Wendy's International, Inc.
NYSE : WEN

Wendy's International, Inc.

February 03, 2006 08:00 ET

Wendy's International, Inc. Announces 2005 Results; Revenues Increased 4.1% to $3.8 Billion; Net Income Was $224.1 Million and $1.92 Per Share

DUBLIN, Ohio--(CCNMatthews - Feb 3, 2006) -

Wendy's International, Inc. (NYSE:WEN) today announced its financial results for the full year 2005 and for the fourth quarter ended January 1, 2006.

2005 Full-Year Results

-- Total revenues increased 4.1% to a record $3.8 billion.

-- The Company and its franchisees opened a total of 417 new restaurants during the year. The openings consisted of 211 Wendy's®, 187 Tim Hortons® and 19 Baja Fresh® Mexican Grill restaurants.

-- Same-store sales were very strong at Tim Hortons, but declined at Wendy's and Baja Fresh.

The Company's 2005 full-year pretax income was $338.1 million, net income was $224.1 million and reported diluted earnings per share (EPS) were $1.92. These results compare to 2004 full-year pretax income of $184.1 million, net income of $52.0 million, and reported EPS of $0.45. The 2004 results include the impact of a $190.0 million pretax goodwill impairment charge at Baja Fresh, a $21.7 million pretax charge for market impairments and store closings at Baja Fresh and a non-cash pretax charge of $9.1 million for a lease accounting correction.

The 2005 results included the positive impact of:

-- A $62.7 million pretax gain from the sale of 171 Wendy's real estate properties during the year. A plan for these asset sales was announced as part of the Company's strategic initiatives in July 2005.

-- A stronger Canadian currency ($1.21 in 2005 vs. $1.30 in 2004), which benefited pretax income by approximately $26 million compared to 2004.

The 2005 results included the negative impact of:

-- $55.4 million in pretax charges for the closure of certain Wendy's, Baja Fresh and Tim Hortons U.S. restaurants, as well as the impairment of fixed assets in certain Tim Hortons, Wendy's and Cafe Express™ markets.

-- $36.1 million in pretax goodwill impairment charges at Tim Hortons and Cafe Express.

-- A $16.2 million increase in pretax equity compensation expense, including expense for the accelerated vesting of stock options and incremental restricted stock expense.

-- An 11.6% increase in annual beef costs ($1.47 per pound in 2005 vs. $1.32 per pound in 2004) which negatively impacted Wendy's U.S. pretax income by approximately $12 million compared to a year ago.

In 2005, general and administrative (G&A) expenses as a percentage of revenue were 8.5%, compared to 7.8% a year ago. G&A expenses for 2005 included $16.2 million in incremental pretax expense for the accelerated vesting of stock options and for restricted stock grants, as well as $5.2 million in pretax expenses related to the initial public offering of Tim Hortons. These expenses were partly offset by an $8.0 million year-over-year pretax reduction in management performance-based incentive compensation.

The Company's 2005 operating income (pretax income excluding interest income and expense) was $377.2 million, compared to $226.6 million a year ago, and its operating margin (operating income divided by revenues) was 10.0% compared to 6.2% a year ago.

Management focused on improving performance

Chairman and CEO Jack Schuessler said, "While we are disappointed with certain financial results in 2005, we made substantial progress on many initiatives to improve our operating performance and enhance value for all our stakeholders. Our entire management team is focused on delivering improved results in 2006.

"At Wendy's, our same-store sales decreased for the first time in 18 years, due in part to competitive convergence and a consumer fraud incident that negatively impacted our sales. Despite the challenges we faced in 2005, our company store average unit volumes remain among the highest in the industry at more than $1.35 million, and we are taking significant steps to improve the brand's performance. We closed more than 40 underperforming Wendy's restaurants and sold 171 Wendy's real estate properties during the second half of the year.

"We also have new initiatives under way in Marketing, R&D, and Operations to drive sales, improve efficiencies and increase profit margins, and will provide further details on these at our Analyst and Investor Meeting on Monday, February 6," said Schuessler.

"Tim Hortons delivered another outstanding year, increasing revenues to $1.2 billion, up 19.0% compared to 2004," said Schuessler. "The primary factors in the revenue increase were same-store sales increases of 5.2% in Canada and 7.0% in the United States; the development of 187 new restaurants, including 149 in Canada and 38 in the United States; and the strengthening of the Canadian dollar."

"The IPO for Tim Hortons is on track for late March. We filed an amended registration statement with the Securities and Exchange Commission on January 19."

Company repurchased 2 million shares, raised dividend 25% in 2005

In July, the Company's Board of Directors authorized an additional $1 billion in share repurchases and a 25% increase in the Company's annual dividend rate.

In August 2005, the Company repurchased 2 million shares for $98 million in an Accelerated Share Repurchase (ASR) transaction. In January 2006, the Company acquired an additional 3.75 million shares for $207 million in an ASR transaction. Both ASRs were subject to certain provisions that established a floor and a ceiling for the average share price in the Company's agreement with its broker-dealer, who executed the repurchase transactions. The total remaining authorization for share repurchases is about $900 million.

The Company's annual dividend rate increased from $0.54 to $0.68, beginning with the dividend paid on November 21, 2005. The Company during 2005 increased its targeted dividend payout ratio to a range of 23% to 27%, up from its previous range of 18% to 22%.

The Company will pay its next quarterly dividend of $0.17 per share on February 28, 2006, to shareholders of record as of February 13. It will be the Company's 112th consecutive dividend payment.

"Over the last five years, the Company has returned more than $1 billion to shareholders in the form of dividends and share repurchases," said Chief Financial Officer Kerrii Anderson.

2005 Fourth-Quarter Results

-- Total revenues were $977 million in the fourth quarter of 2005 compared to $978 million in the fourth quarter of 2004.

-- The Company and its franchisees opened a total of 170 new restaurants during the quarter. The openings consisted of 74 Wendy's, 93 Tim Hortons and 3 Baja Fresh Mexican Grill restaurants.

-- Same-store sales were very strong at Tim Hortons, but declined at Wendy's and Baja Fresh.

The Company's 2005 fourth-quarter pretax income was $45.0 million, net income was $30.0 million and reported diluted EPS were $0.25. These results compare to a 2004 fourth-quarter pretax loss of $120.6 million, a net loss of $141.4 million and a reported loss per share of $1.25. The 2004 fourth-quarter reported results included a $190.0 million pretax charge for goodwill impairment at Baja Fresh, a $21.7 million pretax charge for market impairments and store closings at Baja Fresh and a non-cash charge of $9.1 million for a lease accounting correction.

The 2005 fourth quarter results included the positive impact of:

-- $60.9 million pretax from the sale of 166 Wendy's real estate properties during the quarter. A plan for these asset sales was announced as part of the Company's strategic initiatives in July 2005.

The 2005 fourth quarter results included the negative impact of:

-- $55.4 million in pretax charges for the closure of certain Wendy's, Baja Fresh and Tim Hortons U.S. restaurants, as well as the impairment of fixed assets in certain Tim Hortons, Wendy's and Cafe Express markets.

-- $36.1 million in pretax goodwill impairment charges at Tim Hortons and Cafe Express.

-- $3.2 million in pretax expenses and consulting fees related to the initial public offering of Tim Hortons.

-- $8.1 million in incremental pretax equity compensation expense, including expense for the accelerated vesting of stock options and incremental restricted stock expense.

Management to host investor meeting on February 6, 2006

Management will host a meeting for the investment community at 9 a.m. on Monday, February 6, 2006. Chairman and Chief Executive Officer Jack Schuessler, Chief Financial Officer Kerrii Anderson, Chief Marketing Officer Ian Rowden, and Senior Vice President of Investor Relations and Financial Communications John Barker will represent the Company at the meeting. The Company plans to discuss its strategic initiatives, 2005 results and 2006 outlook.

The dial-in number for the conference call is (877) 572-6014 (domestic) or (706) 679-4852 (international). No need to register in advance. A simultaneous webcast will also be available at www.wendys-invest.com. The call will be archived on the site.

Tim Hortons IPO statement

A registration statement relating to Tim Hortons Inc. securities has been filed with the Securities and Exchange Commission, but has not yet become effective. These securities may not be sold, nor may offers to buy be accepted prior to the time the registration statement becomes effective.



Full-Year 2005 Same-Store Sales Summary

SAME-STORE SALES 2005 2004
------------------------------------------------------------------
Wendy's U.S. Company -3.7% 2.9%
------------------------------------------------------------------
Wendy's U.S. Franchise -3.1% 1.8%
------------------------------------------------------------------
Tim Hortons Canada 5.2% 7.4%
------------------------------------------------------------------
Tim Hortons U.S. 7.0% 9.8%
------------------------------------------------------------------
Baja Fresh System -3.7% -6.3%
------------------------------------------------------------------



Safe Harbor statement

Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward looking. Factors set forth in our Safe Harbor under the Private Securities Litigation Reform Act of 1995, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. Please review the Company's Safe Harbor statement at http://www.wendys-invest.com/safeharbor.

Wendy's International, Inc. overview

Wendy's International, Inc. is one of the world's largest restaurant operating and franchising companies with more than 9,900 total restaurants and quality brands - Wendy's Old Fashioned Hamburgers®, Tim Hortons and Baja Fresh Mexican Grill. The Company also has investments in two additional quality brands - Cafe Express and Pasta Pomodoro®. More information about the Company is available at www.wendys-invest.com.

Cafe Express is a trademark of Cafe Express, LLC

Pasta Pomodoro is a registered trademark of Pasta Pomodoro, Inc.



WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

(Unaudited)

Fourth Quarter Ended
1/1/2006 1/2/2005 $ Change % Change
--------- ---------- --------- ---------
REVENUES
Retail sales $763,931 $777,657 ($13,726) -1.8%
Franchise revenues 213,407 200,098 13,309 6.7%
--------- ---------- --------- ---------
TOTAL REVENUES 977,338 977,755 (417) 0.0%
--------- ---------- --------- ---------

COSTS & EXPENSES
Cost of sales 511,912 514,852 (2,940) -0.6%
Company restaurant operating
costs 169,622 184,666 (15,044) -8.1%
Operating costs 55,078 60,011 (4,933) -8.2%
Depreciation of property &
equipment 50,097 42,461 7,636 18.0%
General & administrative
expenses 98,750 73,763 24,987 33.9%
Goodwill impairment 36,141 190,000 (153,859) -81.0%
Other (income) expense 2,346 22,046 (19,700) -89.4%
--------- ---------- --------- ---------
TOTAL COSTS & EXPENSES 923,946 1,087,799 (163,853) -15.1%
--------- ---------- --------- ---------

OPERATING INCOME 53,392 (110,044) 163,436 n/m

Interest expense (11,294) (11,971) (677) -5.7%
Interest income 2,855 1,396 1,459 104.5%
--------- ---------- --------- ---------

PRETAX INCOME 44,953 (120,619) 165,572 n/m

INCOME TAXES 14,990 20,819 (5,829) -28.0%
--------- ---------- --------- ---------

NET INCOME $29,963 ($141,438) $171,401 n/m
--------- ---------- --------- ---------
--------- ---------- --------- ---------

Diluted earnings per common
share $0.25 ($1.25) $1.50 n/m
--------- ---------- --------- ---------
--------- ---------- --------- ---------

Diluted shares 118,398 113,442 4,956 4.4%
--------- ---------- --------- ---------
--------- ---------- --------- ---------


WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

(Unaudited)

Year-to-Date Ended
1/1/2006 1/2/2005 $ Change % Change
----------- ----------- --------- ---------
REVENUES
Retail sales $3,028,414 $2,935,899 $92,515 3.2%
Franchise revenues 754,733 699,539 55,194 7.9%
----------- ----------- --------- ---------
TOTAL REVENUES 3,783,147 3,635,438 147,709 4.1%
----------- ----------- --------- ---------

COSTS & EXPENSES
Cost of sales 2,003,804 1,900,635 103,169 5.4%
Company restaurant
operating costs 682,505 668,948 13,557 2.0%
Operating costs 171,919 168,492 3,427 2.0%
Depreciation of property &
equipment 199,680 178,394 21,286 11.9%
General & administrative
expenses 321,518 283,721 37,797 13.3%
Goodwill impairment 36,141 190,000 (153,859) -81.0%
Other (income) expense (9,603) 18,644 (28,247) n/m
----------- ----------- --------- ---------
TOTAL COSTS & EXPENSES 3,405,964 3,408,834 (2,870) -0.1%
----------- ----------- --------- ---------

OPERATING INCOME 377,183 226,604 150,579 66.5%

Interest expense (46,405) (46,950) (545) -1.2%
Interest income 7,286 4,409 2,877 65.3%
----------- ----------- --------- ---------

PRETAX INCOME 338,064 184,063 154,001 83.7%

INCOME TAXES 113,997 132,028 (18,031) -13.7%
----------- ----------- --------- ---------

NET INCOME $224,067 $52,035 $172,032 330.6%
----------- ----------- --------- ---------
----------- ----------- --------- ---------

Diluted earnings per common
share $1.92 $0.45 $1.47 326.4%
----------- ----------- --------- ---------
----------- ----------- --------- ---------

Diluted shares 116,819 115,685 1,134 1.0%
----------- ----------- --------- ---------
----------- ----------- --------- ---------


WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

January 1, January 2,
2006 2005
----------- -----------
(Unaudited)
(Dollars in thousands)
ASSETS

Current assets
Cash and cash equivalents $393,241 $176,749
Accounts receivable, net 138,999 127,158
Notes receivable, net 11,746 11,626
Deferred income taxes 29,043 27,280
Inventories and other 62,868 56,010
Advertising fund restricted assets 53,866 60,021
Assets held for disposition 66,803 0
----------- -----------
756,566 458,844
----------- -----------

Property and equipment 3,421,353 3,362,158
Accumulated depreciation (1,095,465) (1,012,338)
----------- -----------
2,325,888 2,349,820
----------- -----------

Notes receivable, net 14,796 12,652

Goodwill 128,808 166,998

Deferred income taxes 6,623 6,772

Intangible assets, net 41,757 41,787

Other assets 165,880 160,671
----------- -----------
$3,440,318 $3,197,544
----------- -----------
----------- -----------


WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

January 1, January 2,
2006 2005
----------- -----------
(Unaudited)
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable $188,481 $197,247
Accrued expenses:
Salaries and wages 51,184 46,971
Taxes 116,920 108,025
Insurance 58,147 53,160
Other 90,263 92,838
Advertising fund restricted liabilities 68,929 60,021
Current portion of long-term obligations 9,428 130,125
----------- -----------
583,352 688,387
----------- -----------
Long-term obligations
Term debt 559,097 538,055
Capital leases 56,736 55,552
----------- -----------
615,833 593,607
----------- -----------

Deferred income taxes 78,206 109,674
Other long-term liabilities 104,338 90,187

Commitments and contingencies

Shareholders' equity
Preferred stock, Authorized: 250,000 shares
Common stock, $.10 stated value per share,
Authorized: 200,000,000 shares,
Issued: 125,490,000 and 118,090,000 shares,
respectively 12,549 11,809
Capital in excess of stated value 405,588 111,286
Retained earnings 1,858,743 1,700,813
Accumulated other comprehensive income
(expense):
Cumulative translation adjustments and other 115,252 102,950
Pension liability (1,096) (913)
----------- -----------
2,391,036 1,925,945
Treasury stock, at cost:
7,681,000 and 5,681,000 shares, respectively (294,669) (195,124)
Unearned compensation - restricted stock (37,778) (15,132)
----------- -----------
2,058,589 1,715,689
----------- -----------
$3,440,318 $3,197,544
----------- -----------
----------- -----------


WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
REVENUES BY SEGMENT

Increase (Decrease)
(in thousands): Fourth Quarter Ended From Prior Year
----------------------------------- -------------------
January 1, % of January 2, % of
2006 Total 2005 Total Dollars Percentage
---------- ------ ---------- ------ -------- ----------
Retail Sales
--------------
Wendy's $501,661 65.7% $543,429 69.9% ($41,768) -7.7%
Tim Hortons 217,189 28.4% 183,772 23.6% 33,417 18.2%
Developing
Brands(a) 45,081 5.9% 50,456 6.5% (5,375) -10.7%
----------- ----------- ---------
$763,931 100.0% $777,657 100.0% ($13,726) -1.8%
----------- ----------- ---------
----------- ----------- ---------

Franchise
Revenues
--------------
Wendy's $87,269 40.9% $79,079 39.5% $8,190 10.4%
Tim Hortons 124,421 58.3% 119,155 59.6% 5,266 4.4%
Developing
Brands(a) 1,717 0.8% 1,864 0.9% (147) -7.9%
----------- ----------- ---------
$213,407 100.0% $200,098 100.0% $13,309 6.7%
----------- ----------- ---------
----------- ----------- ---------

Total Revenues
--------------
Wendy's $588,930 60.3% $622,508 63.7% ($33,578) -5.4%
Tim Hortons 341,610 34.9% 302,927 31.0% 38,683 12.8%
Developing
Brands(a) 46,798 4.8% 52,320 5.3% (5,522) -10.6%
----------- ----------- ---------
$977,338 100.0% $977,755 100.0% ($417) 0.0%
----------- ----------- ---------
----------- ----------- ---------

(a) Developing Brands include Baja Fresh and Cafe Express.



Increase (Decrease)
(in thousands): Year-to-Date Ended From Prior Year
----------------------------------- -------------------
January 1, % of January 2, % of
2006 Total 2005 Total Dollars Percentage
---------- ------ ---------- ------ -------- ----------
Retail Sales
--------------
Wendy's $2,076,739 68.6% $2,124,973 72.4% ($48,234) -2.3%
Tim Hortons 755,544 24.9% 613,050 20.9% 142,494 23.2%
Developing
Brands(a) 196,131 6.5% 197,876 6.7% (1,745) -0.9%
----------- ----------- ---------
$3,028,414 100.0% $2,935,899 100.0% $92,515 3.2%
----------- ----------- ---------
----------- ----------- ---------
Franchise
Revenues
--------------
Wendy's $317,052 42.0% $308,128 44.0% $8,924 2.9%
Tim Hortons 429,721 56.9% 382,588 54.7% 47,133 12.3%
Developing
Brands(a) 7,960 1.1% 8,823 1.3% (863) -9.8%
----------- ----------- ---------
$754,733 100.0% $699,539 100.0% $55,194 7.9%
----------- ----------- ---------
----------- ----------- ---------

Total Revenues
--------------
Wendy's $2,393,791 63.3% $2,433,101 66.9% ($39,310) -1.6%
Tim Hortons 1,185,265 31.3% 995,638 27.4% 189,627 19.0%
Developing
Brands(a) 204,091 5.4% 206,699 5.7% (2,608) -1.3%
----------- ----------- ---------
$3,783,147 100.0% $3,635,438 100.0% $147,709 4.1%
----------- ----------- ---------
----------- ----------- ---------

(a) Developing Brands include Baja Fresh and Cafe Express.


WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
OPERATING INCOME BY SEGMENT

(in thousands): Fourth Quarter Ended Change
------------------------------------ -------------------
January 1, % of January 2, % of
2006 Revenues 2005 Revenues Dollars Percentage
--------- -------- --------- -------- ------- ----------
Operating
Income (Loss)
--------------
Wendy's $68,287 11.6% $63,244 10.2% $5,043 8.0%
Tim Hortons 60,618 17.7% 66,154 21.8% (5,536) -8.4%
Developing
Brands(a) (15,001) -32.1% (29,261) -55.9% 14,260 48.7%
---------- ---------- ---------
Segment
operating
income 113,904 11.7% 100,137 10.2% 13,767 13.7%
Corporate
charges(b) (24,371) -2.5% (20,181) -2.1% (4,190) -20.8%
Goodwill
impairment (36,141) n/m (190,000) n/m 153,859 n/m
---------- ---------- ---------
Operating
income $53,392 5.5% ($110,044) -11.3% $163,436 n/m
---------- ---------- ---------
---------- ---------- ---------

(a) Developing Brands include Baja Fresh and Cafe Express.

(b) Corporate charges include certain overhead costs which are not
allocated to individual segments.

n/m - not meaningful.



(in thousands): Year-to-Date Ended Change
------------------------------------ -------------------
January 1, % of January 2, % of
2006 Revenues 2005 Revenues Dollars Percentage
--------- -------- --------- -------- ------- ----------
Operating
Income (Loss)
--------------
Wendy's $224,402 9.4% $272,362 11.2% ($47,960) -17.6%
Tim Hortons 279,233 23.6% 247,485 24.9% 31,748 12.8%
Developing
Brands(a) (24,261) -11.9% (38,347) -18.6% 14,086 36.7%
---------- ---------- ---------
Segment
operating
income 479,374 12.7% 481,500 13.2% (2,126) -0.4%
Corporate
charges(b) (66,050) -1.7% (64,896) -1.8% (1,154) -1.8%
Goodwill
impairment (36,141) n/m (190,000) n/m 153,859 n/m
---------- ---------- ---------
Operating
income $377,183 10.0% $226,604 6.2% $150,579 66.5%
---------- ---------- ---------
---------- ---------- ---------

(a) Developing Brands include Baja Fresh and Cafe Express.

(b) Corporate charges include certain overhead costs which are not
allocated to individual segments.

n/m - not meaningful.



WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
RATIOS

As of As of
January 1, 2006 January 2, 2005
--------------------------------

Long Term Debt to Equity 30% 35%
Debt to Total Capitalization 23% 30%



WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS

Increase/ Increase/
As of As of (Decrease) As of (Decrease)
January 1, October 2, From Prior January 2, From Prior
2006 2005 Quarter 2005 Year
-------------------------------------------------------
Wendy's
---------------
U.S.
Company 1,345 1,351 (6) 1,328 17
Franchise 4,673 4,666 7 4,607 66
-------------------------------------------------------
6,018 6,017 1 5,935 83
Canada
Company 152 159 (7) 154 (2)
Franchise 225 226 (1) 230 (5)
-------------------------------------------------------
377 385 (8) 384 (7)
Other International
Company 5 5 0 5 0
Franchise 346 343 3 347 (1)
-------------------------------------------------------
351 348 3 352 (1)

Total Wendy's
Company 1,502 1,515 (13) 1,487 15
Franchise 5,244 5,235 9 5,184 60
-------------------------------------------------------
6,746 6,750 (4) 6,671 75
-------------------------------------------------------
-------------------------------------------------------

Tim Hortons
---------------
U.S.
Company 62 65 (3) 67 (5)
Franchise 226 207 19 184 42
-------------------------------------------------------
288 272 16 251 37
Canada
Company 33 31 2 31 2
Franchise 2,564 2,498 66 2,439 125
-------------------------------------------------------
2,597 2,529 68 2,470 127

Total Tim Hortons
Company 95 96 (1) 98 (3)
Franchise 2,790 2,705 85 2,623 167
-------------------------------------------------------
2,885 2,801 84 2,721 164
-------------------------------------------------------
-------------------------------------------------------

Baja Fresh
---------------
U.S.
Company 142 146 (4) 144 (2)
Franchise 157 156 1 151 6
-------------------------------------------------------
Total Baja Fresh 299 302 (3) 295 4
-------------------------------------------------------
-------------------------------------------------------

Cafe Express
---------------
U.S.
Company 19 19 0 19 0
-------------------------------------------------------
Total Cafe
Express 19 19 0 19 0
-------------------------------------------------------
-------------------------------------------------------

Total System
Company 1,758 1,776 (18) 1,748 10
Franchise 8,191 8,096 95 7,958 233
-------------------------------------------------------
9,949 9,872 77 9,706 243
-------------------------------------------------------
-------------------------------------------------------


WENDY'S INTERNATIONAL, INC.
Income Statement Definitions

Retail Sales Includes sales from company operated restaurants.
Also included are the sales to franchisees from
Wendy's bun baking facilities, and sales to
franchisees from Tim Hortons' coffee roaster and
distribution warehouses.

Franchise Revenues Consists primarily of royalties, rental income and
franchise fees. Franchise fees include charges for
various costs and expenses related to establishing
a franchisee's business, and include initial
equipment packages for the Hortons' franchises.

Cost of Sales Includes food, paper and labor costs for
restaurants. Also included are the cost of goods
sold to franchisees from Wendy's bun baking
facilities, and Tim Hortons' coffee roaster and
distribution warehouses.

Company Restaurant Consists of all costs necessary to manage and
Operating Costs operate restaurants, except cost of sales and
depreciation. These include advertising,
insurance, maintenance, rent, etc., as well as
support costs for personnel directly related to
restaurant operations.

Operating Costs Includes rent expense related to properties leased
to franchisees, and cost of equipment sold to
franchisees as part of the initiation of the
franchise business. Training and other costs
necessary to ensure a successful Hortons' franchise
opening and costs to operate and maintain the Tim
Hortons' distribution warehouses, Tim Hortons'
coffee roaster and Wendy's bun baking facilities
are also included in operating costs.

General and Costs that cannot be directly related to generating
Administrative revenue.
Expenses

Other Income and Includes expenses (income) that are not directly
Expense derived from the Company's primary businesses.
This includes income from the Company's investments
in joint ventures and other minority investments.
Expenses include store closures and other asset
write-offs.



Contact Information