps us to deliver the brand promise at the restaurant level day in and day out. If you'll look at the turnover results for the past four years, crew turnover in 1998 was at 199%. Last year, it was at 139%. Now, mind you, the industry average in this -- in this category, is 250%. Our co-manager, which represents the green line, has gone from 34% down to 21, and our general manager turnover is now at 10%. Because of our focus on operations and retention, Wendy's is closing the gap, when asked, 'Who has the most consistent restaurants?' Wendy's now is only 4 points behind McDonald's. And four years ago, we were over 20 points behind McDonald's. Also, in the important attribute of personal favorite, Wendy's is clearly number one at 41%, followed by Burger King at 28 and McDonald's at 24. And you can see, again, in 18998, those gaps were very close. We track 56 attributes on a quarterly basis, and you can see we're number one in 42 of 56 attributes, and you just take a few of them, like food. We're number one in 23 of 25. In operations, 9 of 12. And corporate values, 3 for 3.

Let me just highlight one attribute on late-night. When the consumer is asked, 'Where's the best place to satisfy your late-night hunger?' Wendy's is 2X of that of McDonald's and Burger King at 50%. And you can see our growth in late night is a very important component. Last year, our total sales on late-night per restaurant was over $2,400, and we've almost reached late-night as 10% of our total sales. You know, I'm very proud of the job our marketing department has done in transitioning our advertising from the Dave Thomas campaign. Dave was clearly an American icon. In 2002, we successfully introduced 'it's better here' campaign.

Our focus is on the food, with our national and local advertising, highlighting our limited-time premium sandwiches, our introduction of garden sensations, super value menu, core menu items, and for the first time, we launched a Hispanic campaign. Wendy's EVP of marketing, Don Calhoon (ph), was named by brand week magazine as marketer of the year in the restaurant year. Now, let me touch upon our transition to our new advertising agency, McCann Erickson. We made the transition in late August of 2002, and McCann (ph) is the largest worldwide advertising agency. And the good news here is our core Wendy's team that was in place at Bates USA came over to McCann and they have more than 12 years of experience. And McCann really provides for the enterprise significant research depth. We also have a very powerful ad calendar for this year.

We came out of the blocks with super value menu in January, and our local pillar here in February, we have many, many tests going throughout our markets. Just some highlights from our 2003 marketing calendar. It's year 2 of the 3% national contribution by our company and franchise stores. We have greater media weight at 8% in our adult Miller pet messages. We add an additional kids and Hispanic pillar, and we will continue our balanced marketing messages between core products, value, new product news, and our year-long effort behind late-night. And I've brought three commercials along to show you here this morning. Our January effort behind super value menu, our late-night, and our Southwestern Chicken Caesar.

Daddy, what are you doing?

Paying bills.

You sure got a lot of bills.

Yeah.

You know, Wendy's junior bacon cheeseburger made Dave's way, a hot baked pay toe, even our Chile is just 99 cents every day on Wendy's super value menu.

So how are you going to take this back?

Hey, isn't this your brother's?

The super value menu at Wendy's. The best 99 cents you can spend.

Hey, guys, meet the new guy!

Hi, I'm Bob.

Hey, help yourself to some snacks.

Speaking of which, you know what would taste good about now?

Yeah. A big hot and juicy cheeseburger.

With everything.

I can almost taste it.

You're telling me. If there there's a place to get a hamburger that good this late, I'd not only drive, I'd buy.

Really.

Wendy's classic hamburgers are made fresh so they're always hot and juicy so you can eat great even late.

You must be the new guy.

Yeah.

Wendy's, it's better here.

Friends, Romans, countrymen, lend me your ears, I bring thee good news.

Introducing classic Caesar Salad with a twist. Wendy's bold new Southwest chicken Caesar. With spicy chicken breast filet.

But wait, there's more.

Together with seasoned corn and black beans.

Get two, buck a radios?

Try our bold new salad today. Wendy's, we've raised the bar on Salads.

Hail Caesar? Hail Wendy's.

When you look at QSR hamburger market share, Wendy's topped out the end of 2000 at 14%, and that was an increase of 1.4% during the two-year period of time and that was better than anyone within the hamburger segment. When you look at a broader indication on QSR, total QSR, Wendy's market share was 3.7%, and it grew .3, and that's one of the best in the industry. You know, other competitive advantages are our efforts in the areas of technology and supply chain. In technology is a key enabler to our business by providing efficiencies at both headquarters and the restaurant level. Key projects are our new store systems that we completed last fall, and we introduced new store systems to 1100 company restaurants on time and on budget, and currently we're testing e-pay in our restaurants.

You know, technology is also an enabler, allowing us to leverage our supply-chain. Supply-chain really represents a major opportunity to save costs. Key initiatives include e-commerce, just in time inventory with suppliers, consolidation of suppliers and distributors to improve service and reduce costs, lean logistics. This helps our suppliers reduce their tasks and costs. And finally, demand forecasting and ordering. We feel these initiatives will produce significant benefits next year in 2004.

Now let me discuss our international division. Ryan Gubernatorial (ph) is senior VP of our international Wendy's. Ryan has headed up international for the past two years. Right now, this map indicates where we are. Basically, we have about 175 restaurants in both the Latin and Asian regions. Ryan is executing against a five-year plan. The division is profitable in 2001 and 2002, and that's the first time that division has been profitable. And we're growing with our strongest franchisees. Now, as you read, there's been political and economic instability in Venezuela. Our franchise in Venezuela has about 55 restaurants and they've been closed for the past 10 weeks. The international division continues to be a small part of our overall enterprise.

Now let's talk about our other core business, Tim's. Paul House is president and COO of Tim Hortons. Paul's been in position since 1995, and he's been with Tim's since 1983. And Paul had a real honor this past December, where the Toronto globe and mail named Tim's the outstanding company of the year in Canada. You know, at Tim's, they're the market leader. They just dominate all the indications in Canada. 22% of overall QSR, 70% of coffee and baked goods. They just dominate the marketplace. Total restaurants at the end of last year, over 2300, of which U.S. has 160 restaurants. And we feel we also have significant growth opportunity at Tim's. Last year, 182 new units were opened in Canada, and we believe our long-term goal will be about 3500 total units in Canada. And the strategy at Tim's is a 'we fit anywhere,' whether it's standard units, our double drive-thrus, we have well over 100 combo units with Wendy's in fads and kiosks also part of the equation.

System-wide sales for last year was 1.679 billion in U.S. dollars, and over the past 10 years, it had a 16.7 compounded annual growth rate. Tim's sales topped out last year at 1,000,555, a 7.2% increase, and same-store sales in the past 10 years increased at an annual rate of 7.3%. And Tim's, like Wendy's, figures out what the competitive advantages are and executes against them. It's about quality products, strong operations, balanced marketing, and a 'we fit anywhere' type strategy. And again, at Tim's, it's all about food. We have a great cup of coffee. We also have specialty coves like mochas, cap a clean (ph) and icecap for the summertime, a wide array of baked goods from baguettes to cookies and we also have great sandwiches and as soon as possible at Tim's. If you'll look at the product mix, coffee appropriates 50% of the product mix at Thames, baked good about 22-and-a-half and our lunch day part represents 10-and-a-half percent of sales. I mean, this just shows you how dominating Tim's is in Canada. Coffee share, fourth quarter 2002, Tim's has 63% of the coffee share, and second and third is second cup at 5% and Starbucks at 4. Tim's also stresses strong operations, whether it's tandem teams at the pickup windows or double windows. The focus is always on operations, how to get more customers through -- through the building. Tim's is also a 52 a week a year advertiser. Their media weight is 10% more than 2002, and I'd like to show you three commercials that we run in Canada.

My name's David Mall. I'm from [inaudible] on the lake Ontario and I was a student here at the University of Glasgow. Scotland is great. The land, the people, the history. But you don't know how much you miss home until you're away from it. So my roommate, James, and I decided to create a little piece of Canada. We called our room caribou house. In fact, it became known as the unofficial Canadian embassy here on campus but for some reason it didn't seem completely Canadian here so I wrote home to Tim Horton's for a little help. You know, there are some things that just say home.

Dad, dad, you got to take me somewhere. I need to get another gift.

So where are we going?

Where do we go in the morning, dad?

Okay.

Welcome to Tim Hortons. May I take your order?

I'll have a large double-double, please.

Dad, let me pay. No, dad, don't open it now.

A French lesson. A thin crisp crust. A warm golden color. And a moist slightly chewy texture.

In regular or big.

Let me just touch a second on our joint venture with Cuisine de France. As you know, we built a baking facility and that's now open in Brantford, on do I Ontario, and we spent $70 million total investment and it's a 50-50 joint venture. Currently, it's supplying French baguettes and confection area items to Canada and U.S. stores, and we expect to generate significant income for the enterprise in 2003, and we're also planning to expand that facility to further supply the rest of the chain. Tim's U.S., a very good story here. Continued to improve on operations. We're improving our financial results with strong same-store sales growth, and for the first time this past year, we generated pretax income of $263,000. We're currently penetrating our existing markets and this past September we did new market entry into Rochester, New York, and we continue to focus on operations and brand awareness. Here in the U.S., Tim's has 161 -- or 160 restaurants in three core markets of Michigan, Ohio, and buffalo, New York. If you'll look at same-store sales growth going back to 1991, in '99, I'm sorry, up 13.9%, in 200012.7, 20017.7, and last year at 9.9. I don't think there's any restaurant company in the U.S. that has these kind of numbers.

We also talked about last year, about an acquiring a coffee roasting plant in Rochester, New York. We invested 4.5 million to have a state-of-the-art facility, and it has the capacity to roast up to 35 million pounds of coffee. And it currently supplies Tim's restaurants in Ontario and the U.S., and all of the company restaurants of Wendy's in the United States. Now that we've talked about our two major brands, let's discuss how we approach growth from the enterprise. I think you've often seen this slide. It's like a three-legged stool, and we have a vertical integration such as our investments with Cuisine de France and our coffee roaster in Rochester.

We also have two growth concepts that we invested in, Cafe Express and Pasta Pamodoro, and then back in last May, we merged and acquired Baja Fresh . But, you know, anything we do, we put framework around in the area of M&A, because quality is paramount. In the minds of the consumers, Wendy's is rated number one in food in QSR hamburger. Tim's is rated number one in coffee and baked goods. And Baja Fresh is rated number one in fast casual Mexican segment. So we don't want to do anything that blurs the quality perceptions these brands have.

We also said to ourselves, any new concepts cannot compete directly with Wendy's, Tim's, or Baja Fresh. Continuity of management is important to us. Along with providing -- providing diversification for the enterprise. And, of course, we expect contribution to EPS long-term growth. Now, let's talk about our newest member of the Wendy's family, Baja Fresh. Greg Dolhyde (ph) is president and CEO of Baja, he's been in place at Baja for over 5 years. He has over 25 years of experience in the restaurant industry, and any of you that know Greg, he brings really high energy level of leadership.

We announced the acquisition on May 31st of last year, and the purchase price was $275 million. It was founded in 1990 by Jim and Linda magazine loss. It's headquartered in thousand oaks, Californian is part of the fast casual fresh Mexican segment of the industry. Currently, at the end of last year, Baja has 210 restaurants at average unit volumes of a million five, a check average of about $7.50, and the 50-50 day parts for lunch and dinner. And again, at Baja, it's all about the food. It's fresh, it's flavorful, it's prepared on premise, it has an upbeat and energetic environment, fast counter service, and we often say -- and this is Greg's words -- no waiters, no tipping, no hassle. And we were really attracted to Baja because we have similar values. Let's take a look at this video with Greg.

Baja Fresh is a California-based fast casual concept. The menu offers generous portions of a wide variety of traditional Mexican foods including burritos, tacos, soft-shelled tacos, taquitos, quesadillas and nachos. Baja Fresh has a clear quality position just like Wendy's.

Our quality is in your logo, and Baja Fresh is all about very flavorful, fresh, high-quality food. In fact, you use fresh meat. So do we.

And when they say fresh, they mean it. All their products, including the four sauces that their signature all you can eat salsa bar are made fresh daily in the restaurants. Customers love the food. The restaurants are attractive. And the service is outstanding. Their motto? No microwave, no can openers, no freezers, no lard, no MSG, no compromises. It's this commitment to quality that attracted Wendy's.

It's a wonderful growth story, and an exciting -- I think -- marriage of two like cultures that can bring a lot of capital and make this a truly national brand. Baja Fresh is number one in the fast casual fresh Mexican segment, with 24% of the market share. Next closest is which I pole tee at number two with 19% of the market and you can see there's some other minor players. You know, if you look at their history on revenues and same-store sales growth, in billing revenues, Baja has a 59% annual growth rate, and it topped out '02 at $118 million. And last year's same-store sales increased at 2.7%. The idea is to build -- to have a total of 600 to 700 new restaurants by the end of 2007. Let me just share with you an update on Baja. The business is profitable. We've gone through the integration process, and have produced synergies in both supply-chain and risk management.

At the same time, we've had some expenses in human resource, a software consolidation, and amortization of the intangibles. And we expect annual dilution in the 3 to 4-cent range in 2003. And keep in mind there will be dilution in the first half of 2003 versus none in the first half of 2002. Back in May when we acquired Baja, we gave guidance for dilution and accretiveness from Baja. So far, we're on target for 2002 and 2003, and we believe there's upside in 2004, '05 and 306.

You know, part of our evolution is that we made two additional restaurant investments in 2002 and let me touch upon each. Cafe Express was founded in 1984 by Lonnie Schiller and Robert Dell Grandy. The headquarters is in Houston, Texas and it's part of the fast casual American bistro segment of the industry. Currently we have 14 restaurants in Texas with an average unit volume of 2.2 million, a check average of 9 million -- of $9.50, and the lunch/dinner day part mix is 50-50. We made a $9 million investment for 45% of Cafe Express, and our objective is to have 50 stores by 2006, have it provide more diverse fix for the enterprise, and position us in an emerging trend. And Wendy's strategic role with Baja is they'll now have access to capital and they can leverage our core competencies. Pasta Pamodoro was founded in 1994 by [inaudible]. They're headquartered in San Francisco and it's part of the casual, fast casual, fresh Italian segment of the industry. We have 24 restaurants in Californian Arizona. Average unit volumes of 1.4 million, and you can see the check average is higher at dinner at $14 versus lunch at 9. And the day part mix is 40% lunch and 60% dinner. We made a $12 million investment for 25% of Pasta Pamodoro, and our future growth plans is to have 75 to a hundred restaurants by the end of 2005. So now, this completes the overview of our brands.

You know, the enterprise today is far different than it was three years ago or even last year when we were here. Our strategic plan has guided us since 2001. We have added quality brands and we are more diversified. We are in position for 12 to 15% long-term growth. We're focusing on our core businesses, and I think you've seen the results. We need to improve our evolving businesses. You have seen the results. And we wanted to develop new growth drivers. You have seen the results. We are very proud of our portfolio of quality brands, which is on target with the consumer trends and position for growth. We have a vision for the future, and I'd like to bring Kerrii up to help me talk about it. Our vision is to have this sign in many communities all across America.

Well, I share Jack's vision of long-term growth and diversification along with the other members of our management team. I'm really excited about our future. We now have five quality brands, and I've spent time with each of these brands and as we continue to say.

It's all about the food.

It's all about the food.

As many of you know, Kerrii and I have worked closely in developing our enterprise-wide strategic plan, as well as the ongoing implementation of this plan, and now Kerrii will talk to you more specifically about the numbers.

Thanks, Jack. Well, I'll have to tell you while we are excited about our long-term vision, we are very focused on our core brands at Wendy's and Tim's and Baja Fresh, which are truly driving our current financial performance. Today, and while I'm getting ready to start here, they are passing out this second part of the slides so that you will have them as well as, you know, shortly a press release, I believe, that is also going out at the same time. So we'll see that coming through if you guys can give them a little room to get things passed out.

Today, I will specifically talk about the fourth-quarter results, the results for the full year of 2002, and provide guidance for 2003. In addition, I'm going to talk about the improvements in the transparency of our reporting, as well as touch on the subject of corporate governance. I have to tell you, we had good performance in the fourth quarter and I think that's especially in light of some of the challenges our industry faced. We had discounting by competitors. We had weakening consumer confidence and consumer spending. And we had colder and wetter weather than a year ago.

We had fourth-quarter system-wide sales of 2.4 billion, and that's an increase of 11.4% over last year. Revenues reached 712 million, and that's an increase of 15.6%, and diluted EPS was 44 cents per share, an increase of 4.8% over 2001. The results reflect a 50 basis point improvement in our domestic margins and that was to 14.9%, and also, a $2 million increase in the international reserves related to the political uncertainty in Venezuela.

The fourth-quarter completed 2002 which was an exceptional year for Wendy's International. System-wide sales reached 9.4 billion, and that's an increase of 12.7%. Revenues reached 2.7 billion, and net income was 219 million, all resulting in diluted EPS of $1.89 per share. An increase of 14-and-a-half percent over 2001. Well, this performance exceeded our competitors and the market as a whole. When we stood up here a year ago about this same time, our initial guidance was 11 to 14% EPS growth, and although we updated it throughout the year, we delivered above the range. In looking at this chart, it's important to note that all of our brands delivered excellent same-store sales results, which were all well above our competition. Same-store sales for the year were 4.7 for Wendy's company stores, 7.2% for Tim's Canada, 9.9 for Tim's U.S., and 2.7% for Baja Fresh . All of our brands contributed to the 14-and-a-half percent increase in EPS.

In addition to sales, let's look at some of the other key components which contributed to our success. A year ago, we gave you guidance of 515 to 540 new units, and for the third year in a row, we have delivered on our guidance. Opening 525 new units in 2002. We delivered on plan at Wendy's North America, Tim's Canada, and Tim's U.S., and due to the challenging international environment, we've presume reduced the number of international openings in 2002. As you can see, Baja Fresh opened 61 new units in 2002 and our 2003 guidance later today will also include the openings for Baja Fresh.

Now, let's look at the margins of our 1183 Wendy's company stores. A year ago, our guidance was to improve margins by 20 to 30 basis points, and we exceeded that significantly in 2002 by expanding margins 90 basis points. Of course strong sales have a very positive impact, but the two other major items affecting margins are beef and labor, so let's look at each. We projected beef to increase about 3% -- 3 to 6% in 2002, and you can see from the chart it actually decreased 6.4%. We believe that 2003's annual prices will increase 3 to 5%, with significantly more impact to the back half of the year. Crew wages were only up 1.8% in 2002 and that's much lower than the 5 to 6% increases that we faced three years ago. This really bodes well for the future, as we generate positive same-store sales, and improve crew labor as margin of those sales.

Now, let's move down the income statement and talk about G&A. One of our major objectives was to grow G&A at a lower rate than revenues, and we are pleased to report that G&A growth in dollars was 11.7%, and it actually declined to 8.8% of revenues and 2.6% of system-wide sales. We delivered those results by controlling headcount, by scrutinizing expenses, and yet prioritizing projects with the greatest returns. These G&A results do include the midyear acquisition of Baja Fresh. We will give you 2003 outlook on G&A and we'd ask you to keep in mind that it will include Baja Fresh for the entire career of 2003. G&A continues to be a focus for the entire enterprise.

Now, let's take a minute to look at the balance sheet. From a strategic perspective, Jack's already said it today, it was an outstanding year for Wendy's. And the strength of the balance sheet truly enabled us to execute the key elements of our strategic plan. And here's what we accomplished. In June, we completed the Baja Fresh transaction, issuing 225 million of senior notes at a favorable rate of 6.2%. And we also utilized 50 million in cash from our balance sheet. We converted the TECONs (ph) and that increased 7.6 million the shares outstanding, as well as increasing shareholders' equity $200 million. In 2002, we made an investment of 21.4 million in the CDF joint venture, and also investments of 21 million in two growth concepts that Jack's talked about, Cafe Express and Pasta Pamodoro.

We repurchased 49 million in common shares. And from a financing perspective, we have available $200 million in a commercial paper program, or under bank agreements. We continue to be committed to the share repurchase program. However, due to the level of investments and acquisitions, we curtailed this share repurchase program and did not purchase until late in the third quarter, in an effort to maintain the strength of our balance sheet and our strong investment-grade ratings. We began re-purchasing shares late in the third quarter, and our board authorized an additional $200 million for future share repurchases. Our remaining authorization, at January 31st, is $223 million.

Taking into consideration all of these strategic investments, our long-term debt to equity increased slightly, from 48 to -- to 48 from 44%. The debt to total capitalization increased slightly from 30 to 33%. Our balance sheet continues to be very strong, with $172 million of cash at year-end. We are well-positioned for the future. As a result of these initiatives, which include the bakery, Baja, Cafe Express and Pasta Pamodoro, our ratios changed as follows: ROA was 9.2% for 2002, and that's down from 9.7 in 2001.

I will tell you that excluding the impact of just Baja and CDF, ROA would have been 10%. ROIC was 12.2%. And again, excluding just Baja and CDF, ROIC would have been 12.3%. Return on equity increased 10 basis points to 17%, and that's including all of the investments that we made the conversion of the TECONs in July of 2002. So in wrapping up 2002, we raised the bar on performance. We delivered excellent results from an income perspective, but we also proactively managed the balance sheet for the future. Well, that was 2002.

Let's spend a few minutes talking about 2003. Just a couple of openings for this presentation. We will provide annual goals for the following significant selected items. And there is a list. Revenues, same-store sales, new restaurant development for Wendy's and Tim's and Baja, food and labor costs, G&A, corporate tax rate, return metrics, capital expenditures, share repurchase, and other items such as operating costs. This presentation today will not focus on providing guidance on quarterly or monthly projections for sales or food costs, or details of the domestic margins model, Baja Fresh or franchise margins, sales by day part, share repurchase details, or other forward-looking information. Our outlook is based on the following broad assumptions, which you will see in the next two slides. And I will follow up with some more detail in just a moment. We expect strong unit development from all of our brands. We expect positive sales growth for all our brands at Wendy's, Tim's, and Baja Fresh. We believe that sales at the brands will be stronger in the second half of 2003. The first half will reflect the current economic uncertainty and competitive discounting. On the cost side, we expect manageable increases in food and labor. And managing G&A will continue to be a priority for the enterprise. We expect significant contribution to EPS from Tim Hortons U.S. , as well as the joint venture with CDF. Appear Jack's already talked to you about this morning. The Canadian exchange rate in 2002 was $1.57 and we believe it will have minimal impact on 2003. We do anticipate some challenges, though. All types of insurance are expected to increase significantly, and pension expense for the enterprise will increase.

Based on the assumptions we have just discussed, the major elements of our EPS model are as follows: Revenue growth in the 11 to 14% range, new unit growth of 5 to 6% after store closings. We will strive to maintain the domestic margin level achieved in 2002. And lastly, G&A as a percentage of revenue will be in the range of 8-and-a-half to 9 percent. Now, let's look specifically at how we're going to generate the revenue growth. The 11 to 14% increase in revenue will be driven by same-store sales growth as follows: Wendy's domestic company stores in the 1-and-a-half to 2-and-a-half percent range. Tim's Canada, between 3-and-a-half and 4-and-a-half. And Tim's U.S. between 6 to 7 percent. And Baja Fresh between 2 to 3 percent.

Our cautious outlook is influenced by a number of factors, including the economy, the discounting, and the weather in January. Preliminary same-store sales for January were down 3.5% for Wendy's U.S. company stores. They were down 1-and-a-half to 2 percent for Wendy's U.S. franchise stores. But at the same time, we experienced sales increases of 4-and-a-half to 5 percent at Tim's Canada, and increases at 2-and-a-half to 3 percent at Tim's U.S. We remain positive, and we believe that one month does not make a year. The revenue is also being driven by the opening of new restaurants. 2003 new unit guidance is 560 to 605, and it breaks out as follows: Wendy's North America units of 285 to 300 new units; international Wendy's 10 to 15; Tim's Canada 170 to 175; Tim's U.S. 25 to 35; and Baja Fresh, 70 to 80 new units. And again, keep in mind that these are gross numbers and historically, we close about 50 to 75 restaurants system-wide. It is clear our for example on Wendy's North America, Tim's in Canada, and Baja Fresh. Now that we've discussed the two top top-line key drivers for our business, let's talk about how we believe we can maintain margins. Our domestic margins include approximately 1200 Wendy's company stores. We believe that margin maintenance will result from positive sales growth at Wendy's and manageable costs for food and labor. At the same time, utilities, pension costs, are all escalating at rates in excess of double digits. And I will talk about pension costs in just a minute.

Moving down the income statement, there are two other line items on the statement we'd like you to consider in your modeling. The first is the company restaurant operating cost, and that consists of all the costs necessary to operate and manage company restaurants except for food, paper, and labor. With the addition of new company restaurants, these costs are expected to increase at the rate of revenue growth, or slightly higher. Our new stores, both at Wendy's and Baja Fresh are generally opening with sales volumes that are slightly lower than our national averages. While we incur these costs over the first year or two, our history of improving sales trends demonstrates that these investments do pay off. The second line item is other operating costs, which include rent expense, the cost of equipment sold to franchisees in the Tim's system as well as costs to operate Tim Hortons distribution business, Tim Hortons coffee roaster and the Wendy's bun baking facilities. These costs are expected to increase approximately 20% over the prior year, due to equipment sales and training related to the Tim Hortons rollout of always fresh. And the operation of the coffee roaster for the full year.

Now, let's talk about G&A. As revenue is expected to grow 11 to 14%, we will focus and maintain our focus on G&A. Allowing it to only grow 10-and-a-half to 11-and-a-half percent over $2,002. This includes Baja Fresh's expenses for the entire year of 2003 again versus only six months of 2002. This controlled growth will be accomplished by a close review of the headcount, monitoring discretionary spending, yet investing in projects that we believe will benefit our future. Our incentive programs are aligned with growth in earnings and return on assets. 2002 was a year in which incentive compensation was at a high level, as we delivered 14-and-a-half percent EPS growth.

Having discussed G&A, let's spend a minute on pension expense, which we all know is getting a lot more focus than it has historically. As a result of a number of factors, pension expense for Wendy's is expected to increase in 2003, impacting earnings negatively by about a penny. Our increase in expense is based on the following assumptions: A lowering of the asset returns to 7.75% versus 8-and-a-half percent a year ago. A lowering of the discount rate to 6.75% versus 7 and a quarter a year ago. The company contributed $11.3 million to the fund in 2002, and we expect to make a similar contribution in 2003. But the 2003 contribution, we would expect that our PBO -- which is projected benefit obligation -- percentage would exceed 90%.

Now, let's focus on the other income and expense line of the income statement. Other income and expense includes items that are unrelated to our primary businesses, such as our share of the gains or losses from our equity investments. And it also includes the expenses of store closures, other asset write-offs, and reserves. In 2002, the net expense was 6.9 million. It resulted primarily from the netting of thee items. A $3.2 million gain from the sale of conference can you have, $3 million of expense in international reserves, a $2 million loss from our investment in CDF, which we have always indicated, along with the normal expenses of store closures, asset write-offs, and reserves. We expect this line item to generate income in the range of 2 to 4 million for 2003. And that is primarily as a result of the after-tax income from the Tim Hortons CDF joint venture. In 2002, asset gains were a penny a share, and we expect that to be similar in 2003. Therefore, we do not anticipate specific disclosure related to asset gains in the future because it's just not material.

Let's talk about the expected tax rate. The tax rate on our pretax income, on our company's pretax income, will remain at the level of 2002, which is 36.75%. However , because the income from the joint venture with CDF is recognized on an after-tax basis, and is included as a part of pretax income, the effective rate on the tax line will be 36%. In preparing your models, this change results from an accounting presentation of the after-tax earnings from an equity investment in an unconsolidated sub-, not the lowering of the actual rate of tax on our earnings. We believe under today's rules and regulations, this effective tax rate is sustainable.

And lastly, our diluted average shares outstanding are expected to be 116 to 117 million, and that's a result of both share repurchases and the current calculations of stock options. Based on the assumptions that we have talked about today, we believe EPS growth in 2003 will be in the range of 7 to 10%, or $2.02 to $2.08. And as you think about your earnings models, you will want to consider the cautious sales trends, the dilution of Baja in the first half, earnings from CDF, and the loss of earnings and the one-time gain from conference cup. And the tax rate implications.

In reviewing our quarterly performance and the analysts' consensus, I'd like to address three items. We have given 2003 guidance today of $2.02 to $2.08, and the analysts' consensus is $2.09 and it's above the range. Also, the analysts' first-quarter growth rate is 7.7%, and it's higher than the second quarter of 7.4. If you remember, in the first quarter of 2002, sales were extremely strong, due to many factors. One being an unseasonably mild and dry winter. And the lack of competitive discounting we are expressing today. Lastly, we will have dilution from Baja Fresh that we didn't have the first half of 2002. And although we are cautious about the first quarter, with 7 to 10% guidance in earnings, we are very positive about 2003. We have been talking to you over the long term about our goal of 12 to 15% EPS growth, and with today's guidance, the compound annual growth rate in diluted EPS from 2002 to 2003 would be in the range of 12 to 13%.

Our management team is focused on performance over the long term. Therefore, we're making investments in the future. And we anticipate the following cash outlays in 2003. 200 to $220 million for new restaurants. 75 to $85 million for remodeling and maintenance of existing restaurants. 50 to $60 million in technology. And I would note that this is significantly less than the prior year, because as Jack shared with you, we installed new store systems in all our company restaurants in 2002. We also expect to invest 30 to $35 million in the Canadian par bake facility, again as Jack said, in order to support the entire system. And please note that our joint venture with CDF has no off balance sheet financing. We do anticipate making investments in other concepts in the range of 20 to 25 million. And we will continue to manage our balance sheet with a very disciplined approach. We remain committed to a strong capital structure. Our universal shelf that we filed about two years ago had $75 million remaining, and on Friday we filed to update the universal shelf to 500 million. We believe it will restore the future flexibility over the next two to three years.

And lastly, we are working today on a single agent bank facility to just replace our current facility of 200 million that we have under six bilateral bank agreements. We continue to focus also on improving our metrics. We want to raise the bar on performance in our metrics over the long term, but we knew that when we made certain investments in Baja Fresh and CDF, we knew it would be difficult to maintain the improving trends of returns in the short term. We focused proactively on managing our balance sheet to invest in our future, and to create long-term shareholder value. We expect ROA in 2003 to be in the 8-and-a-half to 9 percent range, and that's with today's guidance. ROIC to be in the 11-and-a-half to 11.75% range. And lastly, return on equity is expected to be 15 and a quarter to 16%. Now, this is lower than the 17% in 2002, really due to the 200 million from the conversion of the TECONs , being in equity all year in 2003. In fact, the last year's 17% would have been 16.1 if the TECONs had been converted on January 1 of 2002. This is still a strong return on equity percentage.

To summarize, 2003 is dependent upon four performance drivers: Our ability to meet development goals, to generate positive same-store sales growth, to control costs, and to proactively manage the balance sheet. To support these financial goals, we realigned the organization the latter part of 2002. These changes position us to manage our growing portfolio of quality brands. With our current organizational structure, we have clear lines of sight over each brand and over each brand's financials. Each brand reports to Jack, along with the key enterprise administrative functions, and of course I report to Jack. In turn, the CFOs of the brands report to me on financial policies, along with some other support functions.

As a result of the organizational changes and the acquisition of Baja, there are some segment reporting changes that we believe will make the financials more transparent. The segment reporting at the end of 2002 will be as follows: Wendy's, Tim Hortons, and Baja Fresh will each be business segments. In addition, historically there have been approximately a hundred million of un-allocated G&A charges. We will now allocate forks this year, approximately 50% of these expenses to the Wendy's segment. These expenses are deemed to be directly attributable to the Wendy's segment and are now reviewed by management on that basis. Segment information for 2000 and 2001 will be reclassified to maintain the comparability.

As a result, in 2000, instead of Wendy's being 70% and Tim's being 30% of total segment income, the split would be 65/35. In 2001, instead of Wendy's being 69% and Tim's being 31, the split would be 64/36. And in 2002, the Wendy's segment represents 62% and Tim's represents 38% of total segment income. Although Baja certainly has positive segment income, it's less than 1% in 2002. Going forward, we anticipate Baja Fresh will contribute to further diversification, becoming approximately 5% of total revenues in 2003. We are truly excited about the future of the enterprise and the diversity of the future earnings stream. Now, Jack and I would like to talk to you about governance.

Thank you. Thanks, Kerrii.

Thanks. Well, Jack, in today's environment, the numbers are important but so is tone at the top and at Wendy's, we are in a great position.

In August and November of last year, we filed our CEO and CFO certifications. Our approach is disciplined and rigorous, and it requires participation of the brand presidents along with their CFOs, as well as other members of the management team.

You know, we really are fortunate we have a senior financial team that has lots of experience and tenure in the organization and we are all focused on a tight control environment and the absolute best practices in disclosure.

Thanks a lot, Kerrii. You know, our core values of honesty, integrity, and doing the right thing guide us in all of our daily decisions. Our values have always been Dave's values. Recently, in chief executive magazine, an editorial appeared, and this is what it said: 'In his heyday, Thomas was probably America's most recognizable and beloved business leader. He is the one corporate leader all Americans continue to hold in high esteem.' And we're committed to best practices in corporate governance. In April of 2000, business ethic magazine named Wendy's amongst the hundred best corporate citizens. The majority of the board is independent.

Key committees, including audit, compensation, and nominating and corporate governance, all have independent members. And independent directors conduct executive sessions each quarter without management. The board regularly reviews and advises management on our strategic plans, on business plans for the brands, and compensation plans to match performance. You know, if you look at the key take-aways for 2002, we've had outstanding performance, executed the strategic plan, grew sales and earnings, met development goals, managed costs effectively, and managed tightly the balance sheet. And if you'll look about 2003, we are very optimistic.

We're committed to a long-term approach. Our core businesses are very, very healthy. We're led by experienced management teams at each brand. We're focused on costs. And we expect EPS growth rate in the 7 to 10% range for this year. You know, we continue to focus on a balanced approach in building shareholder value. We have a number of key strike holders, and by balancing the needs of all, we can best maximize the value for all. Thank you. Now, I'd like to invite Kerrii up here with me, and we'll do Q&A. And we'll take questions from this room first, and then we'll also, a little bit later on, take some questions from the people on the webcast. Yes, sir. We'll get you a microphone. Why don't we take one in the back while we get this microphone up here. I was too quick for you. Raise your hand if you have a question. Right here.

In the Tim's business, on the comp store sales, they historically going forward. What are you -- what are the components of the comp store growth in terms of, you know, traffic, ticket, products? Can you give us a sense of what's been driving the business?

Well, what we have in our model on a 12- to 15 percent growth rate each year, long-term growth rate, that would include Tim's at about a 5-and-a-half same-store sales growth.

Thank you. At this time, we'll begin the question-and-answer session. If you'd like to ask a question, press star 1 on your telephone touch pad F you're using speaker equipment, you will need to pick up your handset prior to pressing star 1. If you wish to cancel your question or your question has been answered, press star 1. Once again, that's star 1 to ask a question, star 2 to cancel. One moment while the questions register.

Thanks. Good morning. It's John Glass from CIBC. Can you clarify the guidance on the accretion from the joint venture? I think it's a little lower now than it was originally. This is the Cuisine de France joint venture. Maybe not. But if you could just clarify, is it all that 2 to 4 million or is it more and then offset. And then secondly, there were some charges or some expenses in the Tim Hortons in the fourth quarter related to freezers and some other equipment. Is that an ongoing expense or why is it an expense versus a capital expenditure, if you could elaborate on that. Thanks.

Well, first on the CDF, it's right on target. On the other income line, it's a net. So it -- it's --

Net 2 to 4, John. Not -- we weren't saying CDF was 2 to 4. CDF is still in line with original guidance.

Right.

Yeah.

I think it was -- I think we said in the range of 5 to 7. And then --

Yeah. And actually, on the freezers, you were exactly right. Freezers are a capital item. But what happens is that Tim Hortons provides and sells to all of its franchisees freezers that go into their store. So we recognize the freezer in the operating cost line, we recognize the revenue in the franchise line. So that's why you're seeing an increase in operating costs related to the always fresh rollout.

Mark -- Bart? Right up here. Mark.

Hi. Mark (inaudible), Smith Barney. Two yes, sir. questions. First, what do you think accounts for the quite noticeable deceleration of Baja Fresh's comps in 2002, and why do you expect not much of an acceleration in 2003? Second question is, you have a major competitor, which is expecting about a 8% rise in per-pound beef costs in the U.S. this year, and it looks like, reading in between the lines, that you're expecting your beef costs increase to not be nearly as much and just wondering what the dynamics of that are.

Well, first, on same-store sales growth at Baja, as you know, over half the system of Baja is in California, and California is experiencing a pretty major slowdown in the economy. Both in the fourth quarter and going forward for this year. Also, because it's such a small chain, when you start building new restaurants, there tends to be some cannibalization, Mark And we had this sniper situation that we talked about.

The sniper situation in D.C.

Believe it or not, it had a fairly significant impact on the fourth quarter.

Right.

Uh-huh. With respect to the beef costs, we discussed today a 3 to 5% increase in beef costs. As you probably know, we do have a beef strategy. We are in this year for the entire year. And the first quarter of our beef costs will be -- it's based off of the 13-quarter average of the prior quarter, and we all know that the fourth quarter of this year was very positive beef costs, so, you know, it may be there -- their pricing is different but I think we feel pretty good about what we see. We are concerned about the back half, and what will happen, and of course we're serving fresh. Somebody else who is serving frozen might have different numbers.

Right.

Coralie? Bart, right behind you right here.

Thank you. Question on Tim Hortons and the target you set for Canada for 3500 stores -- or sorry, restaurants total. How do you get to that number, if you can sort of describe your saturation studies and the pace of growth that you expect to see there, and then secondly, in Tim Hortons U.S., if you can describe what you see in the Rochester market where you've taken a different approach. Have the average unit volumes been higher on opening than they've been in other areas?

Yeah. First off, in own tear I don't and Atlantic province where Tim's really started they have one restaurant for every 9,000 people, which is quite amazing. I mean, McDonald's in the U.S. has one for every 17. In western Canada and Quebec, we have approximately 1 restaurant for every 35,000 people, so you can see there's quite a bit of opportunity left in Canada for us in certain sections of the country. As far as Rochester, we are very pleased with our market entry. As you know, it was a new strategy where we went in and opened four restaurants the same day, and we put in extra marketing money to build awareness, and that's the model we're going to continue over the next couple years. And I think, you know, we're going to do a couple more markets and I think once that's really proven out, then I think you really have another growth driver that's going into -- if you remember the strategic growth cycle, I think it will fit right into that growth cycle in a couple years.

Joe?

Thank you. A question, again, on the Tim Hortons freezer situation with the (inaudible). Is that a wash, then? The revenue is realized from the sale of that equipment versus --

We do make it --

-- versus cost and will that continue throughout all of 2003?

Yeah. We do make a small profit, Joe, that's not where we're looking to, you know, to make our money. We just supply the freezers to the franchisees. And it will continue through 2003 ^ as we roll out to all the system, you know, the always fresh program.

Do the franchisees have any terms in terms of participating in that?

No.

No. And they're embracing it. They're excited.

They love it.

And second. Just one more.

Sure.

On food cost, you've spoken before and it sounds like you still feel that way about the first quarter, about the beef costs being down in the first half of the year, year over year, and then possibly up in the second. It sounds like that up in the second is becoming a little more confirmed in your minds. I was wondering if you could touch on chicken and produce and maybe confirm what I just said about beef in the first half.

Well, produce, we're locked in at the same price as last year, which is good, and the chicken price is slightly higher, just slightly higher than in 2002. And it's an annual contract. Let's see if we have some calls on the webcast. And then we'll come back to the audience. Okay. So we'll continue in the audience.

And I would confirm Joe, that yes, we at least what we're seeing, that beef would be down in the first quarter versus a year ago, which, you know, makes your back half -- First half.

Janis, right here, Amy.

Thanks. It's Janis Meyer with First Boston. Two questions. Your cost shift guidance, particularly on sales, you mentioned the discounting environment, are you -- what are you assuming for the discounting environment? We've seen some news that McDonald's may be taking the big and tasty off, replacing it with something else. Are you assuming changes to the discounting environment going forward or are you assuming status quo, you know, where it is right now?

I think at the guidance we gave, I think we assumed some status quo. We also know -- and that included Burger King, just doing three weeks. As you know, the latest information from McDonald's, I think it was Thursday or Friday, said that they may make the big and tasty optional. Okay?

Right. And secondly, if I look at your -- one of your charts here on salads, on Page 5, it has McDonald's salad scores rising sharply in sort of the 90, 91 time frame which I guess corresponds with the rollout of shale add shakers.

Did you say 90 or 91?

Actually, it's 90 and then continued to go up in 91, but it's 1990, I think I'm sorry. 2000.

Okay.

I'm sorry,.

Yeah, that was it exactly.

Jack, you were there.

2000 and 2001, and I guess that corresponds with the rollout of salad shakers.

Yes, it does.

We know McDonald's is rolling out a new salad program this year. Would you expect their scores to go up again, and are you more cautious on your ability to overlap your rollout of salads last year now than you have been?

No, I don't think we're more cautious on overlapping the salads because, I mean, we have a great salad that we're going to introduce sometime in the first half with southwestern grilled chicken Caesar. I think anytime you have a company like McDonald's, with the size they have, and the ad budget they have, that when they introduce something, you're going to see a short-term blip. And it's nothing new to us. We always, you know, look at this as a long-term approach, and that's what we'll continue to look at.

Did you see your salad sales come down when they launched the shakers for a period of time? Do you remember?

Well, according to that graph, yes. But when they introduced their flat bread in June, it didn't affect us at all.

Okay.

Right over here.

Bob (inaudible), first Manhattan. Could you give us a little more clarity on the revenue? It was -- you're projecting 11 to 14% for 2003. Can you give us an idea of system-wide sales for Wendy's and for Tim Hortons for 2003 and basically just, again, just reiterate a longer-term system-wide sales goal for the two brands? And then I have one more question.

Well, I think you can safely assume that when you're building almost 600 restaurants like we are with the three brands, that revenue growth is going to be between that 11-and-a-half to 14% rate, with some reasonable same-store sales growth. As far as giving out exact sales for the individual brands going forward, we just don't do that.

Right. I'm not asking for exact. I'm just asking for ballpark.

I just don't have that off the top of my head.

Let me ask about acquisitions and --

Okay.

-- what are you thinking about for 2003?

We're always looking, but, you know, when you put around the framework that we have on M&A, it takes that funnel and really -- you know, there's really only a couple brands that can really apply. So we're very -- you know, we take a lot of time in looking at it, and I can't really tell you if we're going to do something this year. All I can say is, we're always looking. And if you have any ideas, pass it on.

Nadav Sterling from Ceder Rock capital. I have two questions. The first is, how do you think about the ideal size that a franchisee might grow to?

For which brand? Which brand?

Well, in particular, for Wendy's.

Wendy's, we have about 42% of our franchisees with, I believe it's three stores or less. We have some that are quite large also. But it's really, you know, in that three to five restaurant range.

Okay. The second is: Given the fact that Tim Hortons is obviously focused on the morning and Wendy's is more focused on the afternoon and the evening, is -- is there any thinking in the company about how that might be combined, either through --

Well, we do have some tests that we -- we've had in the past, and are still going on, where Wendy's will have a Tim's kiosk and the product is delivered to the restaurant, so we do have some examples of that. But, you know, right now, Tim's has its plate full with -- with Cuisine de France and taking care of their own brand. So, you know, it could be something in the future. I wouldn't rule it out. Is that Mitch?

Mitch (inaudible) at Lehman Brothers. Two questions. First on drive-thru speed, do you expect drive-thru speed improvements this year, and perhaps maybe some new initiatives that you're pushing through the system to increase your lead on drive-thru, and second, on the share base, I think as a part of your plan, it's supposedly going to be about even year over year, and just wondering why you think that, and if perhaps you might step up share repurchase to lower that share base. Thank you.

First, on the speed of service, I guess being an operator, I always expect improvement on speed of service. Best in class is probably in Dallas, Texas where their speed of service is 95 to a hundred seconds. So if you say that's best of class and we're at 127, well, I want everyone to be at 95 to 100 . And, you know, we do have initiatives at all times behind service complements and we also have initiatives behind improving speed of service on the inside.

And from a share repurchase perspective, what we've said is we would try to repurchase enough shares to offset dilution, which is somewhere between a million eight to 2.2 million shares. We'll -- you know, we take advantage of what we consider to be a very good stock price. You know, we're not going to give you details today, but we do believe in the stock price, and would certainly, you know, like to be back in the market now that we've given guidance and things have settled.

Hey, John.

Hi, Jack. Actually, the question is still on January. As you look at the competitive environment, which you mentioned was pretty exceptional with Burger King and McDonald's doing their limited time only deep discounting of their core men occupy items w, were you able to measure -- were you able to measure what the competitive impact was to you? You know, like when Burger King was heavily advertising, when McDonald's was heavily advertising and really just in the sense of giving us a term (inaudible) (inaudible).

That's really hard to say. I can tell you this, that Wendy's company stores, the beginning of January we were positive. At the end of the period we were positive. But I can tell you our company stores, we have a heavy concentration, as you know, in Columbus, Pittsburgh, Boston, New York, and the winter was very cold and snowy. At the same time, there was a couple of days where we had a lot of company stores in Raleigh, North Carolina that North Carolina got snow. So, it's hard to say . (inaudible) .

On the Baja Fresh estimates going forward, you took up how much you expect it to be accretive over the next five years. Can you detail a little bit more what is driving that? Is it mostly more openings or is it more profitable? And then I'll have a follow-up question.

Well, I would say that primarily it comes from the synergies that Jack talked about today. We think supply-chain initiatives, which are now underway, can benefit them and the food cost area. It wasn't necessarily an increase in the same-store sales, you know, that we originally disclosed. I think if you remember in May, we talked about around a 3% is what they had originally disclosed when we disclosed those EPS numbers. Not necessarily that. More in the cost area.

And you said you had a follow-up?

Yeah. Can we just revisit the other income line item, just a little bit confusing. There's a lot of parts in there. You've got 5 to 7 million for Cuisine de France and that's U.S. or Canadian?

That would be U.S. after tax.

U.S. after tax.

Uh-huh.

And then what are the offsetting expenses in that line item?

Well, the types of expenses that go against that are just normal reserves, a litigation reserve, international reserves, anything -- and those are pretty typical. Store closings. When you close a store from time to time, you're getting close to the lease, you might have to write off the asset, you might have other items.

And we close about 350 to 60 50 to 60 stores system wide.

Right. I'm talking about, asset write-offs, closings and -- (inaudible) I mean we talked about what happened a year ago with conference cup and their earnings Anna gain, as well earnings and that gain, as well as the international reserves.

So the only unusual business is the cup business not driving earnings in the first half. All the other expenses are normal?

Yeah, generally normal except for maybe some of the international reserves. You wouldn't normally have that to that extent. We talked about Venezuela being about 2 million. You know, that's somewhat unusual.

Okay. Thanks.

Peter, how you doing?

Good morning. Kerrii, you mentioned in your '03 corporate goals domestic margins. You were striving to maintain. Yet I think we've heard here today that beef, which is your biggest exposure, you expect some pressure there. And labor has been a bit of a bugaboo, at least on your company margins. I realize the wage rate has been well under control and it's almost at historic lows.

Uh-huh.

Is -- and I guess where I'm going with all this is: How much wiggle room do you really think you have with the expectation of striving to maintain? Because with the reverse leverage of the weaker sales, obviously that's going to be a bit of a new challenge. Thanks.

Without a doubt, Peter, it will be a challenge. I -- you know, there are a number of factors. We did have a great year. Operations had a great year from a bonus perspective. Some of that is in the margin. So, you know, we have -- if some of the numbers don't fall through, you know, your expense related to the operation of the restaurant at the bonus level would be less. So, you know, there are a lot of components to that piece.

Okay. Just a couple more, if I may. The new systems that you've rolled out to the company units thus far, can you share with us a little bit what you've learned thus far, either productivity and looking back on it, was there any incremental training costs that we should think about that might impact the comparisons?

Yeah, there was incremental training costs. I don't have it on the tip of my brain here. As far as, you know, what we said is, you know, we think we can leverage probably in 2004 the benefits of same-store systems, and I think I talked about that under supply-chain, and that's where the -- where the benefit comes from, from a cost standpoint. Plus we can always put in new modules of labor for demand forecasting and ordering for supply-chain and a labor module and a food cost management model.

And I guess I would add from a training perspective, we train the members, crew members, on a CBT, computer-based training workstation. With we think that provides is just a whole avenue of opening in the aweigh approach training today, and it was very, very successful. I mean, the people were able to train and actually operate so that we made sure we did not slow down drive times as a result of new equipment being placed into the stores. And Jack mentioned it today but with the stores, we have satellite technology and constant connectivity. We testing e-pay in a number of stores and we're excited about what that might mean as an opportunity for the organization.

Where are the franchisees, as far as priority of implementing the program?

Well, this was just in the company restaurants, but at the same time, we're looking for connectivity with like three or four different register systems. Our POS systems with the franchisees. So it comes into Dublin, and where you have a backbone that distributes and gathers information.

Thanks.

Bart, back there. Howard, how you doing.

Jack, how are you. I have a question. I know you're not going to give quarterly or guidance on your same-store sales, but if you look at the difficult first half comparison versus the second half and given January is down 3%, can we look at a negative first half, positive second half, to get you to the positive --

We can't do forward-looking like that. Next question? Janice? Sorry , Howard.

Thanks. I'll try to get the year right this time. Two questions. One is, on your tracking study of consistent restaurants, for 2002 you have a sharp decline for McDonald's scores, yet the drive-thru survey that was published actually showed a pretty decent improvement for McDonald's in drive through operations. Can you just talk about the -- why you think those two measures may have shown such different results? Or what you think in general from what you see at McDonald's?

I think that -- you know, how you look at all these attributes and surveys, what you want to look at is trend over time. So it's hard to focus in on any one year and say that's a trend. I think you've got to look at it over time.

Okay. And also, on your advertising, have you noticed any change in your bond with the customer, now that Dave respondent focused in your advertising and do you have some way of actually tracking that?

First of all, you know, we do track it, and we haven't seen any loss of the bond. And, you know, I think we shared this with you. When Don Calhoon was here last year at this time and he talked about transitioning to the Dave campaign and how we did the research, and the consumer really saw Dave and Wendy's as different, and that when we asked could anybody replace Dave as a spokesman, the answer was no, it can only be the brand, and we haven't seen really any -- any drop-off on it. There's one right up here.

Two-Baja Fresh questions. First is what do you think is the long-term number of store potential in the U.S.? And the second is, I see you're going to aggressively expand it to 6 you know or 700 stores the next five years. What's the thought on percentage of franchise versus company owned?

Right now, it's around 50-50, and I think when you're small, you can probably keep that ratio, but as you get bigger, you probably increase the franchise participation. And then your question on long-term, you're saying beyond the six to seven hundred stores, what do we think the real opportunity for expansion is for Baja. I would say -- and I think we gave a number in May of last year -- around 11 to 1300. Right here.

I believe that your franchise stores drove better comparative sales than your company stores. Would you care to comment on why that's the case? That's my first question.

Yeah. That's different than -- over the last two years versus, let's say, 1995 to 2000, where the company restaurants outpaced the franchise restaurants significantly. And what usually happens there is a lag factor. When you introduce new programs, you introduce first in the company restaurants like service excellence, like people excellence, that the company restaurants get the benefit of it first and you can get it rolled out in 1100 quicker than you can in 4500 franchise restaurants. So what we're seeing is what we think is a lag effect. Overall volumes between the two, company restaurants have about $3,000 more a week higher volumes.

And the other question concerns Baja Fresh. They lost money for 10 years. You paid them goodwill. You're still losing money the first half of the year. When do you --

We're not losing money. We're making money on an income basis, but dilutive effect is what happens. But we are making money.

Okay. I -- my question is: When will the metrics on return on capital, return on assets for Baja Fresh, equal to the rest of the (inaudible).

We adopt have that number but as you can see, it becomes accretive in 2004 and our latest ^ projections, it will be more accretive than we originally gave out. So Baja is making money. I want to make everybody understand that. Back-- okay. Right here.

You've had a 24-cent dividend for a long time . With the furniture talk from President Bush, what is the board and your thoughts on the dividend policy?

Well, as you know, we just declared our hundredth consecutive quarterly dividend last week, and one of the things we do annually is review our dividend policy with our board. We just did that in November, and as you know, we -- we continued the 6 cents a share. From our perspective, we do think there's opportunity for us to make sure we are investing in the most -- greatest return for our projects, as well as re-purchasing shares. But we have said that if the proposal actually passes, which today we're not sure if it will, and what it will actually say, we'd certainly revisit. And that's in light of all the, you know, investment opportunities that the company has.

Yes. And one last answer to the Baja not making money. When we analyzed the deal, we adjusted the weight risk of capital and it was about 10-and-a-half, but if you didn't adjust that, it would have been at our existing ROIC of 12.3.

That dividend policy is a little more than a 10% payout of your earnings, so you have substantial room to increase your payout, so share repurchase or dividend policy, could you just be a little more forthcoming in terms of, you know, the cash flow aspects of your business and the opportunity to really give cash flow back to shareholders, as well as reinvest it in the business? Sounds like you have a lot more cash flow to return to shareholders.

Well, if you look at just the ending cash balance sheet, end of 2001 was 111 million, and end of 2002 was 170 million. We bought back $50 million of stock. We built numerous company restaurants. We invested in CDF. We invested in Pamodoro, Cafe Express, we invested in the coffee roaster, okay? And we also paid a dividend. When we do all of our analysis, we do think about what's bested for the shareholder, and it keeps on coming back, the best thing we can do for the shareholder is to continue to reinvest back in the business, but at the same time, at least buy enough stock back to offset that dilution. As Kerrii mentioned, we reviewed it with our investment bankers at Goldman Sachs in November. That was their recommendation. They reconfirmed that in January, and we are keeping an eye on President Bush's proposal, but it is not law yet. And, you know, there was some talk that if it became law, that a portion of the dividend was going to be used as the cost basis of the purchase price of the shares of stock, so one has to look at everything before one makes a decision.

Dick Smobs (ph) with Lehman Brothers. Fuss in-house question. First on the chicken slips, can you tell us how perhaps it's differentiated in the marketplace, now that a lot of your competitors are doing chicken type products, and perhaps just some of the test results at this point? Second, on Wendy's, you mentioned that you're -- that your using that new roasting facility to roll out coffee at Wendy's and perhaps if there's any just big -- big-picture opportunities with coffee at Wendy's. And then thirdly, with the obesity lawsuits, where do you think that may lead, and if perhaps it might lead to perhaps putting calories on the actual wrappers and how that may affect overall consumption? Thank you.

Let me start with the coffee first. The coffee that is being supplied for Wendy's, number one, is not the Tim's spec. It's a completely different spec for the Wendy's. And I think we just have to play the -- the roasting out and see how much more application you have. What was the first part?

The strips, how are they different.

Oh, the chicken strips. They're better. They're better here. It's a whole 'muscle cut breast. The flavoring is good. It's big. And also the reason we're going to introduce it, it lends to product expansion or extension. For instance, right now, we're testing chicken strip salad. So we feel that it's a gap in our men occupy strategy. We identified that, and of course in any type of menu addition, one has to assume, with our track record, that it's going to be better, and it's going to produce incremental sales. And then the last one on the lawsuits, I think Wendy's -- I think all of our brands are very well-positioned. Wendy's, you know, we have the garden sensations that were a hit. We have our chili, which is very low fat and high in fiber, we have grilled chicken sandwiches and we have choice. At Tim's, the positioning in Canada is the doughnuts and those are treats. You know, it's 22% of its sales. They're treated as it's a treat. And lunch has a very healthy perception with the -- with the baguette breads and the sandwiches. At Baja, they're well-positioned in the -- in the area of healthiness and the perception, so I think with each brand, we got to continue to improve as far as maybe communications to the customer, making sure that our nutrition brochures are easily understood, and well communicated to the consumer, because after all, that's what the consumer wants most is information.

No, there he is. You got a brother sitting next to you.

With respect to the shelf, it doesn't look like you need the shelf to finance the capital expenditures and investments that you laid out in the presentation, so are we going to see something? Are we likely to see something over the next two years?

I don't think you can assume that. When we did the shelf the last time it updated, it was like two years before anything happened. I mean, we're just putting ourselves in position. And, you know, let's just leave it at that. And the shelf document is updated and it is good for three years, so ... that's the way we look at it, long-term. Flexibility. A than our board approved it in November and it took till January to file it.

And a follow-up. January, the Wendy's U.S. comps, were they mostly driven by terrific traffic?

Well, whenever you have down sales like that at 3-and-a-half and you have a number of weather issues, it's always traffic. Right here. I don't know, Bart, can you -- hold your hand up higher. There you go.

John Ajay from Oppenheimer capital. I was just wondering if I could get some more color on the profitability of Tim's, Tim Hortons U.S., and AUVs as they compare to Canada? And also -- well, the franchise ownership, if it's the same or if it's a little bit different.

Okay. Franchise ownership at the end of this past year was approximately 70% of the 160. The 30% are company stores that we're still in the process of getting profitable and as soon as they're profitable, we sell them. Going back to 1997 or '98, Tim's U.S. lost $15 million, so we feel very good about our progress on same-store sales growth, overall profitability to produce a profit of 263,000. AUVs are behind Canada but I can tell you in buffalo, New York, where we've been there since 1993, we started out about 400,000 there. Now we're averaging a million one U.S. And when you look at the Canadian sales of a million five Canadian, that's about a million one U.S. Buffalo and Canada are very similar.

Are the franchisees that are paying the royalties to you in that region actually now profitable?

Say what now?

Are the franchisees profitable in that region?

Oh, yes.

And able to sustain on their own?

Yes, right.

Great. Thanks.

All the way back there.

Thank you. Greg Schrader from Fulcrum (ph). As you continue to build out your portfolio of quick casual brands like some of the peers have done in QSR, have you heard any concerns from franchisees in terms of capitalization of your core businesses or what might the impact might be longer term?

You mean as far as distribution of capital?

No. In terms of as you roll out, say, Baja Fresh to 700 plus units, the cannibalization that your core Wendy's group may see longer term.

We have not had that issue because we have fully explained that we don't want to compete directly against any of our brands. So when your position is QSR hamburger, coffee and baked goods, fresh Mexican -- okay? -- quick casual, the Pamodoro, the Cafe Express, they don't compete directly against each other. We do have a number of Wendy's franchisees, a small number, who have built out their markets, have requested franchises in their existing markets. Let's say for Baja. So it's not been an issue. Okay. We have time for a couple more questions. Anything on the phone? One last one here.

Jim Irwin at GIC (ph). Could you follow up on that Baja Fresh same-store sales answer you provided earlier? It's not clear to me how you went from 8 to 9% same-store sales Saturday sales growth the last four or five years with the tremendous ramp-up in the number of units and now suddenly to 2 to 3% same-store sales because you're expanding your units so aggressively. Could you elaborate a little more on that?

Okay. So let's say you go into a market, okay? And you build one or two stores on the opposite side of town. They're going to do very well and they're going to continue to grow. As you start penetrating a market, you put one in the middle here and one up here. They're doing well, but it tends to cannibalize the two existing stores. And that's very classical in building a new chain. I think every chain goes through that.

So give me some guidance next 2 to 3 years? 2 to 3, 4 to 5 --

I think in the 2-and-a-half to 3-and-a-half would be in the --

Same store.

Same store, yeah.

Second question, if I could. On your Wendy's assumption, same-store sales of 1-and-a-half to 2-and-a-half. I just wanted to clarify your earlier answer. You're assuming status quo in the current discounting environment for 2003? That's within that 1-and-a-half, 2-and-a-half percent?

Yes.

So in fact, if in fact McDonald's cease the light in the next three months, your 2-and-a-half is going to be low?

I'm not going to put words in my mouth. (Laughter)

Janis, that was the best one ever. Sorry. One last one here.

Another question on Baja Fresh. The timing of when the same-store sales growth decelerated from 2Q to 3Q relative to when the California economy weakened and what I presume the acceleration of your new store growth would have hurt that suggests that maybe there was some sort of distraction caused by the merger or something that could have hit you in the second half, in addition to that, or it just seems weird that the timing -- that those factors would be solely responsible, in my opinion.

Well, it's not weird. I think they also went through the various, you know, economic times that we've all gone through. I mean, you take a look at -- if you look at your charts from September/October, retail sales just fell off the chart. Consumers sending went from a positive like 7.2 in September to a negative 2.5. It just fell off the chart. Your major department stores had terrible November and December. So I think that's just the facts we're dealing with, and, you know, it's a very small change, so any type of unusual event -- and I'll give you the sniper shooting in D.C. -- will play a major part in that chain, because we had like five or six restaurants in D.C. down about 30 to 40% for four weeks. So on a small base, it's going to affect it. One last question. Well , we've we certainly thank you for all your support over the years and thank you for attending.

Yeah. And there's lunch outside.

Thanks. (Applause)

First time I've ever gotten a clap.

Thank you for participating in today's conference call and have a great