<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 March 29, 1998
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 May 3, 1998
- -------------------------------- --------------------------
Common shares, $.10 stated value 131,283,000 shares
Exhibit index on page 14.
1 of 16
<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 ended
March 29, 1998 and March 30, 1997 3
Consolidated Balance Sheet as of March 29, 1998
and December 28, 1997 4 - 5
Consolidated Statement of Cash Flows for the quarters
ended March 29, 1998 and March 30, 1997 6
Notes to the Consolidated Financial Statements 7 - 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 99 - Safe Harbor under the Private Securities Litigation 15 - 16
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
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
<S> <C> <C>
REVENUES
Retail sales..................................... $381,588 $386,125
Franchise revenues............................... 73,985 72,759
-------- --------
455,573 458,884
-------- --------
COSTS AND EXPENSES
Cost of sales.................................... 242,691 241,819
Company restaurant operating costs............... 91,206 95,151
Operating costs.................................. 14,551 14,030
General and administrative expenses.............. 43,168 38,474
Depreciation and amortization
of property and equipment...................... 24,754 23,854
Other (income) expense........................... (9) 3,622
Interest, net.................................... (182) 1,677
-------- --------
416,179 418,627
-------- --------
INCOME BEFORE INCOME TAXES........................... 39,394 40,257
INCOME TAXES......................................... 15,560 15,620
-------- --------
NET INCOME........................................... $ 23,834 $ 24,637
======== ========
BASIC EARNINGS PER COMMON SHARE...................... $.18 $.19
==== ====
DILUTED EARNINGS PER COMMON SHARE.................... $.18 $.19
==== ====
DIVIDENDS PER COMMON SHARE .......................... $.06 $.06
==== ====
BASIC SHARES......................................... 132,198 130,848
======= =======
DILUTED SHARES....................................... 141,023 140,055
======= =======
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE> 4
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands)
MARCH 29, 1998 DECEMBER 28, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............. $ 202,827 $ 234,262
Accounts receivable, net.............. 64,008 66,755
Notes receivable, net................. 12,615 13,897
Deferred income taxes................. 31,652 31,007
Inventories and other................. 33,268 35,633
---------- ----------
344,370 381,554
---------- ----------
PROPERTY AND EQUIPMENT.................... 1,823,134 1,803,410
Accumulated depreciation and
amortization........................ (552,700) (537,910)
---------- ----------
1,270,434 1,265,500
---------- ----------
NOTES RECEIVABLE, NET..................... 177,801 178,681
GOODWILL, NET............................. 52,567 51,346
DEFERRED INCOME TAXES..................... 15,888 15,117
OTHER ASSETS.............................. 51,669 49,482
---------- ----------
$1,912,729 $1,941,680
========== ==========
</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)
MARCH 29, 1998 DECEMBER 28, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................. $ 73,605 $ 107,157
Accrued expenses:
Salaries and wages............................ 22,129 31,377
Taxes......................................... 19,449 21,615
Insurance..................................... 32,438 30,899
Other......................................... 18,854 14,415
Current portion of long-term
obligations................................... 7,115 7,151
---------- ----------
173,590 212,614
---------- ----------
LONG-TERM OBLIGATIONS
Term debt........................................ 205,724 205,872
Capital leases................................... 43,858 43,891
---------- ----------
249,582 249,763
---------- ----------
DEFERRED INCOME TAXES................................ 83,432 81,017
OTHER LONG-TERM LIABILITIES.......................... 14,672 14,052
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF WENDY'S
FINANCING I....................................... 200,000 200,000
SHAREHOLDERS' EQUITY
Preferred stock,
Authorized: 250,000 shares
Common stock, $.10 stated value
Authorized: 200,000,000 shares
Issued: 116,156,000 and
115,946,000 shares, respectively............. 11,616 11,595
Capital in excess of stated value................ 356,296 353,327
Retained earnings................................ 855,072 839,215
Translation adjustments and other................ (14,370) (18,191)
---------- ----------
1,208,614 1,185,946
Treasury stock at cost: 859,000 and 129,000
shares, respectively........................... (17,161) (1,712)
---------- ----------
1,191,453 1,184,234
---------- ----------
$1,912,729 $1,941,680
========== ==========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE> 6
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
QUARTER ENDED QUARTER ENDED
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES....................................... $ 30,840 $ 42,761
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from asset dispositions................. 16,609 6,963
Capital expenditures............................. (56,600) (88,330)
Acquisition of franchises........................ (1,537) (307)
Payments on notes receivable..................... 4,097 30
Other investing activities....................... (2,251) (1,289)
-------- --------
Net cash used in investing activities.......... (39,682) (82,933)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock........... 2,517 17,944
Repurchase of common shares...................... (15,449) -
Principal payments on long-term obligations...... (1,727) (1,528)
Dividends paid on common stock................... (7,934) (7,877)
-------- --------
Net cash (used in) provided by financing
activities................................... (22,593) 8,539
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS................ (31,435) (31,633)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 234,262 218,956
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $202,827 $187,323
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid.................................... $ 4,010 $ 3,740
Capitalized lease obligations incurred........... 1,169 -
Notes receivable from restaurant disposition..... - 6,836
Income taxes paid................................ 14,478 2,400
Acquisition of franchises:
Fair value of assets acquired, net............. 1,612 307
Cash paid...................................... 1,537 307
Liabilities assumed............................ 75 -
</TABLE>
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
6
<PAGE> 7
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 March 29, 1998 and
December 28, 1997 and the results of operations, cash flows and
comprehensive income (see Note 4) for the quarters ended March 29, 1998 and
March 30, 1997. The Notes to the Consolidated Financial Statements which
are contained in the 1997 Form 10-K should be read in conjunction with
these Consolidated Financial Statements.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
In the first quarter of 1998 and 1997, two restaurants were franchised for
a net pretax gain of $266,000 and 36 restaurants for a net pretax gain of
$6.7 million, respectively.
In the first quarter of 1997, the Company acquired 31 Rax restaurants in
Ohio and West Virginia for conversion to Wendy's and Tim Hortons (Hortons)
restaurants. The purchase price was $8.9 million.
NOTE 3. NET INCOME PER SHARE
Basic earnings per common share is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding during each period. Diluted computations include
dilutive common share equivalents and assumed conversion of
company-obligated mandatorily redeemable preferred securities and the
elimination of related expenses, net of income taxes.
The computation of basic and diluted earnings per common share for the
quarters ended March 29, 1998 and March 30, 1997 is shown below:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
(In thousands, except per share data)
<S> <C> <C>
Income for computation of basic earnings
per share................................... $ 23,834 $ 24,637
Interest savings on assumed conversions....... 1,534 1,552
-------- --------
Income for computation of diluted
earnings per share.......................... $ 25,368 $ 26,189
======== ========
Weighted average shares for computation
of basic earnings per share................. 132,198 130,848
Incremental shares on assumed issuance
and repurchase of stock options............. 1,252 1,634
Assumed conversions........................... 7,573 7,573
-------- --------
Weighted average shares for computation
of diluted earnings per share............... 141,023 140,055
======== ========
Basic earnings per share...................... $.18 $.19
==== ====
Diluted earnings per share.................... $.18 $.19
==== ====
</TABLE>
7
<PAGE> 8
NOTE 4. STATEMENT OF COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards Number 130 (SFAS 130), "Reporting Comprehensive Income". SFAS 130
requires that changes in the amounts of certain items, including foreign
currency translation adjustments, be shown in the financial statements. The
adoption of SFAS 130 did not have a material effect on the Company's
consolidated financial statements.
The components of other comprehensive income and total comprehensive income for
the quarters ended March 29, 1998 and March 30, 1997 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 29, 1998 MARCH 30, 1997
-------------- --------------
(In thousands)
<S> <C> <C>
Net income.................................................. $23,834 $24,637
Other comprehensive income:
Translation adjustments (net of taxes of $2,450
and $1,203, respectively)................................. 3,752 (1,767)
Other (net of taxes of $55 and $165, respectively).......... 69 (207)
------- -------
Total other comprehensive income ......................... 3,821 (1,974)
------- -------
Comprehensive income........................................ $27,655 $22,663
======= =======
</TABLE>
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
The Company recorded net income of $23.8 million and diluted earnings per common
share of $.18 in the first quarter of 1998. In accordance with the previously
announced strategy of reducing gains from franchising Wendy's restaurants the
current quarter includes $266,000 of pretax gains. In contrast, 1997 included
$6.7 million in pretax gains. Current net income decreased 3.3% from 1997, but
improved 15.4% when asset gains are excluded from both years. Likewise, diluted
earnings per common share decreased 5.3% ($.18 versus $.19) from last year, but
increased 20.0% ($.18 versus $.15) when asset gains are excluded from both
years.
In the fourth quarter 1997, the Company identified 64 underperforming
restaurants to close and another 18 restaurants to franchise, and provided a
charge for the disposition of these assets. Most of the stores identified for
closure have been closed and the Company anticipates completing the closures and
franchising the identified stores during the second quarter 1998. The Company
repurchased 730,000 common shares during the first quarter 1998 at a cost of
$15.4 million, and intends to purchase up to a total of $200 million by the year
2000. Salad bars have been removed from approximately 85% of the company
operated domestic Wendy's identified for removal. All reserves established in
the fourth quarter 1997 are expected to be adequate for the ultimate disposition
of the related assets. This program was previously announced in February 1998.
RETAIL SALES
During the first quarter 1998, average sales increased 3.9% in Wendy's domestic
company restaurants and 4.5% in local currency for Wendy's Canadian company
restaurants. In addition, sales from the Tim Hortons (Hortons) warehouse
increased 28% in the first quarter as the system continues to develop new stores
and an average same store sales increase of 12.9%. Total retail sales were
reduced however, reflecting the company domestic Wendy's restaurants franchised
and closed in the past year. Domestic selling prices increased 1.0% in the first
quarter of 1998.
Average net sales per domestic Wendy's restaurant for the quarters ended March
29, 1998 and March 30, 1997 were as follows:
First Quarter %
1998 1997 Increase
---- ---- --------
Company..................... $268,300 $258,350 3.9
Franchise................... 237,050 234,500 1.1
Total Domestic.............. 244,300 241,000 1.4
The number of systemwide restaurants open as of March 29, 1998 and March 30,
1997 was as follows:
1998 1997
---- ----
Company............................... 1,158 1,297
Franchise............................. 4,039 3,695
----- -----
Total Wendy's......................... 5,197 4,992
===== =====
Total Hortons......................... 1,601 1,421
===== =====
COST OF SALES AND RESTAURANT OPERATING COSTS
The domestic Wendy's company operating margin increased in the first quarter
1998 to 13.4% versus 13.0% for 1997. Wendy's domestic restaurant operating
costs, as a percent of retail sales, decreased over 1997 reflecting lower
utility costs, partly offset by increases in advertising costs.
9
<PAGE> 10
Domestic Wendy's cost of sales, as a percent of sales, remained unchanged in
1998 compared with 1997 with lower food and paper costs offset by higher labor.
Hortons warehouse cost of sales remained relatively constant as a percent of
sales and total costs increased in line with sales.
FRANCHISE REVENUES
Gains from franchising Wendy's restaurants were reduced from the sale of 36
restaurants for a pretax gain of $6.7 million in the first quarter 1997 to
$266,000 in pretax gains for two restaurants in 1998. Rental income increased
$5.4 million over 1997 as a result of more Wendy's and Hortons franchise leased
properties.
Royalties, before reserve provisions, increased $4.5 million in the first
quarter 1998 over 1997. This was primarily a result of an increase of 313
Wendy's domestic average franchise restaurants open and a 1.1% increase for the
first quarter in average net sales of domestic Wendy's franchise restaurants.
Franchise reserves of $561,000 and $521,000 were provided in the first quarter
of 1998 and 1997, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the first quarter of 1998 were 9.5% of
total revenues versus 8.4% in 1997. The higher percentage reflects the revenue
reduction from franchising and closing Wendy's company restaurants. The increase
also reflects spending to expand Hortons in Canada and the U.S.
OTHER (INCOME) EXPENSE
The first quarter of 1997 reflected charges of $1.5 million for an arbitration
decision relating to international operations, $1.2 million for store closures
and $1.2 million in asset write-offs related to restaurant remodeling and
conversion activity, while 1998 reflected $200,000 in asset write-offs for
remodeling activity.
FINANCIAL CONDITION
The Company's financial condition remains solid at the end of the first quarter
of 1998. The debt to equity and debt to total capitalization ratios were 21% and
17%, respectively, at March 29, 1998. Capital expenditures amounted to $57
million for 1998 compared with $88 million for 1997.
OUTLOOK
The Company continues to employ its strategies as outlined in the Company's most
recent Form 10-K. As was expected, competition in the quick-service restaurant
industry has been intense and is expected to remain so in the future. The
Company faced an extremely competitive environment, including widespread
discounting in domestic markets and higher domestic labor rates. These
conditions may continue in the short-term. The Company expects some produce cost
pressures during the second quarter. In addition, the Wendy's company average
domestic sales per restaurant will be a challenging comparison since the
increase in the second quarter 1997 was 10.3% over the second quarter 1996.
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 575 new Wendy's and Hortons restaurants will
be opened systemwide (both company and franchise) during 1998. Year-to-date
1998, there were 89 new restaurants opened. 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,
repurchase of common shares, or for other corporate purposes, the Company
believes it would be able to obtain additional cash through potential bank
borrowing or the issuance of securities.
10
<PAGE> 11
RECENTLY ISSUED ACCOUNTING STANDARDS
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. This statement is effective for
the year ending January 3, 1999. The Company is in the process of evaluating the
impact of this statement.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use". The statement is effective for
fiscal years beginning after December 15, 1998. The statement defines which
costs of computer software developed or obtained for internal use are capital
and which costs are expense. The adoption of SOP 98-1 does not materially affect
the consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued Financial
Accounting Standard Number 132-"Employers' Disclosure about Pensions and Other
Postretirement Benefits", which revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. The statement is effective for fiscal years
beginning after December 15, 1997. The adoption of this statement has no impact
on reported net income per common share.
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) The Company filed one Report on Form 8-K during the first quarter 1998. The
Form 8-K filed February 5, 1998 announced summary financial results for the
fourth quarter and full 1997 fiscal year, certain strategic initiatives and
approval of a program to repurchase up to $200 million of the Company's
outstanding common shares. A copy of the press release issued February 4, 1998
was attached.
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: 05/11/98 /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>
99 Safe Harbor Under 15-16
the Private Securities
Litigation Reform Act of 1995
</TABLE>
14
<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> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 202,827
<SECURITIES> 0
<RECEIVABLES> 76,623
<ALLOWANCES> 0
<INVENTORY> 33,268
<CURRENT-ASSETS> 344,370
<PP&E> 1,823,134
<DEPRECIATION> 552,700
<TOTAL-ASSETS> 1,912,729
<CURRENT-LIABILITIES> 173,590
<BONDS> 405,724
0
0
<COMMON> 11,616
<OTHER-SE> 1,179,837
<TOTAL-LIABILITY-AND-EQUITY> 1,912,729
<SALES> 381,588
<TOTAL-REVENUES> 455,573
<CGS> 242,691
<TOTAL-COSTS> 348,448
<OTHER-EXPENSES> 67,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (182)
<INCOME-PRETAX> 39,394
<INCOME-TAX> 15,560
<INCOME-CONTINUING> 23,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,834
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</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, 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 Form 10-Q, 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 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.
15
<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, 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 strategy to develop the
overall health of the system by acquiring restaurants from, and disposing of
restaurants to, franchisees where prudent. The expectation of gains from future
dispositions of restaurants depends in part on the ability of the Company to
complete disposition transactions on acceptable terms.
The non-recurring charge recorded in the fourth quarter of 1997 included $35
million related to the closure or sale of restaurants to franchisees and the
disposition of surplus properties. The actual loss incurred from these
activities could vary significantly from the Company's estimate due to many of
the factors set forth above.
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 Form 10-Q, or to update them to reflect events or circumstances occurring
after the date this Form 10-Q was first furnished to shareholders, or to reflect
the occurrence of unanticipated events.
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