EX-99 2 l24479aexv99.htm EX-99 EX-99
 

Exhibit 99
(WENDY’S LOGO)
Wendy’s International, Inc. announces 2006 financial results
Total revenues were $2.4 billion
Income from continuing operations was $37.0 million and $0.32 per share; adjusted EBITDA from continuing operations was $220.7 million
Company finishes year with seven consecutive months of positive same-store sales
     DUBLIN, Ohio (February 2, 2007) — Wendy’s International, Inc. (NYSE: WEN) today announced its financial results for the full year 2006 and the fourth quarter ended Sunday, December 31, 2006.
     The Company completed its spinoff of Tim Hortons® in the third quarter and completed the sale of Baja Fresh® Mexican Grill during the fourth quarter. During the fourth quarter, the Company also approved the prospective sale of Cafe Express. Accordingly, the after-tax operating results of Tim Hortons, Baja Fresh and Cafe Express now appear in the “Discontinued Operations” line on the income statement.
2006 Full-Year Results
•   Total 2006 revenues were $2.4 billion, approximately flat with 2005.
•   The Company and its franchisees opened a total of 122 new Wendy’s® restaurants during the year. The openings consisted of 25 company-operated restaurants in North America and 80 franchised restaurants in North America, as well as 16 International franchised restaurants and one International company-operated restaurant.
•   Same-store sales increased 0.8% for U.S. company-owned restaurants and 0.6% for U.S. franchised restaurants in 2006. The Company ended the year with seven consecutive months and three consecutive quarters of positive same-store sales.
     “Our new strategic plan, ‘Quality-Driven: Wendy’s Recipe for Success,’ enabled us to take important actions that will help us substantially enhance profitability and create additional shareholder value,” said Chief Executive Officer and President Kerrii Anderson. “Our plan focuses on the core elements that have made the Wendy’s brand synonymous with quality and freshness.
     “We ended 2006 with strong momentum, positive same-store sales and significantly reduced costs,” Anderson said. “We intend to build on this momentum and drive even stronger results in 2007 and beyond, as we examine every facet of our business for improvement.”
     Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations was $220.7 million in 2006, compared to $260.9 million in 2005. (See “Disclosure regarding non-GAAP financial measures” for reconciliations of adjusted EBITDA and EBITDA.)

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     EBITDA from continuing operations was $164.0 million in 2006, compared to $304.9 million in 2005.
     Reported 2006 pretax income from continuing operations was $42.5 million compared to $136.8 million in 2005. The Company reported after-tax income from continuing operations of $37.0 million, or $0.32 per share, in 2006 compared to $82.1 million, or $0.70 per share, in 2005.
     The Company reported full-year net income of $94.3 million and total diluted earnings per share of $0.82 in 2006, compared to $224.1 million and total diluted earnings per share of $1.92, respectively, in 2005. The 2005 results include Tim Hortons and other discontinued operations for the full year in 2005, which contributed $141.9 million to 2005 net income, compared to a $57.3 million contribution for 2006. Discontinued operations included Tim Hortons only for the first three quarters of 2006.
     Company-operated restaurant EBITDA margins were 8.9% in 2006 compared to 8.6% in 2005, reflecting improvements in cost of sales. Company-operated restaurant EBITDA margins consist of sales from company-operated restaurants minus cost of sales from company-operated restaurants minus company restaurant operating costs divided by sales from company-operated restaurants.
     The Company’s full-year 2006 reported results from continuing operations include the impact of the following items:
•   Sales — $2.2 billion in 2006, approximately flat compared to 2005. Positive same-store sales at company-operated restaurants were mostly offset by fewer U.S. company-operated stores open during the year, as the Company closed 29 underperforming company-operated restaurants in 2006.
•   Franchise Revenue — $284.7 million in 2006 vs. $317.1 million in 2005. The year-over-year decrease relates primarily to:
  •   Approximately $16.8 million less in rental income in 2006 compared to a year ago due to the sale of Wendy’s properties leased to franchisees during 2005 and early 2006, and
  •   No significant gains on property sales during 2006, compared to $16.3 million in gains on the sale of properties leased to franchisees in 2005.
•   Cost of Sales — $1.4 billion, or 62.8% of sales, in 2006 vs. $1.4 billion, or 63.7% of sales, in 2005. The year-over-year decrease as a percentage of sales is due to favorable commodity costs in 2006, primarily beef, and effective menu management.
•   Company Restaurant Operating Costs — $602.3 million, or 28.0% of sales, in 2006 vs. $581.9 million, or 27.2% of sales, in 2005. The year-over-year increase is due primarily to higher costs related to performance-based incentive compensation of $4.4 million for field staff in 2006, as well as higher costs for utilities, property management, insurance and supplies.
•   Operating Costs — $46.7 million in 2006 compared to $20.4 million in 2005. The year-over-year increase is primarily due to $25 million incremental advertising expense in 2006.
•   General and Administrative expense — $237.6 million, or 9.7% of revenues, in 2006 compared to $220.9 million, or 9.0% of revenues, in 2005. The year-over-year increase, which was partly offset by cost savings realized during 2006, is due to:

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  •   Incremental expense for performance-based incentive compensation of $10.9 million for corporate officers and employees in 2006, as the Company will pay bonuses commensurate with stronger second-half operating results for Wendy’s core business compared to 2005.
  •   Approximately $7.4 million in expense for research and development primarily related to the breakfast program that is currently in approximately 150 U.S. restaurants.
  •   Incremental consulting fees and professional services of $9.2 million during 2006.
•   Other Expense (Income) — $37.5 million of expense in 2006 compared to income of $34.3 million in 2005. The $71.8 million year-over-year difference relates primarily to:
  •   $46.4 million in 2005 gains on the sale of real estate to third parties that had previously been leased to franchisees,
  •   Store closure and sale charges of $26.6 million in 2005, compared to $17.9 million in 2006, and
  •   $38.9 million in restructuring and severance charges during 2006.
•   Interest — $35.7 million of interest expense in 2006 compared to $43.1 million in 2005 and $37.9 million of interest income in 2006 compared to $4.0 million in 2005. The increase in interest income primarily relates to funds received from Tim Hortons after its initial public offering in March, while the decrease in interest expense relates primarily to the Company’s repayment of its 6.35% Notes in December 2005.
•   Taxes — An effective tax rate of 12.8% in 2006 compared to 40.0% in 2005. The 2006 rate is lower due primarily to the favorable settlement of Federal and various state tax examinations, as well as Federal tax credits for hiring employees in the Gulf Zone subsequent to Hurricane Katrina.
2006 Fourth-Quarter Results
•   Total revenues were $596.4 million in the fourth quarter of 2006, compared to $602.9 million in the fourth quarter of 2005.
•   The Company and its franchisees opened a total of 21 new Wendy’s restaurants during the quarter. The openings consisted of one company-owned North American restaurant and 15 franchised North American restaurants, as well as four International franchised restaurants and one International company-operated restaurant.
•   Same-store sales were 3.1% for U.S. company-owned restaurants and 2.7% for U.S. franchised restaurants.
     Adjusted EBITDA from continuing operations was $38.4 million in the fourth quarter of 2006, compared to $46.0 million in 2005.
     EBITDA from continuing operations was $30.5 million in the fourth quarter of 2006, compared to $83.7 million in the fourth quarter of 2005.
     Reported fourth-quarter pretax income from continuing operations was $3.1 million compared to $42.5 million in the fourth quarter of 2005. The Company reported after-tax income from continuing operations of $9.9 million, or $0.09 per share, in the fourth quarter of 2006 compared to $26.1 million, or $0.22 per share, in the fourth quarter of 2005.

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     The Company reported 2006 fourth-quarter net income of $3.0 million and total diluted earnings per share of $0.03, compared to $30.0 million and total diluted earnings per share of $0.25, respectively, in the fourth quarter of 2005. The 2005 results include the impact of Tim Hortons and other discontinued operations, which contributed approximately $3.9 million to fourth-quarter net income, compared to a $6.9 million loss in the fourth quarter of 2006. Discontinued operations did not include Tim Hortons in the fourth quarter of 2006.
     Company-operated store EBITDA margins were 8.4% in the fourth quarter of 2006 compared to 7.7% in the fourth quarter of 2005, reflecting improvements in cost of sales.
     The Company’s fourth-quarter 2006 reported results from continuing operations include the impact of the following items:
•   Sales — $526.7 million in the fourth quarter of 2006 vs. $515.6 million in the fourth quarter of 2005. The year-over-year increase is due to positive same-store sales at company-operated restaurants, partly offset by 22 fewer average U.S. company stores open during the fourth quarter.
•   Franchise Revenue — $69.7 million in the fourth quarter of 2006, compared to $87.3 million in the fourth quarter of 2005. The decrease is due primarily to:
  •   A $4.7 million decline in rental income due to sales of U.S. leased properties in 2005 and early 2006, and
  •   A $14.9 million reduction in gains on sales of properties to franchisees.
•   Cost of Sales — $331.0 million, or 62.8% of sales, in the fourth quarter of 2006 vs. $328.0 million, or 63.6% of sales, in the fourth quarter of 2005. The year-over-year percentage decrease is due to favorable commodity costs, primarily beef, and effective menu management.
•   Company Restaurant Operating Costs — $149.5 million, or 28.4% of sales, in the fourth quarter of 2006 vs. $145.1 million, or 28.1% of sales, in the fourth quarter of 2005. The slight year-over-year increase as a percentage of sales is due to rent expense paid by Wendy’s to the 50/50 joint venture between Wendy’s and Tim Hortons. Due to the September spinoff of Tim Hortons, the joint venture is no longer consolidated, and therefore the rent expense is no longer eliminated.
•   Operating Costs — $4.2 million in the fourth quarter of 2006 compared to $5.9 million in the fourth quarter of 2005. The year-over-year decrease is primarily due to $1.7 million in rental expense paid by the 50/50 joint venture between Wendy’s and Tim Hortons. Due to the September spinoff of Tim Hortons, the joint venture is no longer consolidated, and therefore this rent expense is no longer reflected in operating costs.
•   General and Administrative expense — $67.4 million, or 11.3% of revenues, in the fourth quarter of 2006 compared to $65.4 million, or 10.8% of revenues, in the fourth quarter of 2005. The year-over-year increase, which was largely offset by cost savings realized during the quarter, relates to:
  •   Incremental expense for performance-based incentive compensation of $5.5 million in the fourth quarter of 2006, and
  •   Approximately $5.7 million in expense for research and development primarily related to the Company’s breakfast expansion.

4

 

•   Other Expense (Income) — $14.0 million of expense in the fourth quarter of 2006 compared to $24.9 million of income in the fourth quarter of 2005. The $38.9 million year-over-year difference relates primarily to:
  •   A $46.4 million gain in the fourth quarter of 2005 from the sale of real estate to third parties that had previously been leased to franchisees.
  •   $7.9 million in restructuring and severance charges during the fourth quarter of 2006.
  •   Store closures and sale charges of $24.9 million in the fourth quarter of 2005 compared to $10.1 million in the fourth quarter of 2006.
•   Interest — $9.0 million of interest expense in the fourth quarter of 2006, compared to $10.7 million in the fourth quarter of 2005 and $10.2 million of interest income in the fourth quarter of 2006 compared to $1.4 million in the fourth quarter of 2005. The increase in interest income primarily relates to funds received from Tim Hortons after its initial public offering in March.
•   Taxes — Taxes benefited net income in the fourth quarter of 2006, compared to a 38.7% tax expense rate in the fourth quarter of 2005. The year-over-year difference is due to the December 2006 reauthorization of the Work Opportunity Tax Credit by Congress for the full year 2006, which resulted in the entire retroactive annual impact being recorded in the fourth quarter. Also impacting the fourth quarter rate was the favorable settlement of certain tax examinations.
•   Share Count — A lower diluted share count (108.8 million average shares in the fourth quarter of 2006 vs. 118.4 million average shares in the fourth quarter of 2005).
Company repurchased 26.2 million shares for more than $1 billion in 2006
     As part of its plan to return more than $1 billion in cash to shareholders, the Company repurchased 26.2 million shares during 2006, including 22.4 million shares for $803.4 million in a modified Dutch tender offer in the fourth quarter.
     “Our share repurchase program has increased liquidity for our shareholders, and it was consistent with the commitment we made to shareholders in 2005, which is to use the cash generated from our strategic initiatives to return value to our shareholders,” Anderson said.
     The Company purchased the shares using existing cash on its balance sheet.
Board approves 116th consecutive dividend
     The Board of Directors approved a quarterly dividend of 8.5 cents per share, payable on February 27, 2007 to shareholders of record as of February 12, 2007. The dividend will be the Company’s 116th consecutive dividend.
Company to host analyst meeting on Monday, February 5
     The Company will host a meeting for analysts and investors to discuss its updated strategic plan and financial outlook for 2007 on Monday, February 5 from 11:00 a.m. to approximately 3:30 p.m. EST. The meeting, which will be available as a conference call and webcast, will be held at the Company’s headquarters in Dublin, Ohio. The webcast will begin at approximately 11:50 a.m.
     The dial-in number is (877) 572-6014 (North America) or (706) 679-4852 (outside of North America). No need to register in advance. Interested parties

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may also listen to a simultaneous web cast at www.wendys-invest.com; the call will be archived at that site.
Disclosure regarding non-GAAP financial measures
EBITDA is used by management as a performance measure for benchmarking against its peers and competitors. The Company believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in the restaurant industry. EBITDA is not a recognized term under GAAP.
The Company also uses adjusted EBITDA, which accounts for certain items unrelated to ongoing operations, as an internal measure of business operating performance. Management believes adjusted EBITDA provides a meaningful perspective of the underlying operating performance of the business.
Below is a reconciliation of 2006 reported operating income to 2006 EBITDA and 2006 adjusted EBITDA:
         
2006 reported operating income
   $40.3 million
2006 depreciation and amortization
   $123.7 million
 
2006 EBITDA from continuing ops
   $164.0 million
2006 restructuring charges
   $38.9 million
2006 incremental advertising expense
   $25.0 million
2006 joint venture impact1
   $(7.2 million)
 
2006 adjusted EBITDA from continuing ops
   $220.7 million
Below is a reconciliation of 2006 4Q reported operating income to 2006 4Q EBITDA and 2006 4Q adjusted EBITDA:
         
2006 4Q reported operating income
   $1.8 million
2006 4Q depreciation and amortization
   $28.7 million
 
2006 4Q EBITDA from continuing ops
   $30.5 million
2006 4Q restructuring charges
   $7.9 million
 
2006 adjusted 4Q EBITDA from continuing ops
   $38.4 million
Below is a reconciliation of 2005 reported operating income to 2005 EBITDA and 2005 adjusted EBITDA:
         
2005 reported operating income:
   $175.9 million
2005 depreciation and amortization:
   $129.0 million
 
2005 EBITDA from continuing ops:
   $304.9 million
2005 net gain on property sales
   $(35.6 million)
2005 joint venture impact1
   $(8.4 million)
 
2005 adjusted EBITDA from continuing ops
   $260.9 million
Below is a reconciliation of 2005 4Q reported operating income to 2005 4Q EBITDA and 2005 4Q adjusted EBITDA:
         
2005 4Q reported operating income:
   $51.8 million
2005 4Q depreciation and amortization:
   $31.9 million
 
2005 4Q EBITDA from continuing ops:
   $83.7 million
2005 4Q net gain on property sales
   $(35.6 million)
2005 4Q joint venture impact1
   $(2.1 million)
 
2005 adjusted 4Q EBITDA from continuing ops
   $46.0 million
1With the spinoff of Tim Hortons, the Company will lose 50% of the income from its 50/50 joint venture with Tim Hortons.
Wendy’s International, Inc. overview
     Wendy’s International, Inc. is one of the world’s largest and most successful restaurant operating and franchising companies. More information about the Company is available at www.wendys-invest.com.
ANALYST / MEDIA CONTACTS:
John Barker: (614) 764-3044 or john_barker@wendys.com
David Poplar (614) 764-3547 or david_poplar@wendys.com

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WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
                                 
    (Unaudited)              
    Year-to-Date Ended              
    12/31/2006     1/1/2006     $ Change     % Change  
REVENUES
                                
Sales
   $ 2,154,607     $ 2,138,365     $ 16,242       0.8 %
Franchise revenues
     284,670       317,053       (32,383 )     -10.2 %
 
                        
TOTAL REVENUES
     2,439,277       2,455,418       (16,141 )     -0.7 %
 
                        
 
                                
COSTS & EXPENSES
                                
Cost of sales
     1,352,312       1,362,631       (10,319 )     -0.8 %
Company restaurant operating costs
     602,298       581,869       20,429       3.5 %
Operating costs
     46,674       20,419       26,255       128.6 %
Depreciation of property & equipment
     122,636       127,998       (5,362 )     -4.2 %
General & administrative expenses
     237,575       220,891       16,684       7.6 %
Other expense (income), net
     37,468       (34,263 )     71,731       n/m  
 
                        
TOTAL COSTS & EXPENSES
     2,398,963       2,279,545       119,418       5.2 %
 
                        
 
                                
OPERATING INCOME
     40,314       175,873       (135,559 )     -77.1 %
 
                                
Interest expense
     (35,711 )     (43,076 )     7,365       17.1 %
Interest income
     37,876       3,987       33,889       n/m  
 
                        
 
                                
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
     42,479       136,784       (94,305 )     -68.9 %
 
                                
INCOME TAXES
     5,433       54,657       (49,224 )     n/m  
 
                        
 
                                
INCOME from continuing operations
     37,046       82,127       (45,081 )     -54.9 %
 
                                
INCOME from discontinued operations
     57,266       141,940       (84,674 )     -59.7 %
 
                        
 
                                
NET INCOME
     94,312       224,067       (129,755 )     -57.9 %
 
                        
 
                                
Diluted earnings per common share from continuing operations
   $ 0.32     $ 0.70     ($ 0.38 )     -54.3 %
 
                        
 
                                
Diluted earnings per common share from discontinued operations
   $ 0.50     $ 1.22     ($ 0.72 )     -59.0 %
 
                        
 
                                
Total Diluted earnings per common share
   $ 0.82     $ 1.92     ($ 1.10 )     -57.3 %
 
                        
 
                                
Diluted shares
     115,325       116,819       (1,494 )     -1.3 %
 
                        
 
n/m — not meaningful    
Note:  The financial statements include a revision in the presentation of the impact of kids’ meal toys sold to franchisees. The revised presentation includes a “gross-up” of sales and cost of sales for these items. Previously these amounts were “netted”. This revision has no impact to operating income or net income.

 

 

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
                                 
    (Unaudited)              
    Fourth Quarter Ended              
    12/31/2006     1/1/2006     $ Change     % Change  
REVENUES
                                
Sales
   $ 526,720     $ 515,597     $ 11,123       2.2 %
Franchise revenues
     69,658       87,270       (17,612 )     -20.2 %
 
                        
TOTAL REVENUES
     596,378       602,867       (6,489 )     -1.1 %
 
                        
 
                                
COSTS & EXPENSES
                                
Cost of sales
     331,034       327,964       3,070       0.9 %
Company restaurant operating costs
     149,517       145,065       4,452       3.1 %
Operating costs
     4,177       5,888       (1,711 )     -29.1 %
Depreciation of property & equipment
     28,437       31,669       (3,232 )     -10.2 %
General & administrative expenses
     67,413       65,380       2,033       3.1 %
Other expense (income), net
     13,984       (24,862 )     38,846       n/m  
 
                        
TOTAL COSTS & EXPENSES
     594,562       551,104       43,458       7.9 %
 
                        
 
                                
OPERATING INCOME
     1,816       51,763       (49,947 )     -96.5 %
 
                                
Interest expense
     (8,958 )     (10,658 )     1,700       16.0 %
Interest income
     10,222       1,437       8,785       n/m  
 
                        
 
                                
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
     3,080       42,542       (39,462 )     -92.8 %
 
                                
INCOME TAXES
     (6,869 )     16,463       (23,332 )     n/m  
 
                        
 
                                
INCOME from continuing operations
   $ 9,949     $ 26,079     ($ 16,130 )     -61.9 %
 
                                
(LOSS) INCOME from discontinued operations
   ($ 6,922 )   $ 3,884       (10,806 )     -278.2 %
 
                        
 
                                
NET INCOME
   $ 3,027     $ 29,963     ($ 26,936 )     -89.9 %
 
                        
 
                                
Diluted earnings per common share from continuing operations
   $ 0.09     $ 0.22     ($ 0.13 )     -59.1 %
 
                        
 
                                
Diluted earnings per common share from discontinued operations
   ($ 0.06 )   $ 0.03     ($ 0.09 )     -300.0 %
 
                        
 
                                
Total Diluted earnings per common share
   $ 0.03     $ 0.25     ($ 0.22 )     -88.0 %
 
                        
 
                                
Diluted shares
     108,795       118,398       (9,603 )     -8.1 %
 
                        
 
n/m — not meaningful    
Note:  The financial statements include a revision in the presentation of the impact of kids’ meal toys sold to franchisees. The revised presentation includes a “gross-up” of sales and cost of sales for these items. Previously these amounts were “netted”. This revision has no impact to operating income or net income.

 

 

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    December 31,     January 1,  
    2006     2006  
    (Unaudited)  
    (Dollars in thousands)  
ASSETS
                
 
                
Current assets
                
Cash and cash equivalents
   $ 457,614     $ 230,560  
Accounts receivable, net
     84,841       62,190  
Deferred income taxes
     58,407       23,847  
Inventories and other
     30,252       29,798  
Advertising fund restricted assets
     36,207       35,651  
Assets held for disposition
     15,455       65,693  
Current assets of discontinued operations
     2,712       308,827  
 
            
 
     685,488       756,566  
 
            
 
                
Property and equipment
     2,024,715       2,093,933  
Accumulated depreciation
     (798,387 )     (745,459 )
 
            
 
     1,226,328       1,348,474  
 
            
 
                
Goodwill
     85,353       81,875  
 
                
Deferred income taxes
     4,316       2,855  
 
                
Intangible assets, net
     3,855       4,843  
 
                
Other assets
     82,738       77,097  
 
                
Non current assets of discontinued operations
     9,978       1,168,608  
 
            
 
   $ 2,098,056     $ 3,440,318  
 
            

 

 

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    December 31,     January 1,  
    2006     2006  
    (Unaudited)  
    (Dollars in thousands)  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
 
                
Current liabilities
                
Accounts payable
   $ 93,465     $ 92,340  
Accrued expenses:
                
Salaries and wages
     47,329       34,871  
Taxes
     46,138       60,984  
Insurance
     57,353       58,147  
Other
     32,199       34,079  
Advertising fund restricted liabilities
     28,568       35,651  
Current portion of long-term obligations
     94,109       2,497  
Current liabilities of discontinued operations
     2,218       264,783  
 
            
 
     401,379       583,352  
 
            
 
                
Long-term obligations
                
Term debt
     530,426       521,800  
Capital leases
     18,963       18,336  
 
            
 
     549,389       540,136  
 
            
 
                
Deferred income taxes
     81,627       78,065  
Other long-term liabilities
     66,163       68,017  
Non current liabilities of discontinued operations
     1,519       112,159  
 
                
Commitments and contingencies
                
 
                
Shareholders’ equity
                
Preferred stock, Authorized: 250,000 shares
                
Common stock, $.10 stated value per share,
                
Authorized: 200,000,000 shares,
                
Issued: 129,548,000 and 125,490,000 shares, respectively
     12,955       12,549  
Capital in excess of stated value
     1,089,825       405,588  
Retained earnings
     1,241,489       1,858,743  
Accumulated other comprehensive income (expense):
                
Cumulative translation adjustments and other
     9,100       115,252  
Pension liability
     (36,244 )     (1,096 )
 
            
 
     2,317,125       2,391,036  
 
                
Treasury stock, at cost:
                
33,844,000 and 7,681,000 shares, respectively
     (1,319,146 )     (294,669 )
Unearned compensation — restricted stock
     0       (37,778 )
 
            
 
     997,979       2,058,589  
 
            
 
   $ 2,098,056     $ 3,440,318  
 
            

 

 

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS
                                         
                    Increase/           Increase/
    As of   As of   (Decrease)   As of   (Decrease)
    December 31, 2006   October 1, 2006   From Prior Quarter   January 1, 2006   From Prior Year
     
Wendy’s
                                        
U.S.
                                        
Company
     1,310       1,320       (10 )     1,345       (35 )
Franchise
     4,638       4,692       (54 )     4,673       (35 )
     
 
     5,948       6,012       (64 )     6,018       (70 )
 
                                        
Canada
                                        
Company
     146       148       (2 )     152       (6 )
Franchise
     231       231       0       225       6  
     
 
     377       379       (2 )     377       0  
 
                                        
Other International
                                        
Company
     9       5       4       5       4  
Franchise
     340       345       (5 )     346       (6 )
     
 
     349       350       (1 )     351       (2 )
 
                                        
Total Wendy’s
                                        
Company
     1,465       1,473       (8 )     1,502       (37 )
Franchise
     5,209       5,268       (59 )     5,244       (35 )
     
 
     6,674       6,741       (67 )     6,746       (72 )
     

 

 

     
 
  WENDY’S INTERNATIONAL, INC.
 
  Income Statement Definitions
 
    
Sales
  Includes sales from company operated restaurants. Also included are the sales to franchisees from Wendy’s bun baking facilities.
 
    
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.
 
    
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.
 
    
Company Restaurant Operating Costs
  Consists of all costs necessary to manage and 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 costs to operate and maintain Wendy’s bun baking facilities.
 
    
General and Administrative Expenses
  Costs that cannot be directly related to generating revenue.
 
    
Other Income and Expense
  Includes expenses (income) that are not directly 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, other asset write-offs and restructuring costs.
 
    
 
    
Income from Discontinued Operations
  Reflects net income from Tim Hortons Inc, Baja Fresh and Cafe Express.

 

 

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
                                         
    (Unaudited)                          
    Year-to-Date Ended  
    12/31/2006     1/1/2006     1/2/2005     12/28/2003     12/29/2002  
REVENUES
                                        
Sales
   $ 2,154,607     $ 2,138,365     $ 2,194,031       1,960,345     $ 1,781,159  
Franchise revenues
     284,670       317,053       308,127       291,510       279,100  
 
                              
TOTAL REVENUES
     2,439,277       2,455,418       2,502,158       2,251,855       2,060,259  
 
                              
 
                                        
COSTS & EXPENSES
                                        
Cost of sales
     1,352,312       1,362,631       1,369,509       1,200,627       1,070,548  
Company restaurant operating costs
     602,298       581,869       577,294       496,735       444,697  
Operating costs
     46,674       20,419       21,058       18,245       17,477  
Depreciation of property & equipment
     122,636       127,998       109,712       115,760       106,189  
General & administrative expenses
     237,575       220,891       210,156       199,066       194,407  
Other (income) expense, net
     37,468       (34,263 )     (1,329 )     1,793       (492 )
 
                              
TOTAL COSTS & EXPENSES
     2,398,963       2,279,545       2,286,400       2,032,226       1,832,826  
 
                              
 
                                        
OPERATING INCOME
     40,314       175,873       215,758       219,629       227,433  
 
                                        
Interest expense
     (35,711 )     (43,076 )     (42,006 )     (41,091 )     (44,663 )
Interest income
     37,876       3,987       2,438       3,456       8,923  
 
                              
 
                                        
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
     42,479       136,784       176,190       181,994       191,693  
 
                                        
INCOME TAXES
     5,433       54,657       72,694       65,510       74,290  
 
                              
 
                                        
INCOME from continuing operations
     37,046       82,127       103,496       116,484       117,403  
 
                                        
INCOME (LOSS) from discontinued operations
     57,266       141,940       (51,461 )     119,515       101,378  
 
                              
 
                                        
NET INCOME
     94,312       224,067       52,035       235,999       218,781  
 
                              
 
                                        
Diluted earnings per common share from continuing operations
   $ 0.32     $ 0.70     $ 0.89     $ 1.01     $ 1.01  
 
                              
 
                                        
Diluted earnings per common share from discontinued operations
   $ 0.50     $ 1.22       ($0.44 )   $ 1.04     $ 0.80  
 
                              
 
                                        
Total diluted earnings per common share
   $ 0.82     $ 1.92     $ 0.45     $ 2.05     $ 1.89  
 
                              
 
                                        
Diluted shares
     115,325       116,819       115,685       115,021       116,558  
 
                              
Note:  The financial statements include a revision in the presentation of the impact of kids’ meal toys sold to franchisees. The revised presentation includes a “gross-up” of sales and cost of sales for these items. Previously these amounts were “netted”. This revision has no impact to operating income or net income.

 

 

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
                                         
    (Unaudited)        
                                    Full Year  
    Quarters Ended     Ended  
    12/31/2006     10/1/2006     7/2/2006     4/2/2006     12/31/2006  
REVENUES
                                        
Sales
   $ 526,720     $ 556,681     $ 557,771     $ 513,435       2,154,607  
Franchise revenues
     69,658       73,427       76,342       65,243       284,670  
 
                              
TOTAL REVENUES
     596,378       630,108       634,113       578,678       2,439,277  
 
                              
 
                                        
COSTS & EXPENSES
                                        
Cost of sales
     331,034       345,751       345,803       329,724       1,352,312  
Company restaurant operating costs
     149,517       155,251       147,613       149,917       602,298  
Operating costs
     4,177       8,323       14,363       19,811       46,674  
Depreciation of property & equipment
     28,437       31,515       31,575       31,109       122,636  
General & administrative expenses
     67,413       62,427       52,438       55,297       237,575  
Other (income) expense, net
     13,984       386       29,700       (6,602 )     37,468  
 
                              
TOTAL COSTS & EXPENSES
     594,562       603,653       621,492       579,256       2,398,963  
 
                              
 
                                        
OPERATING INCOME (LOSS)
     1,816       26,455       12,621       (578 )     40,314  
 
                                        
Interest expense
     (8,958 )     (8,872 )     (8,848 )     (9,033 )     (35,711 )
Interest income
     10,222       14,632       10,989       2,033       37,876  
 
                              
 
                                        
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
     3,080       32,215       14,762       (7,578 )     42,479  
 
                                        
INCOME TAXES
     (6,869 )     8,523       5,460       (1,681 )     5,433  
 
                              
 
                                        
INCOME (LOSS) from continuing operations
     9,949       23,692       9,302       (5,897 )     37,046  
 
                                        
(LOSS) INCOME from discontinued operations
     (6,922 )     45,476       (38,417 )     57,129       57,266  
 
                              
 
                                        
NET INCOME (LOSS)
     3,027       69,168       (29,115 )     51,232       94,312  
 
                              
 
                                        
Diluted earnings per common share from continuing operations
   $ 0.09     $ 0.20     $ 0.08       ($0.05 )   $ 0.32  
 
                                        
Diluted earnings per common share from discontinued operations
     ($0.06 )   $ 0.38       ($0.33 )   $ 0.50     $ 0.50  
 
                              
 
                                        
Total diluted earnings per common share
   $ 0.03     $ 0.58       ($0.25 )   $ 0.45       0.82  
 
                              
 
                                        
Diluted shares
     108,795       118,290       117,768       114,722 (a)     115,325  
 
                              
 
(a)   Due to loss from continuing operations, basic shares are used for earnings per share calculations.
Note:  The financial statements include a revision in the presentation of the impact of kids’ meal toys sold to franchisees. The revised presentation includes a “gross-up” of sales and cost of sales for these items. Previously these amounts were “netted”. This revision has no impact to operating income or net income.

 

 

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
                                         
    (Unaudited)                        
                                    Full Year  
    Quarters Ended     Ended  
    1/1/2006     10/2/2005     7/3/2005     4/3/2005     1/1/2006  
REVENUES
                                        
Sales
   $ 515,597     $ 539,594     $ 554,302     $ 528,872       2,138,365  
Franchise revenues
     87,270       77,639       77,311       74,833       317,053  
 
                              
TOTAL REVENUES
     602,867       617,233       631,613       603,705       2,455,418  
 
                              
 
                                        
COSTS & EXPENSES
                                        
Cost of sales
     327,964       343,643       352,601       338,423       1,362,631  
Company restaurant operating costs
     145,065       143,973       148,016       144,815       581,869  
Operating costs
     5,888       4,722       4,927       4,882       20,419  
Depreciation of property & equipment
     31,669       32,479       32,240       31,610       127,998  
General & administrative expenses
     65,380       51,152       50,766       53,593       220,891  
Other (income) expense, net
     (24,862 )     (3,871 )     (2,298 )     (3,232 )     (34,263 )
 
                              
TOTAL COSTS & EXPENSES
     551,104       572,098       586,252       570,091       2,279,545  
 
                              
 
                                        
OPERATING INCOME
     51,763       45,135       45,361       33,614       175,873  
 
                                        
Interest expense
     (10,658 )     (11,497 )     (10,285 )     (10,636 )     (43,076 )
Interest income
     1,437       1,160       809       581       3,987  
 
                              
 
                                        
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
     42,542       34,798       35,885       23,559       136,784  
 
                                        
INCOME TAXES
     16,463       14,364       13,810       10,020       54,657  
 
                              
 
                                        
INCOME from continuing operations
     26,079       20,434       22,075       13,539       82,127  
 
                                        
INCOME from discontinued operations
     3,884       51,654       48,685       37,717       141,940  
 
                              
 
                                        
NET INCOME
     29,963       72,088       70,760       51,256       224,067  
 
                              
 
                                        
Diluted earnings per common share from continuing operations
   $ 0.22     $ 0.17     $ 0.19     $ 0.12     $ 0.70  
 
                              
 
                                        
Diluted earnings per common share from discontinued operations
   $ 0.03     $ 0.44     $ 0.42     $ 0.33     $ 1.22  
 
                              
 
                                        
Total diluted earnings per common share
   $ 0.25     $ 0.61     $ 0.61     $ 0.45     $ 1.92  
 
                              
 
                                        
Diluted shares
     118,398       117,656       116,632       114,596       116,819  
 
                              
Note:  The financial statements include a revision in the presentation of the impact of kids’ meal toys sold to franchisees. The revised presentation includes a “gross-up” of sales and cost of sales for these items. Previously these amounts were “netted”. This revision has no impact to operating income or net income.

 

 

WENDY’S INTERNATIONAL, INC.
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, 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. Wendy’s International, Inc. (the “Company”) desires to take advantage of the “safe harbor” provisions of the Act.
Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward looking. 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, effectiveness of advertising and marketing programs, and new product development by the Company and its competitors 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 international, national, regional, and local economic conditions, consumer preferences and spending patterns, demographic trends, consumer perceptions of food safety, weather, traffic patterns, the type, number and location of competing restaurants, and the effects of war or terrorist activities and any governmental responses thereto. 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.
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. The Company’s financial results could also be affected by changes in applicable accounting rules.
Growth Plans. The Company plans to increase the number of systemwide 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, 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.
Disposition of Restaurants. The disposition of company operated restaurants to new or existing franchisees is part of the Company’s strategy to develop the overall health of the system by acquiring restaurants from, and disposing of restaurants to, franchisees where prudent. The realization of gains from future dispositions of restaurants depends in part on the ability of the Company to complete disposition transactions on acceptable terms.
Transactions to Improve Return on Investment. The sale of real estate previously leased to franchisees is generally part of the program to improve the Company’s return on invested capital. There are various reasons why the program might be unsuccessful, including changes in economic, credit market, real estate market or other conditions, and the ability of the Company to complete sale transactions on acceptable terms and at or near the prices estimated as attainable by the Company.
Mergers, Acquisitions and Other Strategic Transactions. The Company intends to evaluate potential mergers, acquisitions, joint venture investments, alliances, vertical integration opportunities and divestitures as part of its strategic planning initiative. These transactions involve various inherent risks, including accurately assessing the value, future growth potential, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates; the potential loss of key personnel of an acquired business; the Company’s ability to achieve projected economic and operating synergies; and unanticipated changes in business and economic conditions affecting an acquired business.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events.