Wendy’s Announces 2007 Full Year and 4th Quarter Results

2007 income from continuing operations increased 134% to $86.6 million

2007 adjusted EBITDA from continuing operations increased 38% to
$305.4 million

     DUBLIN, Ohio (February 4, 2008) – Wendy’s International, Inc. (NYSE: WEN) today announced its preliminary, unaudited financial results for the full year and fourth quarter of 2007, reflecting same-store sales increases for the year, cost controls and improving restaurant margins. 
     Including full-year pre-tax expenses related to the Board of Director’s Special Committee of $24.7 million and $9.8 million of pre-tax restructuring charges (as used throughout, restructuring charges include pension settlement charges), the Company reported for the full year of 2007:

• Income from continuing operations of $86.6 million, up 134.0% compared to $37.0 million in 2006;
• Diluted earnings per share (EPS) from continuing operations of $0.96, up 200.0% from $0.32 per share in 2006; and
• Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations of $270.9 million, up 65.2% from $164.0 million in 2006.

     Excluding 2007 expenses related to the Board’s Special Committee and restructuring charges and excluding 2006 restructuring charges, incremental advertising expenses and lost joint venture income, the Company reported for the full year of 2007:

• Adjusted income from continuing operations of $108.0 million, up 50.0% from $72.0 million in 2006;
• Adjusted diluted EPS from continuing operations of $1.20, up 93.5% from $0.62 per share in 2006; and
• Adjusted EBITDA from continuing operations of $305.4 million, up 38.4% from $220.7 million in 2006.

     The Company met its revised 2007 full-year EBITDA guidance of $295 million to $315 million, and its revised 2007 full-year EPS guidance of $1.09 to $1.23, which excluded expenses related to the Board’s Special Committee and restructuring charges.

See reconciliations below.  For 2007, adjusted income from continuing operations, EBITDA and EPS excludes expenses related to the Board’s Special Committee and restructuring charges.  For 2006, adjusted income from continuing operations, EBITDA and EPS excludes restructuring charges, incremental advertising expenses and lost joint venture income.

2007 Full-Year Highlights – U.S. EBITDA store margins up 210 basis points

• U.S. company-operated restaurant EBITDA margins improved 210 basis points to 11.0% in 2007, reflecting slightly positive full-year sales, improved menu management (menu price increases and favorable shifts in product mix) and labor efficiencies. The 210 basis point improvement was achieved despite higher commodity costs which negatively impacted U.S. margins by 90 basis points.
• Total company-operated restaurant EBITDA margins improved 180 basis points to 10.7% in 2007, compared to 8.9% one year ago.  This includes U.S., Canada and International operations. 
• As previously announced, annual same-store sales at U.S. franchise restaurants increased 1.4%, compared to a 0.6% increase in 2006. Wendy’s franchisees have produced seven consecutive quarters of positive same-store sales. Annual same-store sales at U.S. company-operated restaurants increased 0.9%, compared to a 0.8% increase in 2006. 
• The total number of system-wide Wendy’s® restaurants as of December 30, 2007, was 6,645, compared to 6,673 at year-end 2006.  This reflects the opening of 92 restaurants and the closure of 120 restaurants.

Company made significant progress in 2007

      “I am proud of our restaurant crews, franchisees and company employees for what we accomplished in 2007,” said Chief Executive Officer and President Kerrii Anderson.  “We executed our strategic plan, implemented many initiatives to drive the business and made tough decisions to position Wendy’s for future growth.
      “We produced significantly improved company store operating margins and earnings growth in the face of an incredibly challenging environment, with rising commodities and the distraction of the Special Committee process.  Our goal was to deliver EBITDA in the range of $295-$315 million for the year, and we achieved that objective with EBITDA of $305 million, up 38% over the previous year,” Anderson said.
      Chief Financial Officer Jay Fitzsimmons said:  “Our improved financial performance reflected modest same-store sales growth, higher average check and excellent expense control by our employees.  There is no question that our business is stronger today than a year ago.”

Company executing Phase 2 of its Strategic Plan

      The Company recently launched Phase 2 of its strategic plan, which focuses on further growth in same-store sales and earnings in 2008.
      “We have a powerful brand, and our objective in 2008 is to re-ignite sales growth and drive quality and innovation throughout our business,” Anderson said.  “In addition to a strong new product lineup for 2008 and a re-energized focus on restaurant operations, we are excited about our new advertising that highlights Wendy’s unique competitive advantage of quality. Today, we are launching our ‘Waaaay Better’ campaign, and the hero of our new advertising will be our quality food.”  
      The Company’s evolution of its advertising approach is based on extensive consumer research over the last eight months, working in close collaboration with its agency partners and franchise advertising committee.        
      "Our new campaign leverages Wendy’s red-hair iconography, but does so in a way that is more genuine and true to our brand," said Anderson.  "Each television spot opens and closes with an animated version of our familiar logo – the enduring image of Wendy, a red-headed, little girl.  Our Wendy icon stands for wholesome authenticity and honest quality. It’s one of the most powerful, under-used assets in the consumer world today."

2007 4th Quarter Financial Highlights – U.S. EBITDA store margins up 120 basis points

     Including fourth-quarter pre-tax expenses related to the Board’s Special Committee of $6.5 million and $0.4 million of pre-tax restructuring charges, the Company reported for the fourth-quarter of 2007:

• Income from continuing operations of $14.1 million, up 42.4% from $9.9 million in the fourth quarter of 2006;
• Diluted EPS from continuing operations of $0.16, up 77.8% from $0.09 per share in the fourth quarter of 2006; and
• EBITDA from continuing operations of $50.1 million, up 64.3% from $30.5 million in the fourth quarter of 2006.

     Excluding expenses related to the Board’s Special Committee and restructuring charges, the Company reported for the fourth-quarter of 2007:

• Adjusted income from continuing operations of $18.4 million, up 24.3% from $14.8 million in the fourth quarter of 2006;
• Adjusted diluted EPS from continuing operations of $0.21 in the fourth quarter of 2007, up 50.0% from $0.14 per share for the fourth quarter of 2006; and
• Adjusted EBITDA from continuing operations of $57.0 million, up 48.4% from $38.4 million in the fourth quarter of 2006.

     U.S. company-operated restaurant EBITDA margins improved 120 basis points to 10.1% in the fourth quarter of 2007, compared to 8.9% a year ago. The 120 basis point improvement was achieved despite higher commodity costs which negatively impacted U.S. margins by 180 basis points. 
     Company-operated restaurant EBITDA margins improved 140 basis points to 9.8% in the fourth quarter of 2007, compared to 8.4% in the fourth quarter of 2006.  This includes U.S., Canada and International operations. 
     As previously announced, fourth-quarter same-store sales at U.S. franchise restaurants increased 0.2%, compared to an increase of 2.7% a year ago, and fourth-quarter same-store sales at U.S. company-operated restaurants decreased 0.8%, compared to an increase of 3.1% in the fourth quarter of 2006. 

See reconciliations below.  Adjusted income from continuing operations, EBITDA and EPS excludes expenses related to the Board’s Special Committee and restructuring charges. 

Board approves 120th consecutive quarterly dividend

The Board of Directors approved a quarterly dividend of 12.5 cents per share, payable February 29, 2008 to shareholders of record as of February 14, 2008.  The dividend payment will represent the Company’s 120th consecutive quarterly dividend.

Company plans 2007 conference call for February 4 at 9:00 a.m. ET

The Company will hold a conference call and webcast to discuss the Company’s 2007 and fourth quarter results at 9:00 a.m. ET today.  The Company does not plan to discuss its 2008 outlook during this event and has suspended guidance until completion of the Board’s Special Committee process.
The dial-in number is (877) 572-6014 (U.S. and Canada) or (706) 679-4852 (International). A simultaneous webcast of the conference call will be available at www.wendys-invest.com. The call will be archived at that site.

Safe Harbor statement

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

Please review the Company’s Safe Harbor statement at http://www.wendys-invest.com/safeharbor.

Wendy’s International, Inc. overview
Wendy's International, Inc. is one of the world's largest and most successful restaurant operating and franchising companies.  More information about the Company is available at www.wendys-invest.com.

INVESTOR CONTACTS:
John Barker (614) 764-3044 or john_barker@wendys.com
Marsha Gordon (614) 764-3019 or marsha_gordon@wendys.com
Kim Messner (614) 764-6796 or kim_messner@wendys.com

MEDIA CONTACT:
Denny Lynch: (614) 764-3553 or denny_lynch@wendys.com
Bob Bertini: (614) 764-3327 or bob_bertini@wendys.com

Appendix

2007 Full-Year Financial and Income Statement Information

     The Company’s full-year 2007 reported results from continuing operations include the impact of:

• Cost of sales – $1.32 billion, or 61.2% of sales, in 2007, compared to $1.35 billion, or 62.8% of sales, in 2006. The year-over-year improvement as a percent of retail sales is due primarily to improved menu management (menu price increases and favorable shifts in product mix) and labor efficiencies realized in company-operated restaurants. These improvements were partially offset by higher commodity costs which negatively impacted U.S. margins by 90 basis points.
• Company restaurant operating costs – $597.3 million, or 27.7% of sales, in 2007, compared to $602.3 million, or 28.0% of sales, in 2006.  The year-over-year improvement as a percent of sales primarily includes lower expenses as a result of the Company’s 2006 cost saving initiatives and lower bonuses. These improvements were partially offset by the change in accounting for the Canadian real estate joint venture with Tim Hortons® (see explanation below for Wendy’s joint venture with Tim Hortons). As a result of this change in accounting, full-year 2007 company restaurant operating costs included rental expense paid to the joint venture by Wendy’s, which prior to the spin-off of Tim Hortons was eliminated in consolidation. Without this change in accounting for the joint venture, reported full-year 2007 company-operated restaurant EBITDA margins would have been 20 basis points higher.    
• Operating costs – $22.7 million in 2007, compared to $46.7 million in 2006.  The year-over-year decrease is due primarily to $25.0 million in incremental advertising costs in 2006 that the Company did not incur in 2007 and a $5.7 million decline in rent expense in 2007 as a result of the change in accounting for Wendy’s Canadian real estate joint venture with Tim Hortons, which is no longer consolidated by the Company.  These declines were partially offset by higher incentive payments to franchisees for remodeling of $5.4 million in 2007. 
• General and administrative expense – $212.4 million, or 8.7% of revenue, in 2007, compared to $237.6 million, or 9.7% of revenue, in 2006.  The year-over-year improvement is due primarily to lower salaries and benefits as a result of the elimination of positions in 2006, as well as lower insurance costs and bonuses.
• Restructuring costs – $9.8 million in 2007, which includes $7.4 million in pension settlement charges.  This compares to $38.9 million in restructuring costs in 2006.
• Special Committee related charges – $24.7 million in expenses in 2007 related to the Board’s Special Committee, which was formed in April 2007.  These charges did not occur in 2006.
• Other income/expense – $9.0 million of income in 2007, which includes equity investment income of $9.4 million, related primarily to the Company’s 50/50 Canadian real estate joint venture with Tim Hortons, $5.7 million in income from the amendment of the Company’s tax sharing agreement with Tim Hortons, gains on property dispositions of $5.0 million and insurance gains of $9.0 million, partially offset by store closure charges of $7.3 million, $5.0 million in impairment charges on the Company’s Pasta Pomodoro investment, and other asset write-offs.  In 2006, other income/expense was $1.4 million of income, which includes store closure costs of $16.7 million, gains on sales of properties of $6.8 million and rent income paid by Tim Hortons to the Canadian real estate joint venture of $14.0 million.  The corresponding rent expense is classified in discontinued operations.  Since the spin-off of Tim Hortons, this joint venture is no longer consolidated and the Company now records its 50% share of the joint venture income in other income/expenses.
• Interest – The $9.3 million increase in interest expense in 2007 is primarily due to the sale of approximately 40% of the U.S. royalty stream for a 14-month period entered into in the fourth quarter of 2006 that was recorded as debt. The $24.1 million decrease in interest income reflects a reduction in cash balances as a result of the completion of a modified "Dutch Auction" tender offer in the fourth quarter of 2006, using approximately $800 million, and the completion of an accelerated share repurchase in the first quarter of 2007 for approximately $298.0 million.
• Taxes – The Company’s effective tax rate was 31.1% in 2007.  The rate was impacted by favorable settlements of Federal and state tax examinations.
• Shares outstanding – A lower share count of 90.2 million average shares in 2007, compared to 115.3 million average shares in 2006.  The Company repurchased 22.4 million shares in a modified “Dutch Auction” tender offer in the fourth quarter of 2006, and repurchased 9.0 million shares in an accelerated share repurchase in the first quarter of 2007.

4th Quarter Financial and Income Statement Information

     The Company’s fourth-quarter 2007 reported results from continuing operations include the impact of:

• Cost of sales – $326.1 million, or 62.2% of retail sales, in the fourth quarter of 2007, compared to $331.0 million, or 62.8% of retail sales, in the fourth quarter of 2006, which was a 60 basis point improvement as a percentage of sales. The year-over-year improvement is due primarily to improved menu management (menu price increases and favorable shifts in product mix) and labor efficiencies realized in company-operated restaurants.
• Company restaurant operating costs – $143.9 million, or 27.5% of sales, in the fourth quarter of 2007, compared to $149.5 million, or 28.4% of sales, in the fourth quarter of 2006.  The year-over-year improvement as a percent of sales includes lower expenses as a result of the Company’s cost saving initiatives implemented in 2006 and lower bonuses. 
• Operating costs – $7.6 million in the fourth quarter of 2007, compared to $4.2 million in the fourth quarter of 2006.  The year-over-year increase is due primarily to incentives paid to franchisees for remodeling of $1.8 million during the quarter, and breakfast advertising costs to support franchisees of $1.0 million.
• General and administrative expense – $61.0 million, or 10.2% of revenue, in the fourth quarter of 2007, compared to $67.4 million, or 11.3% of revenue, in the fourth quarter of 2006.  The year-over-year improvement is due primarily to a reduction in salaries and benefits as a result of the elimination of positions in 2006, and lower bonus accruals.
• Restructuring costs – $0.4 million in the fourth quarter of 2007.  This compares to $7.9 million in restructuring costs in the fourth quarter of 2006.
• Special Committee related charges – $6.5 million in the fourth quarter of 2007 in expenses related to the Special Committee.  These charges did not occur in 2006.
• Other income/expense – $0.5 million of expense in the fourth quarter of 2007, which includes $5.7 million in income from the amendment of Wendy’s tax sharing agreement with Tim Hortons, insurance gains of $2.2 million and gains on property dispositions of $0.7 million, partially offset by $5.0 million in impairment charges on the Company’s Pasta Pomodoro investment, store closure charges of $1.5 million, and other asset write-offs.
• Interest – The $2.6 million increase in interest expense in the fourth quarter of 2007 includes interest expense related to the sale of approximately 40% of the U.S. royalty stream for a 14-month period entered into in the fourth quarter of 2006 that was recorded as debt. The $7.3 million decrease in interest income reflects a reduction in cash balances as a result of the completion of a modified "Dutch Auction" tender offer in the fourth quarter of 2006, using approximately $800 million, and the completion of an accelerated share repurchase in the first quarter of 2007 for approximately $298.0 million.
• Taxes – The Company’s effective tax rate for the fourth quarter of 2007 was a benefit of approximately 8.4% and was due primarily to the settlement of tax examinations which yielded a benefit of approximately $5.4 million.
• Shares outstanding – A lower share count of 88.3 million average shares in the fourth quarter of 2007, compared to 108.8 million average shares in the fourth quarter of 2006.  The Company repurchased 22.4 million shares in a modified “Dutch Auction” tender offer in the fourth quarter of 2006, and repurchased 9.0 million shares in an accelerated share repurchase in the first quarter of 2007.

Discontinued operations
     Wendy’s completed its spinoff of Tim Hortons in the third quarter of 2006 and completed the sale of Baja Fresh® Mexican Grill during the fourth quarter of 2006. During the third quarter of 2007, the Company completed the sale of Cafe Express.  Accordingly, the after-tax operating results of Tim Hortons, Baja Fresh and Cafe Express appear in the “Discontinued Operations” line on the income statement.

Wendy’s joint venture with Tim Hortons

     Wendy’s and Tim Hortons continue to operate approximately 100 combination restaurants in Canada as part of the joint venture.  The Company refers to the entity that controls the real estate of these combination restaurants as its Canadian restaurant real estate joint venture with Tim Hortons.  Wendy’s and Tim Hortons also operate approximately 40 combination restaurants in the U.S., which are not included in the joint venture.

     As a result of its 2006 spinoff of Tim Hortons, the Company, in accordance with generally accepted accounting principles (GAAP), now accounts for its 50% share of the Canadian restaurant real estate joint venture with Tim Hortons under the equity method of accounting, rather than consolidating the results of the joint venture in the Company’s financial statements. 

     Without this change, company-operated restaurant EBITDA margins would have been 10.9% for the full year.  This change in accounting for the Company’s joint venture with Tim Hortons impacts several lines on the Company’s statement of income and resulted in an overall reduction to full-year 2007 operating income of $7.2 million compared to the full-year of 2006.

Disclosure regarding non-GAAP financial measures

The Company uses adjusted income and adjusted EPS from continuing operations as internal measures of operating performance.  Management believes adjusted income and adjusted EPS from continuing operations provide a meaningful perspective of the underlying operating performance of the business.
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.

Company EBITDA margins from continuing operations consist of operating income plus depreciation and amortization divided by revenue. 

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.

EBITDA and Adjusted EBITDA Reconciliations

Income and EPS Reconciliations

(1) After tax amounts are generally computed using a tax rate of 38%.

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