<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended June 29, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 1-8116
WENDY'S INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Ohio 31-0785108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 256, 4288 West Dublin-Granville Road, Dublin, Ohio 43017-0256
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 614-764-3100
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
--- ---
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at August 1, 1997
----- -----------------------------
<S> <C>
Common shares, $.10 stated value 131,704,000 shares
</TABLE>
Exhibit index on page 15.
1 of 19
<PAGE> 2
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
PART I: Financial Information
Item 1. Financial Statements:
Consolidated Statement of Income for the quarters and year-to-date
periods ended June 29, 1997 and June 30, 1996 3 - 4
Consolidated Balance Sheet as of June 29, 1997
and December 29, 1996 5 - 6
Consolidated Statement of Cash Flows for the year-to-date
periods ended June 29, 1997 and June 30, 1996 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 11
PART II: Other Information
Item 1. 12
Item 4. 13
Item 6. 13
Signature 14
Index to Exhibits 15
Exhibit 11 - Computation of Net Income Per Common Share 16 - 17
Exhibit 99 - Safe Harbor under the Private Securities Litigation 18 - 19
Reform Act of 1995
</TABLE>
2
<PAGE> 3
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
QUARTER ENDED QUARTER ENDED
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
REVENUES
Retail sales ............................... $437,374 $ 400,775
Franchise revenues ......................... 102,841 91,136
-------- ---------
540,215 491,911
-------- ---------
COSTS AND EXPENSES
Cost of sales .............................. 267,283 249,104
Company restaurant operating
costs .................................... 98,244 94,612
Operating costs ............................ 14,870 12,258
General and administrative
expenses ................................. 38,892 32,089
Depreciation and amortization
of property and equipment ................ 24,086 22,277
Other expenses (income) .................... 1,355 (144)
Interest, net .............................. 1,256 1,546
-------- ---------
445,986 411,742
-------- ---------
INCOME BEFORE INCOME TAXES .................... 94,229 80,169
INCOME TAXES .................................. 37,233 30,865
-------- ---------
NET INCOME .................................... $ 56,996 $ 49,304
======== =========
PRIMARY EARNINGS PER COMMON SHARE ............. $ .42 $ .38
======== =========
FULLY DILUTED EARNINGS PER COMMON SHARE ....... $ .42 $ .38
======== =========
DIVIDENDS PER COMMON SHARE .................... $ .06 $ .06
======== =========
PRIMARY SHARES ................................ 140,636 129,548
======== =========
FULLY DILUTED SHARES .......................... 140,706 131,109
======== =========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE> 4
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR-TO-DATE YEAR-TO-DATE
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
REVENUES
Retail sales ................................. $823,499 $ 749,503
Franchise revenues ........................... 175,600 152,291
-------- ---------
999,099 901,794
-------- ---------
COSTS AND EXPENSES
Cost of sales ................................ 509,102 468,944
Company restaurant operating
costs ...................................... 193,395 184,217
Operating costs .............................. 28,900 24,732
General and administrative
expenses ................................... 77,366 64,819
Depreciation and amortization
of property and equipment .................. 47,940 43,628
Other expenses (income) ...................... 4,977 (614)
Interest, net ................................ 2,933 4,266
-------- ---------
864,613 789,992
-------- ---------
INCOME BEFORE INCOME TAXES ..................... 134,486 111,802
INCOME TAXES ................................... 52,853 43,044
-------- ---------
NET INCOME ..................................... $ 81,633 $ 68,758
======== =========
PRIMARY EARNINGS PER COMMON SHARE .............. $ .60 $ .54
======== =========
FULLY DILUTED EARNINGS PER COMMON SHARE ........ $ .60 $ .53
======== =========
DIVIDENDS PER COMMON SHARE ..................... $ .12 $ .12
======== =========
PRIMARY SHARES ................................. 140,345 126,370
======== =========
FULLY DILUTED SHARES ........................... 140,398 131,188
======== =========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
4
<PAGE> 5
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands)
JUNE 29, 1997 DECEMBER 29, 1996
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........... $ 250,667 $ 218,956
Short-term investments .............. 4,749 4,795
Accounts receivable, net ............ 65,477 53,250
Notes receivable, net ............... 10,931 11,003
Deferred income taxes ............... 14,652 15,760
Inventories and other ............... 36,118 33,199
----------- -----------
382,594 336,963
----------- -----------
PROPERTY AND EQUIPMENT, AT COST ......... 1,793,890 1,749,902
Accumulated depreciation and
amortization ...................... (549,294) (541,958)
----------- -----------
1,244,596 1,207,944
----------- -----------
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET ....................... 50,118 51,636
DEFERRED INCOME TAXES ................... 12,487 12,938
OTHER ASSETS ............................ 177,588 171,953
----------- -----------
$ 1,867,383 $ 1,781,434
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE> 6
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands)
JUNE 29, 1997 DECEMBER 29, 1996
------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and drafts payable ............... $ 76,087 $ 108,629
Accrued expenses:
Salaries and wages .................. 21,274 24,741
Taxes ............................... 21,471 18,502
Insurance ........................... 30,177 30,337
Other ............................... 24,729 20,146
Income taxes .............................. 18,174 (1,272)
Current portion of long-term
obligations ......................... 6,662 6,681
----------- -----------
198,574 207,764
----------- -----------
LONG-TERM OBLIGATIONS
Term debt ................................. 197,617 197,622
Capital leases ............................ 42,353 44,206
----------- -----------
239,970 241,828
----------- -----------
DEFERRED INCOME TAXES ....................... 64,967 62,956
OTHER LONG-TERM LIABILITIES ................. 11,999 12,114
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY WENDY'S
FINANCING I, HOLDING SOLELY WENDY'S
CONVERTIBLE DEBENTURES ...................... 200,000 200,000
SHAREHOLDERS' EQUITY
Preferred stock,
Authorized: 250,000 shares
Common stock, $.10 stated value
Authorized: 200,000,000 shares
Issued: 115,346,000 and
113,148,000 shares, respectively ...... 11,535 11,315
Capital in excess of stated value ......... 343,105 312,570
Retained earnings ......................... 806,000 740,311
Unrealized loss on investments ............ (976) (969)
Translation adjustments ................... (6,079) (4,743)
----------- -----------
1,153,585 1,058,484
Treasury stock at cost: 129,000 shares (1,712) (1,712)
----------- -----------
1,151,873 1,056,772
----------- -----------
$ 1,867,383 $ 1,781,434
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
6
<PAGE> 7
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
YEAR-TO-DATE YEAR-TO-DATE
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES .................................. $ 121,283 $ 85,850
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from asset dispositions ............ 55,334 52,744
Capital expenditures ........................ (144,313) (131,633)
Acquisition of franchises ................... (307) (31,505)
Other investing activities .................. (3,778) 232
--------- ---------
Net cash used in investing activities ..... (93,064) (110,162)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ...... 22,068 3,319
Principal payments on long-term
obligations ............................... (2,819) (26,317)
Dividends paid on common stock .............. (15,757) (15,433)
Payment due officer, net .................... -- (63,221)
--------- ---------
Net cash provided by (used in) financing
activities .............................. 3,492 (101,652)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................. 31,711 (125,964)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD .................................... 218,956 206,127
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... $ 250,667 $ 80,163
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid ............................... $ 14,023 $ 17,318
Interest received ........................... 11,340 6,747
Income taxes paid ........................... 20,394 12,171
Debt converted to common stock .............. -- 99,915
Capital lease obligations incurred .......... 1,251 --
Acquisition of franchises:
Fair value of assets acquired, net .......... 307 31,505
Cash paid ................................... 307 31,505
Liabilities assumed ......................... -- --
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
7
<PAGE> 8
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. MANAGEMENT'S STATEMENT
In the opinion of management the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring
in nature) necessary to present fairly the financial position of Wendy's
International, Inc. and Subsidiaries (the company) at June 29, 1997 and
December 29, 1996 and the results of operations for the quarters and
year-to-date periods ended June 29, 1997 and June 30, 1996 and cash flows
for the year-to-date periods ended June 29, 1997 and June 30, 1996. The
Notes to the Consolidated Financial Statements which are contained in the
1996 Form 10-K should be read in conjunction with these Consolidated
Financial Statements.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
In the first quarter of 1997 and 1996, 36 restaurants were franchised for a
net pretax gain of $6.7 million and 11 restaurants for a net pretax gain of
$4.2 million, respectively.
In the second quarter of 1997 and 1996, 81 Wendy's restaurants were
franchised for a net pretax gain of $26.4 million and 64 restaurants for a
net pretax gain of $25.0 million, respectively.
In the first quarter of 1997 and 1996, the company acquired 31 Rax
restaurants in Ohio and West Virginia and 40 Roy Rogers restaurants in New
York and New Jersey, respectively, for conversion to Wendy's and Hortons
restaurants. The purchase price was $8.9 million for Rax and $17.8 million
for Roy Rogers.
NOTE 3. BASIC AND DILUTED EARNINGS PER SHARE
Financial Accounting Standard No. 128 (FAS 128) "Earnings per Share",
becomes effective for periods ending after December 15, 1997, which for
Wendy's will be the fourth quarter 1997. FAS 128 requires the calculation
of earnings per share (EPS) under two methods; basic and diluted. Basic EPS
is calculated as income available to common shareholders divided by the
weighted-average common shares outstanding. Diluted EPS is calculated
giving effect to all dilutive potential common shares, such as options and
various convertible securities. Once adopted, FAS 128 requires restatement
of EPS for all periods presented. Under FAS 128 the pro forma basic EPS
would have been $.43 and $.39 for the second quarter of 1997 and 1996,
respectively, and $.62 and $.56 for the year-to-date 1997 and 1996,
respectively. Pro forma diluted EPS would have been $.42 and $.38 for the
second quarter of 1997 and 1996, respectively, and $.60 and $.53 for the
year-to-date 1997 and 1996, respectively.
8
<PAGE> 9
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income increased 16% to $57.0 million in the second quarter of 1997,
compared with $49.3 million in the second quarter of 1996. Fully diluted
earnings per common share increased 11% to $.42 in 1997 versus $.38 in 1996. The
year-to-date comparison showed an increase of 19% in net income, increasing to
$81.6 million in 1997 from $68.8 million in 1996. Fully diluted earnings per
common share increased to $.60 in 1997 from $.53 in 1996, a 13% increase.
RETAIL SALES
Total retail sales increased 9.1% for the second quarter of 1997 compared with
the second quarter of 1996. This was primarily the result of an increase in
Wendy's domestic average net sales of 10.3%. Year-to-date retail sales increased
$74.0 million in 1997 compared with 1996 reflecting an increase in Wendy's
domestic average net sales of 9.6%. Sales also increased in Wendy's Canadian
operations and in Hortons' Canadian and U.S. operations. Domestic selling prices
increased 1.5% in the second quarter of 1997, and 1.6% in the first half of
1997.
Average net sales per domestic Wendy's restaurant for the quarters and
year-to-date periods ended June 29, 1997 and June 30, 1996, were as follows:
<TABLE>
<CAPTION>
Second Quarter % Year-to-Date %
1997 1996 Increase 1997 1996 Increase
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Company .............. $292,150 $264,950 10.3 $550,200 $502,000 9.6
Franchise ............ 270,300 248,700 8.7 505,150 470,700 7.3
Total Domestic ....... 276,100 253,350 9.0 517,250 479,600 7.9
</TABLE>
The number of systemwide restaurants open as of June 29, 1997 and June 30, 1996
was as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Company ...................................... 1,242 1,321
Franchise .................................... 3,809 3,457
----- -----
Total Wendy's ................................ 5,051 4,778
===== =====
Total Hortons ................................ 1,442 1,277
===== =====
</TABLE>
COST OF SALES AND RESTAURANT OPERATING COSTS
The domestic Wendy's company operating margin increased in the second quarter
1997 to 17.2% versus 14.5% for 1996. The operating margin improved to 15.2% for
the year-to-date 1997 compared with 12.9% in 1996. Wendy's domestic restaurant
operating costs were lower, as a percent of retail sales, in the second quarter
and year-to-date periods 1997 versus 1996 reflecting reduced local and coupon
marketing expenditures, and the leveraging of higher average domestic sales and
particularly in the second quarter, favorable utility expenses. Domestic Wendy's
cost of sales improved in the second quarter and year-to-date period as a
percent of sales reflecting the leverage benefit on labor of higher average
sales as well as improved food cost.
9
<PAGE> 10
FRANCHISE REVENUES
Royalties before reserve provisions increased $6.5 million and $10.9 million in
the second quarter and year-to-date period 1997, respectively, compared with
1996. This was primarily a result of an increase in franchise restaurants open
and a 8.7% and 7.3% increase for the second quarter and year-to-date period,
respectively, in average sales of domestic Wendy's franchise restaurants.
Reserves of $513,000 were provided against royalties in the second quarter 1997
and reserves of $1.0 million were provided for the year-to-date period. No
royalty reserves were provided in 1996.
Gains from franchising Wendy's restaurants increased $1.4 million and rental
income from properties leased to franchisees increased $5.4 million in the
second quarter 1997 compared with 1996. The year-to-date comparison reflected an
increase of $3.9 million in gains from franchising Wendy's restaurants and an
increase in rental income of $9.1 million. In the second quarter of 1996, a gain
of $1.8 million was realized from the disposition of rental properties compared
to $.3 million in 1997.
OTHER EXPENSES (INCOME)
During the first half of 1997, charges of $1.5 million were made for an
arbitration decision relating to international operations, $2.9 million for
store closures and conversion activity and an increase of $.7 million in asset
write-offs related to restaurant remodeling. The second quarter of 1997
reflected a $1.0 million charge for store closures and a $.5 million charge for
store conversion write-offs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the second quarter of 1997 were 7.2% of
total revenues versus 6.5% in 1996. For the year-to-date 1997 general and
administrative expenses were 7.7% versus 7.2% in 1996. The increase reflects
lower provisions for performance-based management bonuses in 1996.
INCOME TAXES
The effective income tax rate increased 1.0% in the second quarter 1997 compared
with 1996 and increased .8% in the year-to-date comparison due to increased
Canadian income and lower than expected income from other foreign operations.
FINANCIAL CONDITION
The company's financial condition remains solid at the end of the second quarter
of 1997. The debt to equity and debt to total capitalization ratios were 21% and
17%, respectively, at June 29, 1997. Cash provided by operating activities
increased from $86 million in 1996 to $121 million in 1997. Capital expenditures
amounted to $144 million for 1997 compared with $132 million for 1996 reflecting
increased restaurant development.
OUTLOOK
The company continues to employ its strategies as outlined in the company's 1996
Annual Report. As was expected, competition in the quick-service restaurant
industry has been intense and will remain so in the foreseeable future. Emphasis
continues to be on solid restaurant operations, new products, effective
marketing, new restaurant development, and the overall financial health of the
entire system. The company believes that its success depends on providing
quality products and everyday value, not in discounting products. The company
anticipates that up to 725 new Wendy's and Tim Hortons restaurants will be
opened or under construction systemwide (both company and franchise) during
1997. During the first half of 1997 there were 241 new restaurants opened with
another 159 under construction. Cash flow from operations, cash and investments
on hand, existing revolving credit agreements and possible asset sales should
adequately provide for projected cash requirements. If additional cash is needed
for future acquisitions of restaurants from franchisees, or for other corporate
purposes, the company believes it would be able to obtain additional cash
through potential bank borrowing or the issuance of securities.
10
<PAGE> 11
In June 1997, Financial Accounting Standards Number 130 - "Reporting
Comprehensive Income" was issued. This statement requires the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements. Additionally in June 1997, Financial Accounting Standard
Number 131 - "Disclosures about Segments of an Enterprise and Related
Information" was issued. This statement provides information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports. It also requires certain
related disclosures about products and services, geographic areas and major
customers. Both statements are effective for the year ended December 31, 1998.
The company is in the process of evaluating the impact of these statements.
SAFE HARBOR STATEMENT
Certain information contained in this Form 10-Q, particularly information
regarding future economic performance and finances, plans and objectives of
management, is forward looking. In some cases, information regarding certain
important factors that could cause actual results to differ materially from any
such forward-looking statement appear together with such statement. In addition,
the following factors, 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. These factors include
competition within the quick-service restaurant industry, which remains
extremely intense, both domestically and internationally, with many competitors
pursuing heavy price discounting; changes in economic conditions; consumer
perceptions of food safety; harsh weather, particularly in the first and fourth
quarters; changes in consumer tastes; labor and benefit costs; legal claims;
risks inherent to international development; the continued ability of the
company and its franchisees to obtain suitable locations and financing for new
restaurant development; governmental initiatives such as minimum wage rates,
taxes and possible franchise legislation; and other factors set forth in Exhibit
99 attached hereto.
11
<PAGE> 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
On June 9, 1997, Arthur L. Wilson, individually and purportedly on behalf of a
putative class of other persons similarly situated, filed a complaint against
the Company in the U.S. District Court for the Southern District of Mississippi.
The complaint alleges that the Company has engaged in racial discrimination in
violation of Title VII and 42 U.S.C. Section 1981. The plaintiff seeks judgment
in an undetermined amount against the Company for punitive and compensatory
damages (including benefits) as well as injunctive and equitable relief. The
Company intends to defend the action vigorously, and believes that it has
meritorious defenses to the claims sought to be asserted and that the resolution
of the action will not materially affect the Company's results of operations,
liquidity or financial condition.
12
<PAGE> 13
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of the company's shareholders was held on April 29, 1997.
(b) The following table sets forth the name of each director elected at the
meeting and the number of votes for or withheld from each director.
<TABLE>
<CAPTION>
Director For Withheld
-------- --- --------
<S> <C> <C>
Fielden B. Nutter, Sr. 112,154,572 676,069
James V. Pickett 112,162,905 667,738
Thomas F. Keller 112,162,596 668,045
Ronald V. Joyce 112,159,270 671,372
Andrew G. McCaughey 112,154,831 675,811
</TABLE>
The following directors did not stand for reelection at the meeting (the year in
which each director's term expires is indicated in parenthesis):
R. David Thomas (1998), John K.Casey (1998), Ernest S.Heyeck (1998), Janet Hill
(1998), True H. Knowles (1998), Thekla R. Shackelford (1999), Ronald E. Musick
(1999), W. Clay Hamner (1999), Gordon F. Teter (1999), and Frederick R. Reed
(1999).
(c) The following table sets forth a brief description of each other matter
voted on at the Annual Meeting and the number of votes cast for, against or
abstaining from, as well as broker nonvotes on, each matter.
<TABLE>
<CAPTION>
For Against Abstain Broker Nonvotes
--- ------- ------- ---------------
<S> <C> <C> <C> <C>
Ratify Coopers & Lybrand L.L.P.
as independent public accountants
of the company 111,994,700 224,638 611,299 None
Approve amendments to the
company's 1990 Stock Option Plan 100,434,987 10,539,579 1,856,071 None
Shareholder Proposal regarding
smoking 15,326,825 75,954,218 6,248,469 15,301,131
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Index to Exhibits on Page 15.
(b) No report on Form 8-K was filed during the quarter ended June 29, 1997.
13
<PAGE> 14
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WENDY'S INTERNATIONAL, INC.
---------------------------
(Registrant)
Date: 8/11/97 /s/ Frederick R. Reed
----------- --------------------------------
Frederick R. Reed
Chief Financial Officer, General
Counsel and Secretary
14
<PAGE> 15
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
------- ----------- --------
<S> <C> <C>
11 Computation of Net Income 16-17
Per Common Share
99 Safe Harbor Under 18-19
the Private Securities
Litigation Reform Act of 1995
</TABLE>
15
<PAGE> 1
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
(In thousands, except per share data)
QUARTER ENDED QUARTER ENDED
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Weighted average number
of common shares outstanding ........................... 115,007 110,726
Shares issuable pursuant to employee stock option
plans less shares assumed repurchased at the
average market price ............................... 1,606 2,372
Shares issuable upon conversion of company-
obligated mandatorily redeemable preferred
securities ......................................... 7,573 --
Shares issuable upon conversion of exchangeable
shares ............................................. 16,450 16,450
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
PRIMARY EARNINGS PER COMMON SHARE ...................... 140,636 129,548
Add net additional shares issuable pursuant to
employee stock option plans at period-end
market price ....................................... 70 59
Add additional shares issuable
assuming conversion of
subordinated debentures ............................ -- 1,502
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
FULLY DILUTED EARNINGS PER COMMON SHARE ............... 140,706 131,109
======== ========
Net income ................................................ $ 56,996 $ 49,304
Add distribution savings on assumed conversion of
company-obligated mandatorily redeemable
preferred securities, net of tax ..................... 1,539 --
-------- --------
Net income for computation of primary earnings
per common share ....................................... $ 58,535 $ 49,304
======== ========
Net income for computation of fully diluted
earnings per common share ............................ $ 58,535 $ 49,304
======== ========
Net income per common share:
Assuming primary dilution .............................. $ .42 $ .38
======== ========
Assuming full dilution ................................. $ .42 $ .38
======== ========
</TABLE>
16
<PAGE> 2
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR-TO-DATE YEAR-TO-DATE
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Weighted average number
of common shares outstanding ........................... 114,702 107,354
Shares issuable pursuant to employee stock option
plans less shares assumed repurchased at the
average market price ............................... 1,620 2,566
Shares issuable upon conversion of company-
obligated mandatorily redeemable preferred
securities ......................................... 7,573 --
Shares issuable upon conversion of exchangeable
shares ............................................. 16,450 16,450
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
PRIMARY EARNINGS PER COMMON SHARE ...................... 140,345 126,370
Add net additional shares issuable pursuant to
employee stock option plans at period-end
market price ....................................... 53 30
Add additional shares issuable
assuming conversion of
subordinated debentures ............................ -- 4,788
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
FULLY DILUTED EARNINGS PER COMMON SHARE ............... 140,398 131,188
======== ========
Net income ................................................ $ 81,633 $ 68,758
Add distribution savings on assumed conversion of
company-obligated mandatorily redeemable
preferred securities, net of tax ..................... 3,091 --
-------- --------
Net income for computation of primary earnings
per common share ....................................... 84,724 68,758
Add interest savings on assumed conversion
of subordinated debentures, net of tax ............... -- 1,014
-------- --------
Net income for computation of fully diluted
earnings per common share ............................ $ 84,724 $ 69,772
======== ========
Net income per common share:
Assuming primary dilution .............................. $ .60 $ .54
======== ========
Assuming full dilution ................................. $ .60 $ .53
======== ========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 250,667
<SECURITIES> 4,749
<RECEIVABLES> 76,408
<ALLOWANCES> 0
<INVENTORY> 36,118
<CURRENT-ASSETS> 382,594
<PP&E> 1,793,890
<DEPRECIATION> 549,294
<TOTAL-ASSETS> 1,867,383
<CURRENT-LIABILITIES> 198,574
<BONDS> 397,617
0
0
<COMMON> 11,535
<OTHER-SE> 1,140,338
<TOTAL-LIABILITY-AND-EQUITY> 1,867,383
<SALES> 823,499
<TOTAL-REVENUES> 999,099
<CGS> 509,102
<TOTAL-COSTS> 731,397
<OTHER-EXPENSES> 130,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,933
<INCOME-PRETAX> 134,486
<INCOME-TAX> 52,853
<INCOME-CONTINUING> 81,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,633
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
<PAGE> 1
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances, and
plans and objectives of management, contained, or incorporated by reference, in
this Form 10-Q is forward looking. In some cases, information regarding certain
important factors that could cause actual results to differ materially from any
such forward-looking statement appear together with such statement. Also, the
following factors, 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:
Competition. The quick-service restaurant industry is intensely competitive with
respect to price, service, location, personnel, and type and quality of food.
The Company and its franchisees compete with international, regional and local
organizations primarily through the quality, variety and value perception of
food products offered. The number and location of units, quality and speed of
service, attractiveness of facilities and effectiveness of advertising and
marketing programs are also important factors. The Company anticipates that
intense competition will continue to focus on pricing. Certain of the Company's
competitors have substantially larger marketing budgets.
Economic, Market and Other Conditions. The quick-service restaurant industry is
affected by changes in national, regional and local economic conditions,
consumer preferences and spending patterns, demographic trends, consumer
perceptions of food safety, weather, traffic patterns and the type, number and
location of competing restaurants. Factors such as inflation, food costs, labor
and benefit costs, legal claims, and the availability of management and hourly
employees also affect restaurant operations and administrative expenses. The
ability of the Company and its franchisees to finance new restaurant
development, improvements and additions to existing restaurants and the
acquisition of restaurants from, and sale of restaurants to, franchisees, is
affected by economic conditions, including interest rates and other government
policies impacting land and construction costs and the cost and availability of
borrowed funds.
Importance of Locations. The success of Company and franchised restaurants is
dependent in substantial part on location. There can be no assurance that
current locations will continue to be attractive, as demographic patterns
change. It is possible the neighborhood or economic conditions where restaurants
are located could decline in the future, thus resulting in potentially reduced
sales in those locations.
18
<PAGE> 2
Government Regulation. The Company and its franchisees are subject to various
federal, state and local laws affecting their business. The development and
operation of restaurants depend to a significant extent on the selection and
acquisition of suitable sites, which are subject to zoning, land use,
environmental, traffic and other regulations. Restaurant operations are also
subject to licensing and regulation by state and local departments relating to
health, sanitation and safety standards, federal and state labor laws (including
applicable minimum wage requirements, overtime, working and safety conditions,
and citizenship requirements), federal and state laws which prohibit
discrimination and other laws regulating the design and operation of facilities,
such as the Americans With Disabilities Act of 1990. Changes in these laws and
regulations, particularly increases in applicable minimum wages, may adversely
affect financial results. The operation of the Company's franchisee system is
also subject to regulation enacted by a number of states and rules promulgated
by the Federal Trade Commission. The Company cannot predict the effect on its
operations, particularly on its relationship with franchisees, of the future
enactment of additional legislation regulating the franchise relationship.
Growth Plans. The Company plans to significantly increase the number of
systemwide Wendy's and Tim Hortons restaurants open or under construction. There
can be no assurance that the Company or its franchisees will be able to achieve
growth objectives or that new restaurants opened or acquired will be profitable.
The opening and success of restaurants depends on various factors, including the
identification and availability of suitable and economically viable locations,
sales levels at existing restaurants, the negotiation of acceptable lease or
purchase terms for new locations, permitting and regulatory compliance, the
ability to meet construction schedules, the financial and other development
capabilities of franchisees, the ability of the Company to hire and train
qualified management personnel, and general economic and business conditions.
International Operations. The Company's business outside of the United States is
subject to a number of additional factors, including international economic and
political conditions, differing cultures and consumer preferences, currency
regulations and fluctuations, diverse government regulations and tax systems,
uncertain or differing interpretations of rights and obligations in connection
with international franchise agreements and the collection of royalties from
international franchisees, the availability and cost of land and construction
costs, and the availability of experienced management and appropriate
franchisees and joint venture partners. Although the Company believes it has
developed the support structure required for international growth, there is no
assurance that such growth will occur or that international operations will be
profitable.
19
