Wendy's Co (WEN) 2003 Q4 法說會逐字稿

Ladies and gentlemen, as a courtesy to others, please turn off all cell phones and pagers.

Thank you.

Ladies and gentlemen, please welcome Wendy's's Senior Vice President of Investor Relations, John Barker.

Good morning, everybody and welcome to Wendy's analyst and investor meeting.

I'd like to welcome everybody that's on the webcast and our conference call, especially our shareholders an our employees.

We have several members of management here today with me, Jack Schuessler, our Chairman and CEO, our Chief Financial Officer, Kerrii Anderson, Vice President, Greg Missili, and Marsha Gordon, who's from our Investor Relations department.

We have a full agenda for a meeting and our presentation should last till about 10:30.

Well begin with an overview of the enterprise by Jack and then Kerrii will review our fourth quarter and our 2003 results.

An then we're going to review the company's financial strategy and then we will go through the 2004 outlook in that order.

For those of you here with us at the Mandarin, we're going to hand out hard copies of the slides as we complete each section.

And we're going to issue a news release at the end of the meeting.

Following our summary comments, we'll end the meeting with a question-and-answer session, and I have really good news for those of you here with us today at the Mandarin, we're going to be serving our new Garden Sensation's Spinach Chicken salad.

Now, let me take you through just a few things, key dates on our Investor Relations calendar for the year..

Our monthly same store sales for the next four months are going to be on March 3rd, April 1st, May 5th, and on June 2nd.

Our quarterly earnings releases for the year are going to be on April 22nd, July 22nd, and October 21st.

And then we're going to have our 2004 fall analyst meeting.

It's scheduled for September 29th and September 30th in Columbus, Ohio and I will be sending out some more information about that meeting in the next few months.

All of the information about our investor relations calendar, which we update continuously, can be found on with your web silent.

You can see it there--- www.wendys-invest.com Our website includes all of the historical financial disclosure information and information about each one of our brands.

Before we get started, let me remind you of our safe harbor statement.

You can please refer to the statement that is attached to the company's news releases and in our most recent form 10 Q. Certain information that management my discuss today regarding future economic performance, such as financial goals, plans, 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 statements attached to our release and in our most recent form 10 Q.

And now, to kick off the meeting, let's take a look at the video about each one of our brands.

I think you will find out when you see this at Wendy's, it's all about the food.

Quality is what this system has been built on.

Quality is not just the great, fresh product, but quality is beyond that.

Quality means good safety.

Quality means great people.

Enjoy some fresh food, great salad, great burgers, fries.

I know what I'm going to get when I come in each and every time.

We're here to provide great products to our guests every day, every order.

I like Wendy's because they're fast and friendly and they got greet prices and great food.

So, I come back every time for lunch.

We love their chicken sandwich; we love their chili.

My kids love their frosties.

I think they have the best food in the industry.

A customer has an expectation out of Tim Horton, and we continue to deliver that.

A place welcome any time of day and have something to be satisfied with.

I like to Tim because I know what I'm getting.

Come for a sandwich, anything.

It's always fresh.

It's always fantastic.

Baja Fresh is all about fresh, fresh flavors.

We know that quality in the mind of our consumers is the most important thing.

You can just feel the cleanness and the freshness when you eat it.

We go out of our way that fresh means high quality fresh.

I just like the taste.

It's very fresh and very flavorful.

I think it's fabulous.

It's without a doubt the best Mexican food that you can get.

Quality for us means thinking about the customer first.

What does the customer see, what does the customer feel, what does the customer taste?

You can distinguish all the flavors, all the herbs that they use.

It's good.

My sandwich and it's great to go there because we can each choose what we want.

Every single dish that we do in every individual restaurant has got the same care as we are doing the dish for the President, for your mother.

It's a nice mix of taste and sauces and cooked very nicely.

I bring my family here.

I meet friends here.

Please welcome Wendy's chairman and Chief Executive Officer, Jack Schuessler.

Well, thank you everyone for attending at the Mandarin Oriental here and also to everyone on the webcast.

I think that was a great video and it's my vision to have that highway sign somewhere in this country.

Today we're going to challenge your thinking, both short-term and long-term.

You know, our strategic focus has always been a long-term approach to the business.

And job number one continues to be focusing on our core brands of Wendy's North America and Tim Hortons in Canada.

At the same time, we made great progress in strengthening our evolving businesses, both Tim's U.S. and our international division at Wendy's.

And then to take care of our future, we developed new growth opportunities, like Baja Fresh our Madestone Bakery, our investments in Pasta Pomodoro, and Cafe Express.

And we're managing the company for long-term value creation.

Let's take a look at the brand Wendy's.

We entered the year in revenues at 2.2 billion and we've more than doubled over the last 10 years.

Our compound and annual growth rate is over 5.5%.

And then annual sales, last year system wide our average was 1.330 million, and our company stores topped at 1.390 million.

Total restaurants ended the year at almost 6500 restaurants, all within North America, except about 350 restaurants in our international division.

We still think there are significant growth opportunity for Wendy's in North America.

Last year we opened 287 units.

And we believe the long-term goal for the brand in North America is anywhere between 8500 and 9500 restaurants.

We're developing new options besides our standard units to penetrate North America.

We have double drive throughs, smaller buildings and of course combos with Tim Horton's and we're expanding in our low penetration markets, like California and New England and New York.

You know, we've had 16 years consecutive same store sales growth and that's a factor that we were very proud of.

I'm often asked how does Wendy's do it.

And one of it is we take a look at our competitive advantages and execute against it.

And the first here is we look at a long term approach to the business.

When we hit a bump in a road, we stay on plan.

And we're able to do that because we have great system unit with our franchisees.

Another leveragable advantage is quality products.

As John Barker said, it's all about the food.

In 2001, we completed a comprehensive menu strategy and this produced a new line of salads, along with promotional salads, chicken strips and chicken temptations.

And that resulted in overall satisfaction of 46% Wendy's to 26% McDonald's and it's something we will continue to leverage against.

Our Wild Mountain Combos were a success in December and throughout the year we advertised our hamburger equities and again the result is best tasting hamburgers in QSR.

Wendy's is number one at 42%, compared to Burger King at 30 and McDonald's at 19%.

Chicken strips is our promotion here in February and we will introduce chicken temptations this spring.

We continue to raise the bar on our chicken sandwiches when the consumers ask who has the best tasting chickent sandwiches, Wendy's is ranked number one 44% to McDonald's at 25%.

As I said, we will continue to raise the bar on this product.

Then well introduce our new promotional spinach salad in March.

You will be tasting it today and our chicken strip salad well introduce later on in the year and both are great, high quality offerings.

You know, McDonald's introduced salads last year but we continue a strong lead when the consumers ask who has the best-tasting salads.

Over two times Wendy's number one at 64%, McDonald's at 26%.

At the same time, we are focusing on consumer needs.

We have a Wendy's light side menu where we have four combos offerings, all under 10 grams of fat.

And also, we allow kids to choose, milk to replace soft drinks and fruit to replace french fries and it is a big hit with the parents.

And in April, we will be testing our new protein combo.

Supervalu menu has been very important to us for the past 15 years.

We've always treated it as a long-term strategy, not a tactic.

And the reason it works is because it's predictable, it's familiar, it offers great quality and great value.

And families love it.

And in pay-off is the best value for the customer.

We were tied a number of years ago.

Wendy's is opened a lead 40% to 31% to McDonald's.

Another competitive advantage is our superior operations, whether it's service excellence or people excellence.

In this whole notion of continuous improvement is taken very well at the store level where every year we continue to bring down our service times.

In fact, I think most of you know that again last year Wendy's was number one for the fifth consecutive year in speed of service as timed by QSR magazine, 116 seconds and our nearest competitor, Chic Fil A is at 146.

We track as you know, 56 different attributes.

We're number one in 43 of the 56.

If you look at the top two of the food atributes, we're number one in 23 of 25 and in operations, number one in nine of 12.

Ten years ago when we started this tracking, we were only number one in, so we've made a lot of progress.

I'm going to show you some of the results.

Number one in most accurate orders at the drive through, 40% to 34%.

Number one in cleanest restaurants in opening the lead, 47% to 30 at McDonald's.

Most friendly, courteous employees, again number one, 40% to 32%.

And personal favorite, where at one time it was a tie with McDonald's and Burger King, we are now number one and continuing to open the lead.

Some of the reasons for these attributes is a great emphasis we put behind training and development of our people.

People excellence has paid off for the past five or six years.

Our crew rate at the end of the last year was 125%, and mind you, this is in the industry where the average is around 250, and our general manager turn over is at 9.6%.

That just makes sense, the more experience you -- of your people, the better experience you're going to deliver to the consumer every day in the restaurant.

Continuous improvement in technology allows us to meet consumer needs along with improving processes.

We really look at it two ways.

The first way is customers.

And the goal is convenience and the objective is very simple.

Raise your sales, raise your profits.

We introduced E pay last year at the end of November we had over 80% of our restaurants offering E pay.

We are in the process of looking at loyalty cards, gift cards and we've really leveraged technology for speed of service at the pick up window.

The second way we look at it is through our enterprise and the goal is to improve efficiencies.

The objective is to reduce costs.

And we put technology against it in supply chain by having better ordering and inventory procedures, both at the restaurant level and at the distributor.

And then better management tools at our restaurants, such as demand forecasting and labor scheduling.

Balanced marketing has been a hallmark at Wendy's for the past 15 years.

And it's no different in 2004.

We will offer Supervalu menu, like we did in January; we will have chicken strips advertising, along with our launch of chicken temptations, seasonal products of salads continue, hamburger equities and Hispanic marketing.

And we have a 3% national contribution this year to our national media campaign and we have similar weights in 2004 versus 2003.

I brought along two commercials, one is our January Supervalu menu spot and our current February chicken strips.

In 2003, you were 15 pounds lighter, and about two inches slimmer.

Now there are only five words to describe how you feel.

Honey, where are my sweats?

Want to eat better?

Wendy's small chili, side salad and plain baked potato have only 5 grams of fat.

It's our '05 in '04 plan.

Where's my wallet?

It's in your jeans.

Wendy's 99 cents Supervalu menu.

It's better here.

And remember, you can eat great even late.

Is Angela home?

What's that?

Chicken fingers from Matt's house of chicken.

She's not feeling well.

I'm here for Angela.

I've got chicken tips from ChickenChicken.

You just missed her.

Yo, Angela!

What's in the bag?

Home style chicken strips from Wendy's.

Great, I didn't catch your name.

Snake.

Angela, Snake's here.

Wendy's new home style chicken strips, tender strip of chicken with a home style breading and a delicious sauce.

It's better here.

Snake, I can see where Angela is crazy about you.

I think some of us can relate to the Snake character from time it to time.

The last competitive advantage and I think really important is that's the evolution of the Wendy's brand, both from a positioning and experience level.

You know, today, I think a lot of people consider Wendy's best in class but because we are best in class and at the top end, we're positioned at the top end of QSR and we can take advantage of this opportunity space to steal customers from casual and fast casual restaurants.

So while we continue to innovate our menu, we're testing new dining room interiors to meet the desire of our customers for our total dining experience.

Our instore dine something around 30% and we feel we can increase this by providing a more comfortable dining experience.

We call this scenario "Fresh" and it's in test in Ohio.

It has curved walls, different seating areas, high topped tables and more booths for the family, along with front lit menu boards.

This next version we call is Simple.

It's also in test in Ohio.

It has a same elements of Fresh but what's different is the color and the layouts.

Our menu additions service initiatives and evolution of the dining room will further separate us from the competition.

Our opportunity is to evolve from best of class to class of one.

Now let's look at Tim's.

What a success story.

Continued to dominate the landscape in Canada, 26% QSR share, 70% of the coffee and bake good share and this past year it contributed almost 44% of our segment income.

Total revenues has been fantastic.

It has grown 17% annually over the past 10 years, topping out at 807 million.

Same store sales last year finished at 1.625 million and that's an annual growth rate of 7.1% and that's same store sales.

That he are the envy of the restaurant industry.

Total restaurants, we finished at a little bit over 2500 and of that we have about 184 restaurants in the U.S. and we believe there's still significant growth opportunity at Tim's.

We opened 185 new restaurants last year and our long-term goal is to have in Canada around 3500 restaurants.

And we are really emphasizing development in our western provinces and Quebec.

We have a we fit anywhere strategy with a number of building types from our standard units to our double drive throughs, combo units with Wendy's kiosks and carts.

Much like Wendy's, Tim's look at their competitive advantages also.

And they are quality and variety of product, strong operations in service, balanced marketing and a very, very unique brand positioning.

And it has a great cup of coffee and also, speciality drinks along with capuccino, mocha, and iced capuccino, and a full line of baked goods from doughnuts, Tim bits, cookie, muffins, you name it, and an area we're emphasizing more and more is our sandwich and soup program.

If you look at our product mix in Canada, 50% of it comes from coffee.

Baked goods represents about 22.5% and lunch 10.5.

And most often coffee share in Canada, Tim's is number one at 66% as compared to Starbucks at 6%.

If you look, who has the best tasting coffee in Canada, number one is Tim's, the consumers voted 56% versus Starbucks at 11.

Two new products that we introduced last year was a maple pecan danish and Kerrii's favorite is a cranberry orange both high quality products.

And also, we have a great lineup of doughnuts for every taste and we bake them fresh all day long.

And most often doughnut share in Canada, 83% at Tim's.

Duncan doughnuts is at 6%.

Lunch is an area that I mentioned we will continue to focus on.

We introduced last fall the BLT combo.

It was a huge hit.

And for a limited time, we introduced the Turkey - bacon club.

In fact, it was such a hit, we had to extend it because of the response from our -- from the consumer.

Now, this is very important because this is going to be an area where we're going to grow lunch business.

QSR traffic in Canada, McDonald's is 22%.

Tim's at 10.

But 2003 to 2002, we built the share of lunch by 2.2 points, so we feel very good about that in the future.

Tim advertises 52 weeks a year and we will mark a major milestone on May 17th and that's our 40th anniversary at Tim Hortons.

I brought two videos to show, one is called Picnic Panic and the other one is Letters From Afar.

Here's the beep.

Where are you?

I thought you were making some of your special sandwiches for our picnic. -- Tim Hortons new homestyle BLTs.

Wow, BLTs.

They look great.

They are my speciality.

The taste of bacon you love when you want it most, ripe tomato, lettuce and six strips of mouthwatering bacon on an oven fresh bun.

Have a combo, just 4.79.

Those BLTs you made were great.

Hey, guys, we got another letter from Jeff.

Hi, everyone, hope you all are doing well, just wanted to let you know that I made it to Paris okay.

I know how you worry about me traveling over here --

But thanks to my Tim Horton's travel mug, I met lots of Canadians.

The other week I was waiting for this train when these back packers walked by.

It was my Tim mug that gave away where I was from.

Suddenly, I had a whole new bunch of friends to travel with.

The wildest thing is I continue to travel different countries, more Canadians would spot the mug.

It's been a great trip, met lots of great people, seen lots of cool stuff but I'm ready to come home now.

See you in a couple of weeks.

Miss you lot.

Jeff.

PS, dad, when you come pick me up at the airport, don't forget my large double double.

Oh, Larry, he's coming home.

I'm happy to say that Tim's is now number one in QSR market share in Canada for the first time outpacing McDonald's by over 8 percentage points and I believe this is the only country in the world where McDonald's is not number one in QSR traffic.

Our Madestone bakery continues to be very successful.

It is now supplying Tim Hortons restaurants with baked products, baquettes, doughnuts, Tim Bits, and this past December we completed our expansion of this facility and it generated significant income for Wendy's in 2003.

Tim's in the U.S. continues to improve in brand awareness, operations and most important: results.

And we've had outstanding same store sales growth for five consecutive years, which led it to be profitable in the past two in 2002 and 2003.

And a great history of same store sales growth last being positive, 4.5%.

We're in 184 -- we have 184 total restaurants with our major markets of Michigan, Ohio and Buffalo, New York.

We are really committed to the expansion of Tim's U.S. and it will happen in a number of ways.

We are going to build out our existing markets.

We have -- will build new markets like Rochester, New York.

We will have third-party acquisitions and we will look at area development agreements with certain franchisees.

Now, let's look at Baja fresh.

You know, if I were to sum up our year, I got to be honest with you, it had mixed results.

Some of the positives: Our revenues were up almost 28% to 151 million.

We opened 74 new restaurants, two new company markets, seven new franchise markets and we continued to build our base of franchisees.

And we have the highest AUVs in the fresh Mexican fast casual segment at 1.4 million.

Revenues for the past four years have grown annually by 57%.

And last year, we ended with 283 restaurants and a compound on annual growth rate for the past five years of 44%.

And we're number three in the largest fast casual chains as they're listed here at 6.3%.

Now, comp stores, we all know were challenging for us.

We were down 4.6 for the year, versus a positive of 2.7 a year ago.

But we saw a lot of competitive discounting in the first half of the year, especially in southern California and we had economic weakness in the the state of California.

At the same time, like many other restaurants, chains, we had a challenging cost environment.

We had a higher second half opening so our cost increased and our profit performance was very disappointing.

The segment lost 2.5 million and the dilution was 9 cents per share.

So that's the past.

Let me talk to you about what we're going to do to improve Baja.

First of all, in 2004, we're going to slow growth down from our original plan.

We're going to digest 35 -- the 35% growth in 2003.

We have speed of service initiatives being put in the restaurants and the P&G total cleaning program is going in like we had at Wendy's a few years ago.

We're going to put more training and development dollars behind our managers and crew so they can take care of the customer better.

And better tools for our management.

As we speak, we're putting in theoretical food cost, labor scheduling models with the labor matrix.

And then to help some of our G&A, we're going to have a shared services between Baja and Wendy's in these areas, accounting, supply chain distribution and IT.

And last week we announced we hired Bill Martin as EVP of subsidiary brand strategy.

Bill was a former CFO of Panera bread, who helped build the chain to more than 550 restaurants.

And we are going to intend to leverage his expertise with Baja.

We're also looking at our menu.

We have new lifestyle choice menus that really addresses low fat and low carb.

And then we're going to put in test this year a kid's meal choices and we have a number of items on our menu that are really friendly to kids but we haven't communicated to the parents.

So this will be tested later on this year.

We're also looking at our dining room environment.

We're going to test schemes inside that has a more casual feel.

And then ease of use for our consumers, we have gift cards and loyalty cards that are going into the marketplace.

Then in some markets we're going to be running electronic media in the form of radio.

We feel, and we will have, 600 to 700 total restaurants by the end of 2008 and we're very, very confident that well build Baja into a national powerhouse.

Now, let's look at our two investments.

First, [inaudible] and they're on track with their growth plan.

They built 10 new restaurants last year and are continuing to expand in California.

Then here are the highlights from Cafe Express last year.

We opened six new restaurants.

We now have 10 Houston, 8 in Dallas.

Our revenues grew 16% to 29 million.

And our AB's topped out at 2.1 million.

Our plans this year is really to leverage Wendy's expertise on operations, supply chain and systems.

In fact, we're so confident in the brand that today we're announcing Wendy's is taking a majority position in Cafe Express.

We will make an additional $5 million investment and we will expand our position from 45% to 70%.

And of course our financials will be consolidated.

And the founders will continue to remain as advisors and investors and today we're also announcing that Brian group, who heads Wendy's International division will be the CEO of Cafe Express and Brian brings great leadership skills and a great focus to restaurant operations.

So in summary, for 2003, Wendy's North America gained great momentum towards the back half of the year.

Tim Horton's had another great and solid year.

Baja fresh had mixed results but we are aggressively addressing the issues and all brands are well positioned for 2004.

So with that, I'll turn it over to our Chief Financial Officer, Kerrii Anderson.

Thanks.

Well, thanks.

Good morning, it's great to be with you here today.

And in reflecting on 2003, I strongly agree with Jack.

I mean, we had a good performance.

We delivered a 15% increase in revenues and an 8.5 increase in EPS for the year.

And I am pleased with these results.

Especially in light of the some of challenges that we faced.

I mean, who would have predicted in 2003 that we would have experienced the worst weather in 20 years?

Declining consumer confidence, high gasoline prices, state rate increases, escalating beef costs and BSE issues in Canada as well as the U.S. but the Wendy's enterprise and our strong management team has rose to the challenge.

And our fourth quarter was the best in the company's 33-year history.

In the fourth quarter, revenue reached 862 million.

An increase of 21%.

And diluted EPS was 56 cents a share, an increase of 27% over 2002.

This fourth quarter performance contributed to the overall success for 2003.

For the full year, revenues reached 3.1 billion, up 15.3%.

Pretax income was 377.6 million, up 9.2% and net income was up to 236 million, up 7.9%.

Diluted EPS was $2.05, an increase of 8.5% over 2002.

I am so proud of all of our operators that really contributed to producing these results.

So let's look at the key business drivers.

Same store sales is a key driver, starting with the Wendy's brand.

We all know sales were a challenge in the first half and turned positive third quarter.

The fourth quarter was exceptionally strong and as a result, same store sales for the year turned positive in November.

Wendy's company stores ended the year up .9% over 2002 and this is quite an accomplishment and it continued the 16-year trend of positive same store sales at Wendy's.

Wendy's franchise sales followed a similar pattern and ended the year up 1.1%.

Tim's Canada, started the year strong and finished even stronger with same store sales averaging 4.8% over 2002.

Tim's U.S. remained positive and gained strength throughout each quarter of the year.

Tim's U.S. ended the year with a 4.5% increase in same store sales over 2002.

Baja struggled with same store sales as they grew 35% in new store openings.

The sales reflect the challenges that Jack talked about earlier.

Baja ended the year with negative 4.6% same store sales.

Let's discuss the next key driver, development.

The enterprise opened 597 new restaurants and this was again in line with the guidance that we gave you, 560 to 605 units a year ago.

We delivered on plan at all of our brands.

In the next few slides I'm going to speak to you about the margins of our 1300 Wendy's U.S. company stores.

I want to you keep in mind that we believe this metric is not necessarily indicative of the overall results of the organization.

But we knew a year ago that the fact that we had improved margins 90 basis points into 2002, it would be very difficult for us to continue to improve margins in 2003.

The first half sales challenges, along with beef price increases, resulted in margins declining 160 basis points.

I'd like to specifically review with you the beef price trends.

After coming off of a 6.4% decline in 2002, beef prices rose on average 7% in 2003.

The price of course was impacted by the closure of the Canadian border, along with a decline in the slaughter levels relating to the herd supply.

It is the second largest annual increase in price that we have seen since 1991.

Now, we'll talk a little more specifically about 2004 beef price expectations when we talk about our guidance.

Labor was a bright spot.

Crew wage rate increased only 1.2% and in addition, our crew turn over was at a historically low rate.

Despite the 160 basis point margin decline, we improved earnings by 8.5% and segment income grew 11.2%.

Our ability to achieve this profit growth is a result of our diversified portfolio.

Tim's is almost 44% of our segment income and that's up from 37% in 2002.

This growth is attributed to certainly strong sales as well as the strengthening of the Canadian dollar.

With these results, it is evident that the margins of our U.S.

Company stores are not a true indicator of our overall enterprise wide results and I want you to keep this in mind as we talk about guidance for 2004.

Income also benefited from our cost control efforts.

G&A as a percentage of revenues was down to 8.3% from 8.8% in 2002.

And as a percentage of system-wide steals, G and A decreased to 2.5%.

The alignment of our incentive compensation to performance along with our focus on head count and discretionary spending all contributed towards controlling these costs.

We want to assure that our G and A increases at a lower rate than revenue growth.

EPS improved throughout the year relating to improving sales trends.

We had a strong back half, resulting in the 8.5% increase in EPS from 2002.

I like to remind you that believe it or not this is within our original guidance that we gave you at the beginning of 2003.

Our guidance was -- we're going to grow 7 to 10%.

That completes my review of the income statement.

Let's just talk about the balance sheet for a few minutes.

We continue to utilize the strength of our balance sheet with the purchase of the Orlando and Tampa markets.

As well as $57 million in share repurchases.

The use of our commercial paper facility was related to the Florida acquisition.

And it is expected to be repaid by the middle of this year.

We continue to repurchase our shares during 2003, bringing our total repurchases to 885 million, since we began in 1998.

Our average shares outstanding declined to 115 million for 2003.

We ended the year with a total long-term debt to equity of 39% and a debt to capital of 28%.

Our cash position remains strong at 171 million on our balance sheet.

Our guidance for 2003 metrics anticipated a challenging year.

For ROA we achieved 8.4%.

For ROIC, we achieved 11.3% and for ROE we delivered 14.9%, all which were close to the guidance.

We do continue to focus on our metrics long-term.

It is an important part of our balance score card.

In wrapping up 2003, the diversity of our business was evident in our segment income.

In addition, our laser focus on G and A was instrumental in delivering a fourth quarter and overall good performance for the year.

So so far this morning, we have been talking to you about 2003.

And some of our current business initiatives.

I have to tell you, we are excited about the current state of our business.

But at the same time, we continue to manage the company for long-term success.

And now we want you to think long term with us.

As Jack and I talk to you about our financial strategy for the next three, five, 10 years.

Now here's Jack.

Very good.

You know, when we think long-term, we think about our strategic plan, which we've had in place since 2001.

And our financial strategy supports the execution of our long-term strategic plan.

In the past we thought about these terms pretty much independently, whether it's long-term growth rate or share repurchases or cash, our dividends, our stock options.

And we've had discussions with you and amongst ourselves on these topics.

But we've needed to do but what we needed to do was tie them together in a cohesive financial strategy which we have done.

Today we want to take you through each element of our financial strategy.

We will discuss key assumptions for the next three, five, seven and 10 years.

How diversification of our income plays into this, how can we leverage our strong cash position and of course we would have to run some sensitivities to our assumptions.

What role does dividends play, what role does our equity-based compensation programs play?

How do we treat share repurchases in the future along with our long-term growth rate?

These are the items we are going to be covering with you today.

We started first by building a 10-year financial projection.

We call this our base case.

It had to be believable.

We had to believe it can be executed and it had to be reasonably conservative because we wanted to make long-term financial decisions based on these numbers.

As anything in the restaurant business, the key drivers are two, same store sales growth and new unit growth.

And let's look at our assumptions.

At Wendy's, we feel we can grow anywhere from 2 to 3% same stores next 10 years.

Tim's, annual growth rate of 3.5 to 4.5 and Baja, at 2 to 3%.

And then on our new stores, total for the system, we look at adding between 540 and 600 restaurants.

And then we made certain assumptions on investments at Madestone Bakery, Pasta Pomodoro and also Cafe Express.

And then made some key assumptions for the whole enterprise.

Our tax rate, we set for the next 10 years would average about 36.75%.

We have 100 million in debt to retire in 2005 and will retire that.

Then after 2004, we made an assumption on the Canadian exchange raid that would average anywhere from $1.45 to $1.48.

Average shares outstanding at 115 million and our current dividend is at 24 cents a year.

So from these assumptions, then we projected financial results over the next three, five and 10 years.

Now, I won't disclose the specific numbers but what I will talk to about is the income earned.

And Kerrii showed you the slide a little bit earlier where Tim's is almost 44% of our income.

And if you fast forward 10 years from now at the end of 2012, Tim's would provide almost 48% of income and Wendy's 45%.

So the key take away here is pretty obvious.

The enterprise is more diversified.

Tim's is growing at a faster rate and we're less reliant on Wendy's.

Now, let's discuss our cash position based on these conservative assumptions.

And this is the cash that we will use to build new restaurants, reinvest in the business, pay dividends, buy our shares back and be opportunistic.

Now, at the end of 2003, we had a $170 million on our balance sheet.

If we go forward in 2008, we are projecting off these conservative assumption $700 million on our balance sheet.

You go to 2010, with we would have a billion dollars on our balance sheet, and cash at the end of 2012 we would have 1.8 billion.

So the cash in our mind looks pretty good.

But at the same time, we wanted to look at some sensitivities.

So here's Kerrii to share them with you.

We're excited about our strong cash position from the 10-year model but like everything, we wanted to understand our sensitivities to our key drivers.

So we started with the the assumption same store sales and in our first scenario, we looked at a 1% reduction in the Wendy's company same store sales each year for five years.

So from 2.5% to 1.5% same store sales growth.

The impact to our growth rate was about 114 basis points and our cash decreased cumulatively over the five-year period by about $66 million from the projected balance that Jack shared with you of around 700 million.

Our second scenario, we actually reduced the Wendy's franchise same store sales 1% each year for five years.

The growth rate impact was about 55 basis points and the cash was impacted 28 million over the five-year period.

Thirdly, we reduced Tim's Canada same store sales 1% each year for five years.

The growth rate impact was about 63 basis points and the cash impact, about 37 million over the entire five-year period.

Then we looked at our next driver.

We reduced new store openings.

In our first scenario, we reduced Wendy's company store growth by 20 units a year each year for five years.

The impact to the growth rate is about 28 basis points and cash increases 93 million over the five-year period.

In our second scenario, we reduced Tim's U.S. store growth by 20 units a year, each year for five years.

The impact to our growth rate was about 15 basis points.

And again, cash increased this time 77 million.

What we take away from these sensitivity analysis is that we could slow our unit growth if we determined it were the right thing to do.

Without significantly impacting the long-term financial results.

Also, if we hit a bump in the road on a same store sales, we can manage through it.

So at this point, we were feeling pretty comfortable about our 10-year model and impact of the assumptions on our financial performance.

So Jack will now discuss dividends.

You know, dividends, there's been an increase focus from investors over the past six to seven months and I think many of you know that total return is now in vogue due to last summer's tax cut on dividends.

Let's review or dividend history.

First of all, if you go back 10 years, we've been paying 24 cents a share and in fact, that goes all the way back to 1987.

If you look at our dividend yield in 1992, it was 1.9% and we ended last year at .6.

If you look at the dividend pay out ratio, in 1992, 38% and last year it was 12%.

So this really begs the question in a lot of minds, "What is our policy?"

Well, in the past we haven't had one but now we have developed a strategy that I'd like to discuss with you.

First of all, we want our dividends to remain pretty constant over time and we're going to review it annually.

Second, we want a dividend pay out of anywhere from 18 to 22%.

Our dividend yield, we'd like to be in the 1.1 to 1.2 range.

So in order to achieve this today, we are announcing that our dividend is going to increase 100% and our quarterly dividend is going to go from 6 cents a share to 12 cents a share and our annual would go from 24 to 48 cents per share.

The cash impact for this year is about 28 million and through the next five years the cumulative effect on cash is 212 million.

Now, I'm real excited and Kerrii is too about this announcement and we're confident about our ability to generate cash and make this long-term commitment.

Now I'd like to ask Kerrii to talk about equity-based compensation.

Well, we all know that equity-based compensation covers a broad range of topics from stock options to restrictive stock to broad-based stock plans and this subject is being addressed by many companies and more recently by the financial accounting standards board.

So let's review the current status of the accounting rules on stock option accounting.

Companies today can choose between 2 methods of accounting.

The first is to provide a fair value discloser in the footnotes to the financials.

As to what the impact of expensing stock options would have been.

This is the approach that Wendy's uses today.

The second method is to actually elect to expense options under FABV123 by selecting one of three methods.

Our concern over this approach was the lack of comparability among companies because of different options.

The it has recently stated beginning 2005 the expensing of options will be mandatory based on some method not yet determined.

And exposer draft is due to be issued this quarter.

Well, in thinking about equity-based compensation, we had several objectives.

First we wanted to make sure that we minimized the dilution over time.

We want to certainly remain competitive to attract and retain the great employees that we have and look forward to in the future and we wanted to reduce the earnings impact of the long-term incentive plan.

So with these objectives in mind, I think it's first important to understand the current status of our equity-based plans today.

Our current approved plan allows only for the issuance of stock options.

To issue more stock options in April of this coming year in 2004, we must request more shares be approved.

The overhang percentage, which I I know everybody has a different definition, we define is as the uninvested options and those option approved but not yet issued.

For us it was 13.2% at the end of the 2003.

If we were to request enough options for the next three years, we would need 11 million more shares under today's compensation plans.

And the overhang percentage would exceed 20%.

So let's review these numbers along with the financial impact of our existing plans.

Wendy's has been awarding about 2.5 to 3 million options each year and at the end of 2003 there were 12.4 million options outstanding.

The EPS impact of our options has grown from 7 cents in 2000 to 12 cents in 2003 and that's impacted both by the number of options and the increase in the share price over the period.

And the overhang was 13.2% at the end of 2003.

If we were to continue to award around 3 million shares in the future, we know that the EPS impact in 2008 could be at high as 27 cents per share.

And that the overhang in 2008 would still exceed 20%.

Both are unacceptable.

I might also add that we do not believe that we can even get and obtain shareholder approval in 2004 for the future needs of the existing plan based on these type of results.

Therefore, we are redesigning our equity-based compensation plans as follows: We will seek shareholder approval in 2004 for an [onminous]plan.

Although the plan will cover a number of types of incentives, we are focused on restrictive stock, on restrictive stock units and some stock options.

And here is the transition plan for each: Our U.S. executives and directors will receive restrictive stock awards beginning 2004.

Our Canadian executives will receive stock options in 2004, Transitioning to restricted stock units in 2005 [audio drops] ...

So basically, they will receive one restricted share for every four stock options received previously.

The shares will vest 25 cents percent per year and that was the same as the schedule for or options.

The annual EPS impact is calculated by taking the number of shares times the stock price at the date of grant and dividing it by the four-year vesting period.

For accounting purposes, the restrictive stock is included in the shares outstanding as of the date of grant.

The Canadian executives will receive the stock options in 2004 and beginning in 2005 they will receive what's called stock settled restrictive stock units, which have a more favorable impact, tax impact to the individual in Canada.

The fixed grant guidelines, the vesting, exchange ratio are similar to those of the U.S. and the accounting treatment for restrictive stock units is the same as restricted stock.

Today all nonmanagement employees receive grants under the we share plan, which vest about 25% per year.

In 2004, grants will be made for this plan but in 2005 this plan we share will be converted to some type of a cash bonus profit sharing plan.

The future shares will be awarded as follows: A maximum award of about 2.2 million shares in 2004, with a significant decline in the shares awarded in 2005 and 2006.

So in total, we are asking the shareholders to approve 3.6 million shares to be awarded over the next three years.

We are pleased about the trends on EPS and the dilution percentage compared to those of our existing plans today.

So let's review the projected impact.

The expensing of restricted stock awards will begin in 2004 and it will be roughly 2 cents per share with a full impact in 2008 of around 14 cents per share.

The replacement of the we share stock option with a cash profit sharing plan will impact EPS each year 1 to 2 cents a year beginning 2005.

Assuming it is required the expensing of stock option in 2005, we estimate with the knowledge we have today that the impact would be around 12 cents, declining to zero in 2008, assuming all the options have vested.

Let's review the EPS impact under the proposed plans and compare it to the EPS impact of our existing plans.

In 2005, the total EPS impact is estimated to be around 18 cents per share under both the proposed plan and the current plan.

However, in 2008, the EPS impact is estimated to be around 15 cents under the new plan and 27 cents--versus 27 cents under the current option plan.

This is a significant decrease.

Now, let's look at the overhang percentages.

In 2005, the overhang is estimated to be around 11.9% under the new plan versus almost 20%, the 19.6 under the current plan.

And in 2008, the overhang under the new plan is 2.3% versus 21.2% under our existing stock plan.

Again, this is a significant improvement.

Today we have articulated a compensation strategy to achieve our objectives of minimizing the EPS impact and to bring down the overhang of our stock to less than 5% of the shares outstanding in 2008.

We believe based on our preliminary review with ISS, this proposal will be viewed favorably by our shareholders.

The next element of our financial strategy is stock ownership by our executives.

You know, a few years ago before the death of Dave and before Ron Joyce retired, the stock ownership percentage by our executive management and our directors was as high as 18%.

Today the ownership percentage in our management table is around 1.9.

It is our desire to increase management's ownership.

We are now establishing ownership guidelines for our management team.

Our top five executives will need to hold three times their base salary.

All other officers would be required to hold one times their base salary.

The individuals have four years to attain these ownership levels.

However, if these requirements were met today, our officers would hold approximately $27 million of Wendy's stock and that would represent in excess of 5% of the outstanding stock being held by the management team.

We believe it's better aligns our executives with our shareholders.

Now I'd like to talk about share repurchases.

Jack has just announced the exciting news of 100 percent increase in the dividend of Wendy's.

Considering this increase, I'm sure the question is on your mind, what impact does the increased dividend have on our share repurchase strategy.

So let's start by reviewing the history.

In 1998, Wendy's instituted a share repurchase program.

And by focusing on the total column, which is to the far right, you will know since 1998 and through 2003, we have repurchased almost 36 million shares, totaling $885 million.

Now, we did receive approximately $233 million of cash proceeds from the exercise of options.

And we utilized cash of about $650 million.

Now, if you look on-line 7 on the chart, you will note that at 12/31/03, we still had almost 12.5 million shares of unexercised options, which really created the 13.2% overhang that I discussed earlier.

We would expect these options to get exercised over the next five years based on history.

Therefore, our repurchase strategy will be to continue to offset the dilution from outstanding stock options.

We will consider additional repurchases based on our cash position and other investment opportunities.

And we will review this strategy annually with our board.

In support of our repurchase strategy, we are announcing today that our board has authorized an additional $200 million of share repurchases.

This brings our total authorization to $366 million, to be utilized over the next several years.

Our message today is quite simple, we can do both.

We can pay a higher dividend and we can continue share repurchases.

Well, we have now discussed a number of elements, dividends, equity-based compensation, share repurchase, all of which have an impact on the projected cash position.

So let's review those numbers.

The projected cash balances from Jack's earlier presentation were that we would have about 700 million in 2008, and 1.8 billion in 2012.

After paying the dividend, increase dividend, continuing our share repurchases and changing the equity-based compensation programs, we now estimate that our cash balances in 2008 will be around 360 million and that in 2012, still reach 1.2 billion.

We believe our balance sheet will continue to be very strong and our long-term ratings to be investment grade.

So now I'd like to turn it back over to Jack to discuss the last element of our financial strategy, the long-term growth rate.

Now we got to put this all together.

What does this mean?

So we're going to talk just a few minutes about our long-term growth rate.

Our strategic plan had the long-term great rate of 12 to 15% but I think the view of the world is a little bit different than three and four years ago.

I think many investors are focused on total return.

And I believe some people think that our current 12 to 15% raises concerns that it may be a high-risk strategy.

We also know in the out years of this plan that our core brands will be maturing and as of now, in the short-term, we see limited M and A opportunities.

And if you look at since the beginning from 2000 to 2003, our EPS growth rate compounded annually is about 12.5%.

Taking into consideration all elements of our financial strategy, that's the dividends, their share repurchase, equity-based compensation, future expensing of stock options, we're updating our historical guidance to reflect these new elements and today we're announcing guidance of 11 to 13% which we're confident can be achieved.

And I believe investors reward those companies who are predictable, consistent and credible.

So the key take away is Wendy's has an integrated financial strategy.

We increased our dividends 100%.

We have plenty of money to continue our share repurchase.

We have stock ownership guidelines for our executives.

We have a great cash position that gives us a lot of flexibility and our -- our long-term growth rate is 11 to 13%.

So the financial strategy supports the execution of our strategic plan.

Now, I know you have went through a lot this group thinking about 10 years and five years.

You're not used to that.

So now I'm going to turn it over to Kerrii to get you into your comfort zone of one-year short-term outlook.

Well, like Jack, I am extremely excited about our financial strategy and its impact over the long-term but we do recognize your desire to focus short-term as well as long-term.

So let's talk about 2004 guidance.

For this presentation, we will provide annual goals in the following items: Revenues, same store sales, new restaurant development and capital expenders, major cost components, G and A, enterprise and segment operating margins.

Now, I recognize that that is a new metric but we do believe that it is more indicative of our performance than just the Wendy's U.S. company operating margins and we're going to talk about it a little more here later.

We will provide an outlook on the corporate tax rate, overall EPS growth and key financial metrics.

This presentation will not provide any guidance on system wide sales, quarterly or monthly projections, Wendy's domestic margins or share repurchase details.

Now, our outlook is based on a number of broad assumptions.

We expect positive same store sales growth and strong unit growth from all our brands, Wendy's, Tim's and Baja fresh.

On the cost side, with the exception of beef, we expect manageable increases in food and labor.

Managing G and A will continue to be a priority for the enterprise.

And this is important, the fourth quarter of 2004 will include a 53rd week of operations due to the accounting calendar.

Now, this only happens one in every seven years and it's this year, 2004.

So in our outlook, we expect improving performance from Baja fresh but we do expect EPS dilution of 5 to 7 cents per share in 2004.

While we work on the items that Jack talked about earlier.

We expect strengthening performance from Madestone Bakery and Tim's U.S. and the Canadian exchange rate for 2003 was 1.40 and we are projecting a minimal impact in 2004 with the exception of the first quarter.

We do expect all types of insurances to increase in 2004.

Based on these broad assumptions, the major elements of our EPS model are as follows: Revenue growth in the range of 12 to 14%, new unit growth of 5 to 6% after store closings.

The enterprise operating margins will be flat.

G and A will be 8 to 8.3% as a percentage of revenue.

And the estimated effective tax rate will be 36.5%.

And lastly, our average shares outstanding we think will be around 116 million.

Now for some specifics.

In looking at revenue growth, I think it's important to remember that the 15% growth in 2003 reflected a full year of Baja versus only six months in 2002.

So the 12 to 14% increase in revenue this year will be driven by same store sales growth as follows: Wendy's U.S. company stores in the range of 4 to 5%.

Wendy's us franchise stores in the range of 3.5 to 4.5%.

Tim Hortons Canada, between 3.5 and 4.5 percent, Tim Hortons U.S. between 5 to 6% and the Baja system to be flat.

Revenue is also driven by the opening of new restaurants.

In 2004, new unit guidance is 550 to 600 new restaurants and it breaks out as follows: Wendy's NOrth America, 265 to 290 new units.

International Wendy's, 25 to 30, Tim's in Canada, 170 to 180, Tim's U.S., 30 to 40 and Baja, 50 to 60.

Again, keep in mind that these are gross numbers and we do close around 50 to 75 restaurants system wide.

We continue strong growth at Tim's and Wendy's and we are actually slowing growth at Baja fresh from the original plan.

As a result of these units, we anticipate the following cash outlays in 2004: 200 to 220 million for new restaurants, 75 to 85 million for remodeling and maintenance of existing restaurants, 25 to 30 million for technology, and in addition, we may make some investments in existing or new opportunities in the range of 60 to 75 million.

Now, let's discuss the items affecting our cost of sales line.

The major items impacting cost of goods sold are as follows: Beef is anticipated to increase 14 to 17% over 2003.

Now, remember, at Wendy's our beef prices are based on a one quarter lag.

The good news is that we believe the other major food costs, chicken, produce, flour, coffee are all expected to be very manageable and labor cost increases will be minimal.

Now, if you move down the income statement, there are two other line items we want to discuss.

The first is company restaurant operating costs.

That consists of all the costs necessary to operate company restaurants except food, paper and labor.

With the addition of new restaurants, these costs are expected to increase at slightly less than the 12 to 14% of revenue growth.

The second item is operating costs.

These costs include rent expense, the cost of equipment sold to franchisees from Tim's, the cost to operate our distribution, our coffee roaster and our bun baking facilities.

And these costs are expected to increase at slightly less than 20% over 2003, primarily due to equipment sales.

So now let's talk about G and A. As revenue is expected to grow 12 to 14%, we will continue our emphasis on G and A. Allowing it to only grow 10.5 to 11.5% over 2003 dollars.

And there are several key elements to consider when you analyze the G and A dollar growth.

First, we have a 53rd week of G and A in 2004 versus 2003.

And the impact is generally 1.5 to 2 percentage points of the increase in G and A dollars.

Secondly, we have aligned our incentive compensation with performance and we anticipate 2004 being a stronger year in EPS growth than in 2003.

And lastly, the expensing of restricted stock awards will impact EPS and increase G and A around 2 cents a share.

Well, since pension disclosures are such a hot topic, let's look at the status of our plans.

We continue to have a very conservative asset return estimate, 7.75%.

Our discount rate has been lowered from 6.75 to 6% in 2004, just reflecting the market.

In 2003, we contributed $16 million to our pension plan and we anticipate that the funding needs not to exceed $5 million in 2004, since the plan was funded at 100% at the end of the last year.

Now, let's focus on the other income and expense line of the income statement.

Other income and expense includes items such our share of the gains and losses from our equity investments, along with store closures and asset write offs.

In 2003, the net expense was 1.9 million.

We expect to generate income of 3 to 5 million in 2004 with Madestone Bakery contributing significantly as well as the improvement in our other investments.

Well, a few minutes ago when I talked about 2003, I talked about the lack of the correlation between Wendy's U.S. company store margins and the overall financial performance.

So going forward, we will no longer talk about Wendy's company store margins.

However, we will talk about enterprise and segment operating income margins.

The reason for the change is that we believe it does provide better transportation of our financials and it is a better indicator of our overall and segment performance.

Operating income is defined as pretax income less interest income plus interest expense.

If we had been reporting these margins, they would have been 14% in 2002, and 13.3% for the enterprise in 2003.

The overall decline is a result of the decline in the Wendy's and the Baja segment margins.

Our guidance for operating income margin is to be flat, compared to -- for 2004 compared to 2003.

And that's really primarily due to the increase in beef cost.

Well, based on the assumptions that we have talked about here today, we believe EPS growth in 2004 will be in the range of 11 to 13% or $2.27 cents to $2.32.

And again, a reminder that 2004 does include the impact of 2 cents of expensing the issuance of restrictive stock.

And this is in line with our new long-term EPS guidance that Jack discussed in the financial strategy presentation.

We have given guidance today for 2004 of the 2.27 to 2.32 and the analyst consensus is 228.

Our biggest concern about analyst consensus is the first quarter of 2004.

We believe there are a number of items to consider.

Beef costs for Wendy's will be $1.34 in the first quarter of 2004 versus 99 cents a year ago.

We do anticipate this percentage declining significantly throughout the year but it will have the greatest impact on our first quarter.

Again, remember we're priced on a quarter lag so we're paying what happened on the fourth quarter in the first quarter.

Our bonus expense is anticipated to be higher in 2004 than in 2003 because we have higher performance expectations.

And it will be reflected throughout the year.

The first quarter tax rate in 2004 will be 50 basis points higher than the rate in the first quarter of 2003.

And Baja's first quarter results will be impacted by store openings and higher food costs and we expect our best sales performance to be in the back half of the year for Baja.

These challenges are somewhat mitigated by an improved Canadian dollar, which is lower today than the $1.51 we experienced a year ago in the first quarter.

We continue to focus on improving our metrics, try to raising the bar on the long-term and we were pro actively managing or balance sheet to invest in the future and create long-term shareholder value as evidenced by the elements of the financial strategy presented today.

We expect ROA in 2004 to be in the range of 84 to 88 ROIC to be in the range of 11.5 to 12% and lastly ROE expected to be around 15 to 15.5%.

To 11.5 to 12% and lastly ROE expected to be around 15 to 15.5%.

To summarize, 2004 is to enter upon four performance drivers, our ability to generate strong sales growth, our ability to meet development goals, to control costs and to proactively manage our balance sheet by executing our financial strategy.

So here's Jack with a few final thoughts.

Both Kerrii and I are very, very optimistic about 2004 and so is our whole management team but we're even more excited about these numbers coming up here.

The U.S. economy is strength ening.

We have easier comps during 2004 and today we're also announcing our same store sales growth for January that ended yesterday.

Wendy's company restaurants last month up 8.3, our franchise restaurants up 7.2 to 7.7, and Tim's in Canada, up 4.5 to 4.9 and Tim's in the U.S., 4.8 to 5.2.

Again, we're very optimistic about 2004 but even more so, we're excited about our future.

You know, we're meeting consumer needs.

All brands are focused on superior operations.

All brands are evolving menus an facilities.

And we're meeting employee needs through training, development and our equity-based compensation programs.

And finally, we're meeting investor needs with our enter greated financial strategy.

Both Kerrii and I would like to thank you and everybody on the webcast for being here with us today.

Now we would like to take your questions.

Right in front here, Tom.

We have to get the microphone so it can hear on the webcast.

Mark from Morgan Stanley.

You talked about your cash projections longer term with your analysis.

What is your return on invested capital look like under the new plan?

It sounds like it it's return friendly because you are buying back stock, etc.

In the near term, our -- we anticipate our mess tricks to continue to improve and certainly one thing that impacts us long-term if we let 300 or 1.2 billion cash sit on our sheet, metrics do not look as good going out 10 years.

So from our perspective, they are continuing to improve here, you know, long-term, short-term, long-term.

But you could put more of that cash to work in more shareholders friendly ways?

Well, if I had a let's say a crystal ball and someone makes this investment 8 years from now, I can tell you that.

When we look at ROIC, you can only look a year or two years out because you don't know what the future is going to bring.

If for instance, we don't have M and A opportunities, okay,, you can increase dividend, you can do more share repurchases but for me to stand up here and say in 2007 I'm going to do, I don't any you would believe me.

Okay.

Thank you.

Janis back there, and then Joe.

Thank you.

A couple of questions on Baja, can you explain how in the fourth quarter revenues at Baja were actually lower than in the second and third quarters despite the opening of several stores?

You do give us the comp numbers but it seems like there's more there.

Can you talk about how the new stores have opened, what's going on at the franchise stores maybe versus the company-store base and you said you expect Baja comps to be flat and beef costs to be up yet it will be less dilutive in '04 versus '03.

So could you talk about the rest of your assumptions?

Many questions here.

Yeah.

I know.

Okay.

We're cutting back on new stores.

Right.

I mean, the original plan was almost 90 to 100 so we're cutting back 50 to 60.

A number of those are company restaurants.

When have you a small chain, you cut back on your company restaurants, it's less expensive preopening costs, okay?

So that's how you get there.

And then I think you said revenue growth --

Absolute dollars of revenue in the fourth quarter was actually lower than the second and third quarter despite 20 more stores.

I think we would --

Yeah, I honestly don't have your immediate response for you, Janice.

I mean, many of the stores got opened up right at the end of the December because it was --

How are the new stores opening?

You said it was about 1.4.

There are a couple of things.

One is when we talk about Baja sales, the ramp up, zero to 12 months, 12 to 28 and 28, we're not experiencing the same ramp up and that's one of the issues.

Joe.

Thank you.

I just wanted to clarify, does the 227 to 232 range include the 53rd week and----your nodding yes.

How much does the 53rd week to that range?

Well, it's interesting.

If you go back search years ago, the 53rd week was somewhere in the 2 to 4 cents range per share but when we're fighting beef costs at 14 to 17% increase this coming year, you see somewhat of an offset by that.

Okay.

And the question on the beef costs, has your forecast gotten much worse since the third quarter, am I correct in that?

Yeah, yeah.

I mean, there's a couple of things.

It happened really before the BSC.

And costs really started going up in projections in November and December.

Okay.

And then last question, I think you mentioned limited M and A activity but you did mention M and A with respect to Tim Hortons USA.

Can you expand a little bit on that, what kind of opportunities might be out SA.

Can you expand a little bit on that, what kind of opportunities might be out there for you?

First of all, in the near term, we don't see anything over a hundred million.

In the U.S., there's a number of small chains that, you know, we could have third party, you know, real estate, for instance, you know, we bought the Roy Rogers in New York a few years ago for Wendy's.

We bought the Hardee's for Tim's.

We bought the RAX roast beef in Columbus for Tims and now we're saying that we're going to start looking at growing Tim's more meaningful, so we weren't even out there looking for third party real estate up until now and, you know, we feel comfortable and I've talked to you, there's a couple of things we had to prove before we even look at major expansion in the U.S. that's the same store sales growth and we've had five good years of that.

And then market entry, look the Rochester model.

In looking at expanding Tim's we're going to focus four areas.

One is the new market entry, like in Rochester, building out our existing markets, acquisitions, a third party real estate and then we're going to look at area development agreements with large franchisees.

John Glass.

Two questions, please.

First just to understand the 2005 dilution.

There's 18 cents of dilution from this new compensation plan, 12 cents is -- is that your existing option in place as of today?

That is exactly correct, existing optionses as of today would be the 12 cents.

This is based on a number of assumptions.

Is there a way to use your balance sheet to reduce that dilution by buying in the options is in is there any kind of opportunity to mitigate that or should we assume 18 cents is what it will be?

Are there's really not an opportunity.

People try to go out and reprice them.

That is not an option for us.

Totally separately, in the stores that you've got the E pay processing in, can you talk about the experience of transaction, speed of --

We're still analyzing that.

We completed in November.

You had different cycles of stores starting on is I mean we pretty much say first quarter of this year is going to be clean and that's when we're really going to measure it.

Right here.

And then Mark.

What were the operating margin assumptions in that long-term plan as we look out to 2008 and 2012?

It was the same store sales increase.

It was new stores manageable costs, price of about a half a percent and that was about it.

So it was basically flat operating margins?

That would be increase -- increase maybe 30 basis points.

And you do get an increase because as Jack showed the shift inform income where Tims presents more income, you probably noticed the operating margin as a segment is a higher margin.

As though provide more income, you will see the margin go up

Mark.

Two things I wanted to ask about.

First, just looking at Tim Hortons in the U.S., are you planning on entering a new U.S. market this year?

And if so, what general type of size?

Also, is there any long-term stated goal for the unit for Tim Hortons in the U.S. and I will get to my second question shortly.

Yes, we're going to enter a new market and I can't tell you because we're negotiating the real estate.

And the second question is --

Unit count for Tims.

We still think it's a -- at least right now northern border states, anywhere were Minnesota all the way through New England.

And just wanted to ask about the 2 to 3% long-term annualized same store sales goal for Wendy's.

Given Burger King's current situation, that looks a little conservative to me.

Does that number assume that competition is going to remain pretty stiff from Burger King and maybe there's some up side to that if burger king continues to have trouble?

What we wanted to do is when we looked to increase our dividends and did the equity compensation, that you had to build conservative assumptions to see if you're going to be okay 10 years out.

It doesn't take into consideration how Burger King is today and so on.

So you can see when we were [audio unclear] same store sales for in year, it's going to be above our long-term guidance but when you make the number of financial decisions like we have today, you have to think 10 years out and try to think of everything, so to me it was more of an exercise to say are we going to be okay versus what, you know, some of the short-term environment is today.

What's the effect of Cafe Express consolidating into your income statement?

Really minimal.

Yeah, Cafe Express has about 18 stores for about $30 million of total assets, so it's very minimal.

They had less than a penny loss and so this -- this past year so it will be a very minimal impact.

Then Andy right here.

Two expense questions.

When you talk about some of the other commodity costs being manageable, are you implying increases that are manageable or overall that other basket of goods is sort of flattish and then on G and A given the 53rd week, are the compares going to be again kind of flattish throughout the year and then the improvement from the 53rd week in the fourth quarter?

With respect to food costs, I would tell you that in general we're seeing very little increase in our food cost overall other than beef.

I mean, we have a chicken contract that we're in the second year of --

I mean, it's like a penny increase.

I mean, a pound.

I mean, it's negligible.

Right.

So our other costs are basically flat to very little increase.

With respect to the 53rd week, I'm not sure I totally understand your question.

What you will see is the additional increase in G and A in the fourth quarter.

That's your G and A but you also have additional revenues associated with that G and A in the fourth quarter.

If that's answered your question.

Not -- I mean, that was one of our -- you can make the fourth -- you know the 53rd week any quarter.

It is -- we think it's better in the back half.

We chose it in the fourth.

For comparability.

John.

And then Janis after that.

And then Peter after that.

Thanks, two questions.

One is on the projected cash position.

Hopefully this isn't too academic of a question.

But looking at '08 to '10 of 150 million increase of cash that goes to $400 million the following two years.

Is there an easy reason as to why that would be?

Just the leverage and that's -- you know, we made the assumptions that the only thing we're going to do is build new restaurants.

And just buy back shares from dilution so you're getting leverage.

And John, to that point, I mean, with the new equity-based compensation, in further years out, we will not have to go out and buy as many shares to offset dilution because dilution begins to get minimal after 2008 so I mean, whether we want it use our cash position to do that will be a choice for us but today, you know, it has been more of a had -- we had to do it in order to offset dilution.

So when you get further out you're not having to /AOU as much of your own cash.

I was interested in the question or the point that you made about Baja fresh speed of service.

Has that been tested and there is there anything that you can share us with?

We're leveraging technology, so computer-based programs on our screens that starts tracking times and allows our employees to know how they stand and then reporting of it.

The key was we were able to look back and see who what our service times were against all parts.

So once you start measuring it, then you can expect improvement.

It's really measurement and not anything structural?

Yeah.

Janis.

We're talking about 10 year strategy.

About -- competitors get into a deep discounting mode.

Your business trend decelerate during that year.

And again, while it's not long I'm sure it's pain for your franchise eases during that period.

Painful for me.

Right.

Is there anything maybe in the next cycle assuming there will be one, not when beef costs are this high but maybe at some point, that you might do differently to help proceed vent the pressure on your business?

Well, I think there are some positives about increased beef costs.

It's a lot harder to do a 99 cent Whopper today than it was a year ago.

So that's positive.

It looks like under McDonald's new leadership, they want to get [indiscernible] from discounting and at Burger King they can't afford it.

So in the short-term, it's -- I think we're fine.

I think it's the idea of continuing to separate ourselves from the competition.

And that is why we want to move from best in class to a class of one.

That way it minimizes the short-term hits.

Also, the diversification of our income helps us.

I mean, it's all -- all the things we've talked about on over the last or three years that will get us away from what McDonald's, we cough or whatever that saying is and we continue to do that.

That's the good news, okay?

Peter.

Actually, a couple of questions on Tim's.

Can you update us on the backlog of franchisee for both the U.S. and Canada as far as what the pool looks like and also, with Tim's now approaching nearly 50% of the total enterprise operating income, with the fairly significant changes in compensation structure, why not go one step further and Monday advertise the Tim executives in line with their specific performance or possibly spinoff part of?

First of all, their incentive program is based on 75% results of Tims and 25% Wendy's.

So they overdelivered last year so an an index basis they will make more than the the Wednesday executives.

We looked at Monday advertising and spinning off a year ago, two years ago, in fact, we did it this last year and it really didn't say that we should do it.

Backlog of franchisees, we got plenty.

That's not an issue.

Correlate.

Did you have one more?

Yeah, one more if I may.

You did mention low carb, that's obviously entering more into your thought process.

Can you flush that out and are you thinking are more offensive or defensive here?

I think it's neither.

I think you continue to offer consumer what they would like.

I mean, if you looked at Wendy's history and innovation for the past 20, 25 years, we have a history of meeting consumer needs.

We started with salad bar in 1979.

We had the whole breast chicken sandwich in 1983.

We did Supervalu menu.

We did chicken strips.

If the trend goes to low fat, you start offering some of those items.

If it goes to low carb, you offer some of those items.

Because at the end of the day, what this business is all about is meeting the needs of the consumer.

And, you know, we think we're in good position if this thing does get more low carb focused because when you eat our hamburger beef, it tastes good without the condiments and the protein is going to be like a single or double to have lettuce and tomato in a nice packaging.

It's going to offer a side Caesar salad and the dressing has one carb of fat or one carb of -- one carb.

One carb.

Okay.

It has one carb.

And then a diet soft drink or an iced tea, so it's going to be a very, very low carb meal.

Who did I say shall correlate, that's right.

I had a couple of related questions that have to do with the guidance.

First, it seems like I guess I'm just trying to understand why you chose some of the a/ that to me appear conservative so.

Starting with the Canadian dollar, if I understood correctly you're assuming that the last three quarters are a 1.40 range when right now it's is about $1.33.

That's probably over a nick of earnings if the currency stayed where it is.

Because she's conservative.

That is the [indiscernible].

From our perspective, it was as low as 1.28.

It jumped up to [indiscernible] in the last week or so.

From trying to get here and give credible predictions about what we think earnings can be this year, we have said, you know, first quarter would certainly be better because we recognized we had $1.51 in the quarter a earnings a ago.

It's going to be better there.

After that we're staying flat at 1.40.

You're right, it can be better than that.

That's part of our guidance.

And then relating to the Baja fresh, and I can certainly understand why you would forecast zero percent comps.

How much of the 5 to 7 cents dilution has to do with the comps being weak versus maybe spending more towards a lot of these initiatives you discussed a how that change your outlook?

Do you think that, you know, that might be a good target forgetting to break even?

I think if I understand you right, I mean, most of it it's comps and some of it is costs much it's not spending of initiatives.

Some of these initiatives we would probably to to do anyway but we're speeding up to help get to a break even on the dilution quicker.

The last one is your guidance for 2004 includes 2 cents of dilution for the restricted and that wasn't in the year ago numbers.

Right.

I know we have a lot so that we need to take the time to clarify it.

Over there.

I was wondering, David Palmer.

I was wondering if you could talk more specifically about the opportunity for pricing this next year and, you know, given the fact that the out there are going to be feeling some of the increase in food cost even more than the major chains and the fact that you have these items perhaps creating a bit of a price on your menu, are you sensing an ability to raise price above what you had in the past and separately on the Canadian dollar, can you talk about how your hedging might have changed throughout the year?

Thanks.

I'll do the price and I will not get into hedging.

She will.

Wendy's, you know, has --- I we can take about a half a point.

We always look at before we take that how -- how do we not pass on the price to the consumer.

And we hate to raise prices and we'll keep it right here until we absolutely have to.

I think it's -- you know, the longer you can go without raising price, you start gaining market share there.

And we usually take that approach.

As far as in Canada, they've taken basically one price national price increase in 10 years and I know in one territory because of cost, we may be taking a small price increase.

On territory's tax rate's gone up minimum wage has gone up.

So our franchisees there will probably take some price increase.

And with respect to hedging, the company about mid year last year started hedging some specific transactions.

So we had a little bit of a benefit in the first half of the year from some transactions that were not ledged.

Then we lost them about mid year.

We talked about it in our conference call third quarter.

So from that perspective, we are hedged pretty much on all the transactions.

What we cannot hedge is the earnings stream of Tim's.

So with respect to the translation that occurs from all the line items from Canada to the U.S., you will see us get whatever benefit there is in the dollar being better than $1.40 but of course it's different on each quarter but on average.

So we cannot hedge the income of Tim, just specific transactions.

There's a question right here.

He had one more.

Thank you, two questions.

First on your beef cost outlook, I think it assumes about a 10% increase in beef in the second, third and fourth quarters and just wondering what's underlying those assumptions and maybe even give just a sensitivity analysis on a -- just say on a 5% change in beef.

Secondly, separate question, on your initiative to improve the dining room experience, can you give us a sense of how much that may cost and if you see that drive through mix perhaps leveling off or going down over time?

Thank you.

Let me do the dining room first.

You know, 30% of our businesses in the inside and we have really driven, you know, or, you know, our carry out percentage so our thinking is if you can keep that dollar amount and still raise that, you have a great opportunity to leverage your dining room.

And you look at, you know, -- you know, some of the dining room experiencing in the fast casual.

We think there's an opportunity that you can make a dining experience inside a lot more comfortable for the consumer and that's why we're doing it.

The cost package of the --

Right now we remodel every Wendy's in our franchisees, it's required every five years.

So it will probably fit in a range very close to what we would normally remodel.

As far as new build outs, we're going to be doing those this year with the new image and we got to wait and see what that's going to cost us and then start working from there.

The idea is to keep it comparable.

There was one other.

Yeah, the beef price correlation on what happens to beef, what happens to earnings.

Every 10 cent decrease in beef is about a half a point benefit on your food cost.

Back there.

Thank you, Jack.

Three questions on the franchise system.

In your long-term predictions that you don't really have any change in franchise company ownership.

Do you see that staying where you see it now?

Yeah, you know, right now Wendy's, it's about 80% franchise, 20% company and at Tims we're at about 99% franchise.

So we feel comfortable.

How would you characterize current relationships in [indiscernible].

Outstanding.

It's one of the strengths of both systems.

When would you explain the pricing where company stores are underpricing?

What do I have to explain?

Why the company is underpricing.

I don't know.

Okay.

I don't think you can make that correlation.

Yes, all the way in the back.

What is your position or what are your plans regard being outside North America?

We really don't see the brand translating in North America, okay?

Outside of North America and we've had some, you know, failers outside of North America and we're very comfortable that Wendy's is a North America brand.

And to go back to the last question, we can't predict pricing for franchisees or else I would be in jail.

Next question.

All the way in the back.

Two questions.

First of all, can you discuss the potential accretion from the Florida acquisitions in the first couple of quarters and then secondly, can you go into Tim's U.S., if there's new market this year?

I think we seed the accretion was --

A penny to two.

If you remember, when we announced the acquisition of the restaurants, we talked about the fact that we would refranchise a number of those and we anticipate that occurring over the first really first quarter to into the second quarter.

So half of those restaurants are likely be refranchised back out to ease.

So we have a little benefit from the 30 we keep.

What was the second part?

Tim Hortons on the U.S. expansion strategy, any new markets this year and, you know, can we look forward to new markets in 2005?

We're looking at new markets.

With as we're tying up the real estate, we don't want to announce which markets because that would have a tendency to drive up the price.

Should there be a market beyond [indiscernible] in 2004?

Yes, that's what we're planning on.

Given the fact that the commitment to the competitors dollar menus or value menus has over the last year since they launched those and you -- and your system seems, you know, culturally more supportive of their value menu, I just wonder is there any -- given the fact that there's higher beef cost, is there any pressure to raise prices on that value menu in?

The past you have gone from 99 to 1.09 in some markets.

Is there any intention possibly to go higher?

Not right now because it's a big piece of our strategy and before we had value menus, we are---we are rated the most expensive.

That is attributed to menu and we will try to keep that as long as we can.

We don't look at any individual item.

What we look is a blended food cost of the whole menu.

And not any individual item.

I think we're about finished.

Anymore questions?

Yeah.

Anybody on the webcast, on the phone that would like to ask a question?

In order to ask a question, press star then the number one on your telephone keypad.

I can't believe, Mark, usually have I two questions eight parts each.

Your first question comes from Howard Penny from Sun Trust.

Good morning.

Good morning.

Go ahead, Howard.

The -- your comments about Tim Hortons U.S. looking for area developers is a -- I don't know how to describe it but it's going against the traditional franchising program that Tim Hortons in the way the company was established with single owners -- or single people owning a single store and having them work in the store.

What decisions were made, if that's true, I think that's correct, what decisions were made to change that program in the U.S. or that franchising strategy in the U.S.?

And I don't know if you did talk about specifically how concerned you are with the first quarter estimates in terms of an EPS number.

Well, as far as Tim's goes, you're correct, historically we've done, you know, a franchisee with one or two or five stores.

But when you look at the U.S. in all the places we can go and have growth quicker, you do look at -- with certain people and we're going to test with certain people the area development agreement in parts of towns.

What's really changed this is our always fresh baking strategy because we don't have -- we're not at the -- we're not handcuffed by our bakers anymore.

That's been the big change, Howard.

And first quarter estimate, Howard, we did speak to a concern over the current consensus at first quarter because of a number of issues the fact that we are looking at a beef price of $1.34 versus 99 cents in the first quarter a year ago, as well as higher tax rate by about 50 basis points versus what we came out in the first quarter of a year ago and some increase G and A and Baja openings.

All of those somewhat may be offset by a better exchange rate in the first quarter where we are today, 1.32 or three versus 1.51 a year ago.

If I add all that have is a nickel or two cents or three cents?

I would be doing your job for you.

I don't want to you go to jail either.

Any other questions on the web?

At this time there are no further audio questions.

We maybe have time or one or two more questions here and then we will break it off.

If there's anything?

I know there was a lot today and I know Mr. Barker is going to be looking forward to talking to you in the next couple of weeks.

Again, thank you very much for your participation and have a good day.

Thanks.

Give me the mic for one second.

Just for you know, well be around to a little while but Jack and Kerrii have a couple of meetings this afternoon.

Well be flying back to Ohio.

If you're trying to reach me, there is going to be some time that we will not be available.

It may be easier to e-mail them.

Then lastly, right through those doors is the lunch, the Garden Sensations.

Enjoy yourselves.