<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 SEPTEMBER 28, 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.
CLASS OUTSTANDING AT OCTOBER 31, 1997
- ----------------------------------- ---------------------------------
Common shares, $.10 stated value 132,166,000 shares
Exhibit index on page 14.
1 of 18
<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 September 28, 1997 and September 29, 1996 3 - 4
Consolidated Balance Sheet as of September 28, 1997
and December 29, 1996 5 - 6
Consolidated Statement of Cash Flows for the year-to-date
periods ended September 28, 1997 and September 29, 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 6. 12
Signature 13
Index to Exhibits 14
Exhibit 11 - Computation of Net Income Per Common Share 15 - 16
Exhibit 99 - Safe Harbor under the Private Securities Litigation 17 - 18
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
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------- -------------------
<S> <C> <C>
REVENUES
Retail sales..................................... $425,186 $420,580
Franchise revenues............................... 100,315 85,995
-------- -------
525,501 506,575
-------- --------
COSTS AND EXPENSES
Cost of sales.................................... 263,654 259,746
Company restaurant operating
costs.......................................... 100,457 99,953
Operating costs.................................. 14,602 14,672
General and administrative
expenses....................................... 39,566 31,929
Depreciation and amortization
of property and equipment...................... 23,666 22,475
Other expenses................................... 906 545
Interest, net.................................... 593 928
-------- --------
443,444 430,248
-------- --------
INCOME BEFORE INCOME TAXES........................... 82,057 76,327
INCOME TAXES......................................... 29,089 29,386
------- -------
NET INCOME........................................... $ 52,968 $ 46,941
======== ========
PRIMARY EARNINGS PER COMMON SHARE.................... $.39 $.36
==== ====
FULLY DILUTED EARNINGS PER COMMON SHARE... $.39 $.36
==== ====
DIVIDENDS PER COMMON SHARE .......................... $.06 $.06
==== ====
PRIMARY SHARES....................................... 141,191 132,333
======= =======
FULLY DILUTED SHARES................................. 141,214 132,554
======= =======
</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
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------- --------------------
<S> <C> <C>
REVENUES
Retail sales..................................... $1,248,685 $1,170,083
Franchise revenues............................... 275,915 238,286
---------- ----------
1,524,600 1,408,369
---------- ----------
COSTS AND EXPENSES
Cost of sales.................................... 772,756 728,690
Company restaurant operating
costs.......................................... 293,852 284,170
Operating costs.................................. 43,502 39,404
General and administrative
expenses....................................... 116,932 96,748
Depreciation and amortization
of property and equipment...................... 71,606 66,103
Other expenses (income).......................... 5,883 (69)
Interest, net.................................... 3,526 5,194
---------- ----------
1,308,057 1,220,240
---------- ----------
INCOME BEFORE INCOME TAXES........................... 216,543 188,129
INCOME TAXES......................................... 81,942 72,430
---------- ----------
NET INCOME........................................... $ 134,601 $ 115,699
========== ==========
PRIMARY EARNINGS PER COMMON SHARE.................... $.99 $.90
==== ====
FULLY DILUTED EARNINGS PER COMMON SHARE... $.99 $.89
==== ====
DIVIDENDS PER COMMON SHARE .......................... $.18 $.18
==== ====
PRIMARY SHARES....................................... 140,627 128,358
======= =======
FULLY DILUTED SHARES................................. 140,670 131,643
======= =======
</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)
SEPTEMBER 28, 1997 DECEMBER 29, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............. $ 226,392 $ 218,956
Short-term investments................ 4,488 4,795
Accounts receivable, net.............. 65,204 53,250
Notes receivable, net................. 12,563 11,003
Deferred income taxes................. 14,227 15,760
Inventories and other................. 39,238 33,199
---------- ----------
362,112 336,963
---------- ----------
PROPERTY AND EQUIPMENT, AT COST........... 1,827,292 1,749,902
Accumulated depreciation and
amortization........................ (552,455) (541,958)
---------- ----------
1,274,837 1,207,944
---------- ----------
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET......................... 54,068 51,636
DEFERRED INCOME TAXES..................... 12,473 12,938
OTHER ASSETS.............................. 210,508 171,953
---------- ----------
$1,913,998 $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)
SEPTEMBER 28, 1997 DECEMBER 29, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and drafts payable...................... $ 62,048 $ 108,629
Accrued expenses:
Salaries and wages............................ 25,822 24,741
Taxes......................................... 21,552 18,502
Insurance..................................... 30,287 30,337
Other......................................... 26,612 20,146
Income taxes..................................... 9,554 (1,272)
Current portion of long-term
obligations................................... 7,116 6,681
---------- ----------
182,991 207,764
---------- ----------
LONG-TERM OBLIGATIONS
Term debt........................................ 206,024 197,622
Capital leases................................... 41,613 44,206
---------- ----------
247,637 241,828
---------- ----------
DEFERRED INCOME TAXES................................ 65,977 62,956
OTHER LONG-TERM LIABILITIES.......................... 13,196 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: 115,803,000 and
113,148,000 shares, respectively............... 11,580 11,315
Capital in excess of stated value................ 350,987 312,570
Retained earnings................................ 850,969 740,311
Unrealized loss on investments................... (1,121) (969)
Translation adjustments.......................... (6,506) (4,743)
---------- ----------
1,205,909 1,058,484
Treasury stock at cost: 129,000 shares (1,712) (1,712)
---------- ----------
1,204,197 1,056,772
---------- ----------
$1,913,998 $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
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------ -------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES....................................... $ 168,293 $ 136,764
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from asset dispositions................. 69,581 76,091
Capital expenditures............................. (215,257) (206,283)
Acquisition of franchises........................ (6,841) (31,573)
Proceeds from marketable securities.............. - 2,484
Other investing activities....................... (5,754) (479)
--------- ---------
Net cash used in investing activities.......... (158,271) (159,760)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible
preferred securities, net...................... - 195,500
Proceeds from issuance of common stock........... 28,677 7,360
Principal payments on long-term
obligations.................................... (7,600) (27,803)
Dividends paid on common stock................... (23,663) (23,409)
Payment due officer, net......................... - (63,221)
--------- ---------
Net cash provided by (used in) financing
activities................................... (2,586) 88,427
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS................ 7,436 65,431
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD......................................... 218,956 206,127
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 226,392 $ 271,558
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid.................................... $17,267 $18,349
Interest received................................ 17,174 9,477
Income taxes paid................................ 54,099 46,005
Debt converted to common stock................... - 99,915
Capital lease obligations incurred............... 2,316 495
Acquisition of franchises:
Fair value of assets acquired, net............... 19,106 36,221
Cash paid........................................ 6,841 31,573
Liabilities assumed.............................. 12,265 4,648
</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 September 28, 1997
and December 29, 1996 and the results of operations for the quarters and
year-to-date periods ended September 28, 1997 and September 29, 1996 and
cash flows for the year-to-date periods ended September 28, 1997 and
September 29, 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 third quarter of 1997 and 1996, 56 Wendy's restaurants were
franchised for a net pretax gain of $21.8 million and 41 restaurants for a
net pretax gain of $14.8 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 Tim
Hortons (Hortons) restaurants. The purchase price was $8.9 million for the
Rax sites and $17.8 million for the Roy Rogers sites.
In the third quarter of 1997, the company acquired 25 restaurants in the
Salt Lake City area from an existing franchise owner. The purchase price
was $6.6 million.
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, including exchangeable shares.
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 $.40 and $.36 for the third
quarter of 1997 and 1996, respectively, and $1.02 and $.92 for the
year-to-date 1997 and 1996, respectively. Pro forma diluted EPS would have
been $.39 and $.36 for the third quarter of 1997 and 1996, respectively,
and $.99 and $.89 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 13% to $53.0 million in the third quarter of 1997, compared
with $46.9 million in the third quarter of 1996. Fully diluted earnings per
common share increased 8% to $.39 in 1997 versus $.36 in 1996. The year-to-date
comparison showed an increase of 16% in net income, to $134.6 million in 1997
from $115.7 million in 1996. Fully diluted earnings per common share increased
to $.99 in 1997 from $.89 in 1996, a 11% increase.
RETAIL SALES
- ------------
Total retail sales increased 1.1% for the third quarter of 1997 compared with
the third quarter of 1996. This was primarily a result of a 26.3% increase in
Hortons' warehouse sales, which was due to increases in the number of Hortons
stores open and increases in same store sales. Wendy's domestic retail sales
declined 3.1% reflecting the company operated restaurants sold to franchisees in
the past year, somewhat offset by an increase of 1.8% in average net sales and
new restaurants opened. Year-to-date retail sales increased $78.6 million in
1997 compared with 1996 reflecting an increase in Wendy's domestic average net
sales of 6.8% and a 24.2% increase in Hortons' warehouse operations. Retail
sales also increased in Wendy's Canadian operations reflecting a year-to-date
increase of 13.8%. Domestic selling prices increased 1.3% in the third quarter
of 1997 and 1.5% for the year-to-date 1997.
Average net sales per domestic Wendy's restaurant for the quarters and
year-to-date periods ended September 28, 1997 and September 29, 1996 were as
follows:
<TABLE>
<CAPTION>
Third Quarter % Year-to-Date %
1997 1996 INCREASE 1997 1996 INCREASE
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Company...................... $288,000 $282,800 1.8 $837,850 $784,600 6.8
Franchise.................... 265,100 263,200 .7 770,600 734,350 4.9
Total Domestic............... 270,900 268,650 .8 788,350 748,600 5.3
</TABLE>
The number of systemwide restaurants open as of September 28, 1997 and September
29, 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Company............................... 1,232 1,296
Franchise............................. 3,901 3,545
----- -----
Total Wendy's......................... 5,133 4,841
===== =====
Total Hortons......................... 1,493 1,323
===== =====
</TABLE>
COST OF SALES AND RESTAURANT OPERATING COSTS
- --------------------------------------------
The domestic Wendy's company operating margin increased in the third quarter
1997 to 15.0% versus 14.3% for 1996. The operating margin improved to 15.1% for
the year-to-date 1997 compared with 13.4% in 1996. Wendy's domestic restaurant
operating costs, as a percent of retail sales, were slightly higher in the third
quarter reflecting higher insurance costs, while the year-to-date percent showed
an improvement over 1996 reflecting reduced local and coupon marketing
expenditures and the leveraging benefit of higher average sales per restaurant.
9
<PAGE> 10
Domestic Wendy's cost of sales improved in the third quarter, as a percent of
sales, reflecting reduced food costs offset by an increase in the domestic store
labor rate. The year-to-date comparison showed improvement due to reduced food
costs.
Hortons' warehouse margins declined from the prior year reflecting increased
coffee prices not passed on to franchisees.
FRANCHISE REVENUES
- ------------------
Royalties before reserve provisions increased $4.5 million and $15.4 million in
the third quarter and year-to-date period over 1996, respectively. This was
primarily a result of an increase in franchise restaurants open and a .7%
increase for the third quarter and a 4.9% increase for the year-to-date period
in average sales of domestic Wendy's franchise restaurants. No reserves were
provided against royalties in the third quarter 1997 and reserves of $1.0
million were provided for the year-to-date period. Royalty reserves of $432,000
were provided in the third quarter and year-to-date 1996.
Gains from franchising Wendy's restaurants increased $7.0 million and rental
income from properties leased to franchisees increased $5.2 million in the third
quarter 1997 compared with 1996. The year-to-date comparison reflected an
increase of $10.9 million in gains from franchising Wendy's restaurants and an
increase in rental income of $14.3 million. The increase in rental income
reflects more Wendy's and Hortons' properties leased to franchisees.
OTHER EXPENSES (INCOME)
- -----------------------
For the year-to-date 1997, charges of $1.5 million were made for an arbitration
decision relating to international operations, $3.4 million for store closures
and conversion activity and $1.1 million more asset write-offs related to
restaurant remodeling, principally removal of salad bars.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses for the third quarter of 1997 were 7.5% of
total revenues versus 6.3% in 1996. This primarily reflects the reduction of
$4.4 million in reserves for environmental issues related to Hortons in the
third quarter of 1996 versus $730,000 in 1997. For the year-to-date 1997,
general and administrative expenses were 7.7% versus 6.9% in 1996. The increase
reflects lower provisions for performance-based management bonuses in 1996 and
the environmental reserve reduction in 1996.
INCOME TAXES
- ------------
The effective income tax rate decreased to 35.4% in the third quarter 1997 and
to 37.8% for the year-to-date 1997 reflecting a nonrecurring tax benefit from
writing off certain foreign investments for tax purposes. The company expects
its tax rate to be approximately 38.2% for the full year 1997.
FINANCIAL CONDITION
-------------------
The company's financial condition remains solid at the end of the third quarter
of 1997. The debt to equity and debt to total capitalization ratios were 21% and
17%, respectively, at September 28, 1997. Cash provided by operating activities
increased from $137 million in 1996 to $168 million in 1997. Capital
expenditures amounted to $215 million for 1997 compared with $206 million for
1996 reflecting increased restaurant development.
10
<PAGE> 11
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. The company faced an extremely competitive environment, including
widespread discounting in domestic markets, and higher than normal domestic
labor rate increases. These conditions may continue in the short term and
could moderate earnings growth. 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 700 new Wendy's and Tim Hortons restaurants
will be opened or under construction systemwide (both company and franchise)
during 1997. Year-to-date 1997 there were 396 new restaurants opened with
another 146 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.
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 6. Exhibits and Reports on Form 8-K.
(a) Index to Exhibits on Page 14.
(b) No report on Form 8-K was filed during the quarter ended September 28, 1997.
12
<PAGE> 13
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: 11/10/97 /s/ FREDERICK R. REED
-------- ---------------------------------
Frederick R. Reed
Chief Financial Officer, General
Counsel and Secretary
13
<PAGE> 14
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<S> <C> <C>
11 Computation of Net Income 15-16
Per Common Share
99 Safe Harbor Under 17-18
the Private Securities
Litigation Reform Act of 1995
</TABLE>
14
<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
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------ ------------------
<S> <C> <C>
Weighted average number
of common shares outstanding........................... 115,432 112,477
Shares issuable pursuant to employee stock option
plans less shares assumed repurchased at the
average market price............................... 1,736 2,657
Shares issuable upon conversion of company-
obligated mandatorily redeemable preferred
securities......................................... 7,573 749
Shares issuable upon conversion of exchangeable
shares............................................. 16,450 16,450
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
PRIMARY EARNINGS PER COMMON SHARE...................... 141,191 132,333
Add net additional shares issuable pursuant to
employee stock option plans at period-end
market price....................................... 23 221
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
FULLY DILUTED EARNINGS PER COMMON SHARE............... 141,214 132,554
======= =======
Net income ............................................... $ 52,968 $ 46,941
Add distribution savings on assumed conversion of
company-obligated mandatorily redeemable
preferred securities, net of tax..................... 1,539 154
-------- --------
Net income for computation of primary and
fully...........diluted earnings per common share......... $ 54,507 $ 47,095
======== ========
Net income per common share:
Assuming primary dilution.............................. $.39 $.36
==== ====
Assuming full dilution................................. $.39 $.36
==== ====
</TABLE>
15
<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
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------- -------------------
<S> <C> <C>
Weighted average number
of common shares outstanding........................... 114,945 109,062
Shares issuable pursuant to employee stock option
plans less shares assumed repurchased at the
average market price............................... 1,659 2,596
Shares issuable upon conversion of company-
obligated mandatorily redeemable preferred
securities......................................... 7,573 250
Shares issuable upon conversion of exchangeable
shares............................................. 16,450 16,450
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
PRIMARY EARNINGS PER COMMON SHARE...................... 140,627 128,358
Add net additional shares issuable pursuant to
employee stock option plans at period-end
market price....................................... 43 93
Add additional shares issuable
assuming conversion of
subordinated debentures............................ - 3,192
-------- --------
NUMBER OF SHARES FOR COMPUTATION OF
FULLY DILUTED EARNINGS PER COMMON SHARE............... 140,670 131,643
======= =======
Net income ............................................... $134,601 $115,699
Add distribution savings on assumed conversion of
company-obligated mandatorily redeemable
preferred securities, net of tax..................... 4,617 154
-------- --------
Net income for computation of primary earnings
per common share....................................... 139,218 115,853
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............................ $139,218 $116,867
======== ========
Net income per common share:
Assuming primary dilution.............................. $.99 $.90
==== ====
Assuming full dilution................................. $.99 $.89
==== ====
</TABLE>
16
<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> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 226,392
<SECURITIES> 4,488
<RECEIVABLES> 77,767
<ALLOWANCES> 0
<INVENTORY> 39,238
<CURRENT-ASSETS> 362,112
<PP&E> 1,827,292
<DEPRECIATION> 552,455
<TOTAL-ASSETS> 1,913,998
<CURRENT-LIABILITIES> 182,991
<BONDS> 406,024
<COMMON> 11,580
0
0
<OTHER-SE> 1,192,617
<TOTAL-LIABILITY-AND-EQUITY> 1,204,197
<SALES> 1,248,685
<TOTAL-REVENUES> 1,524,600
<CGS> 772,756
<TOTAL-COSTS> 1,110,110
<OTHER-EXPENSES> 194,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,526
<INCOME-PRETAX> 216,543
<INCOME-TAX> 81,942
<INCOME-CONTINUING> 134,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,601
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</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.
17
<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.
18
