<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 2, 2000
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 5, 2000
- -------------------------------- --------------------------
Common shares, $.10 stated value 113,738,000 shares
Exhibit index on page 13.
<PAGE> 2
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
<S> <C>
PART I: Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Income for the quarters
ended April 2, 2000 and April 4, 1999 3
Consolidated Condensed Balance Sheets as of April 2, 2000
and January 2, 2000 4 - 5
Consolidated Condensed Statements of Cash Flows for the
quarters ended April 2, 2000 and April 4, 1999 6
Notes to the Consolidated Condensed 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. Exhibits and reports on Form 8-K 11
Signature 12
Index to Exhibits 13
Exhibit 99 14 - 15
</TABLE>
2
<PAGE> 3
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
QUARTER ENDED QUARTER ENDED
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
REVENUES
<S> <C> <C>
Retail sales..................................... $423,593 $389,320
Franchise revenues............................... 96,247 87,223
------- -------
519,840 476,543
-------- --------
COSTS AND EXPENSES
Cost of sales.................................... 267,587 246,439
Company restaurant operating
costs.......................................... 92,484 86,742
Operating costs.................................. 18,801 18,202
General and administrative
expenses....................................... 50,998 47,048
Depreciation and amortization
of property and equipment...................... 25,837 23,523
Other expense.................................... 3,198 1,224
Interest, net.................................... 3,456 1,747
------ ------
462,361 424,925
-------- --------
INCOME BEFORE INCOME TAXES........................... 57,479 51,618
INCOME TAXES......................................... 21,554 19,615
------- -------
NET INCOME........................................... $ 35,925 $ 32,003
======== ========
BASIC EARNINGS PER COMMON SHARE...................... $.31 $.26
==== ====
DILUTED EARNINGS PER COMMON SHARE.................... $.30 $.25
==== ====
DIVIDENDS PER COMMON SHARE........................... $.06 $.06
==== ====
BASIC SHARES......................................... 116,398 124,061
======= =======
DILUTED SHARES....................................... 124,269 133,053
======= =======
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
3
<PAGE> 4
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
APRIL 2, 2000 JANUARY 2, 2000
------------- ---------------
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents............. $ 121,497 $ 210,785
Accounts receivable, net.............. 68,487 71,763
Notes receivable, net................. 10,796 7,749
Deferred income taxes................. 17,969 19,267
Inventories and other................. 33,101 40,271
------- -------
251,850 349,835
-------- --------
PROPERTY AND EQUIPMENT.................... 1,938,443 1,937,697
Accumulated depreciation and
amortization........................ (561,661) (548,543)
--------- ---------
1,376,782 1,389,154
--------- ---------
NOTES RECEIVABLE, NET..................... 36,256 35,538
GOODWILL, NET............................. 47,566 48,306
DEFERRED INCOME TAXES..................... 19,885 22,390
OTHER ASSETS.............................. 38,170 38,374
------- -------
$1,770,509 $1,883,597
========== ==========
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
4
<PAGE> 5
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
APRIL 2, 2000 JANUARY 2, 2000
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable................................. $ 72,147 $ 126,487
Accrued expenses:
Salaries and wages............................ 15,626 35,214
Taxes......................................... 44,707 37,577
Insurance..................................... 36,086 37,061
Other......................................... 47,130 43,422
Current portion of long-term
obligations................................... 4,125 4,448
------ -----
219,821 284,209
-------- --------
LONG-TERM OBLIGATIONS
Term debt........................................ 204,370 204,788
Capital leases................................... 43,526 44,231
------- -------
247,896 249,019
-------- --------
DEFERRED INCOME TAXES................................ 67,238 69,516
OTHER LONG-TERM LIABILITIES.......................... 14,804 15,414
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF WENDY'S
FINANCING I, HOLDING SOLELY WENDY'S
CONVERTIBLE DEBENTURES............................ 200,000 200,000
SHAREHOLDERS' EQUITY
Preferred stock, authorized: 250,000 shares
Common stock, $.10 stated value per share
Authorized: 200,000,000 shares
Issued and Exchangeable:
134,942,000 and 134,856,000 shares,
respectively................................. 11,949 11,941
Capital in excess of stated value................ 399,778 398,580
Retained earnings................................ 1,097,757 1,068,883
Accumulated other comprehensive expense.......... (15,494) (14,443)
----------- -----------
1,493,990 1,464,961
Treasury stock at cost: 20,964,000 and
16,626,000 shares, respectively................. (473,240) (399,522)
------------ --------------
1,020,750 1,065,439
----------- -----------
$1,770,509 $1,883,597
========== ==========
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
5
<PAGE> 6
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
QUARTER ENDED QUARTER ENDED
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES....................................... $ 41,221 $39,063
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from asset dispositions................. 11,264 12,805
Capital expenditures............................. (62,411) (54,850)
Acquisition of franchises........................ - (480)
Payments on notes receivable..................... 1,629 41,147
Other investing activities....................... 304 (102)
--------- ----------
Net cash used in investing activities.......... (49,214) (1,480)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock........... 994 7,560
Repurchase of common shares...................... (73,718) (12,187)
Principal payments on long-term
obligations.................................... (1,520) (1,354)
Dividends paid on common and
exchangeable shares............................ (7,051) (7,446)
----------- ----------
Net cash used in financing activities.......... (81,295) (13,427)
----------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (89,288) 24,156
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.......................................... 210,785 160,743
--------- --------
$ 121,497 $184,899
========= ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD...........
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................... $ 3,782 $ 3,536
Capitalized lease obligations incurred........... 323 574
Notes receivable from restaurant dispositions.... - 205
Income taxes paid................................ 16,416 11,766
Acquisition of franchises:
Fair value of assets acquired, net............. - 480
Cash paid...................................... - 480
Liabilities assumed............................ - -
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
6
<PAGE> 7
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED 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 condensed financial position of
Wendy's International, Inc. and Subsidiaries (the Company) at April 2, 2000
and January 2, 2000 and the condensed results of operations and
comprehensive income (see Note 3) for the quarters ended April 2, 2000 and
April 4, 1999 and cash flows for the quarters ended April 2, 2000 and April 4,
1999. The Notes to the audited Consolidated Financial Statements which are
contained in the Financial Statements and Other Information furnished with
the Company's 2000 Proxy Statement should be read in conjunction with these
Consolidated Condensed Financial Statements.
NOTE 2. 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. Diluted computations include assumed conversions of
stock options, net of shares repurchased from proceeds, and
company-obligated mandatorily redeemable preferred securities, when
dilutive, and the elimination of related expenses, net of income taxes.
The computations of basic and diluted earnings per common share are shown
below:
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
(In thousands, except per share data)
<S> <C> <C>
Income for computation of basic earnings
per common share............................ $35,925 $32,003
Interest savings (net of taxes) on assumed
conversions................................. 1,585 1,572
------- -------
Income for computation of diluted
earnings per common share................... $37,510 $33,575
======= =======
Weighted average shares for computation
of basic earnings per common share.......... 116,398 124,061
Dilutive stock options........................ 298 1,419
Assumed conversions........................... 7,573 7,573
------- -------
Weighted average shares for computation
of diluted earnings per common share........ 124,269 133,053
======= =======
Basic earnings per common share............... $.31 $.26
==== ====
Diluted earnings per common share............. $.30 $.25
==== ====
</TABLE>
7
<PAGE> 8
NOTE 3. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
The components of other comprehensive income (expense) and total comprehensive
income are shown below:
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
(In thousands)
<S> <C> <C>
Net income................................................. $35,925 $32,003
Other comprehensive income (expense):
Translation adjustments.................................... (1,051) 5,926
Other (net of taxes of $448 in 1999)....................... - (563)
----------- ---------
(1,051) 5,363
-------- --------
Comprehensive income....................................... $34,874 $37,366
======= =======
</TABLE>
NOTE 4. SEGMENT REPORTING
The Company operates exclusively in the food-service industry and has determined
that its reportable segments are those that are based on the Company's methods
of internal reporting and management structure. The Company's reportable
segments are: Domestic Wendy's, Tim Hortons and International Wendy's.
International Wendy's is comprised of Wendy's of Canada and other Wendy's
operations outside the United States. There were no material amounts of revenues
or transfers among reportable segments.
The table below presents information about reportable segments:
<TABLE>
<CAPTION>
DOMESTIC WENDY'S TIM HORTONS INTERNATIONAL WENDY'S TOTAL
---------------- ----------- --------------------- -----
(In thousands)
QUARTER ENDED APRIL 2, 2000
<S> <C> <C> <C> <C>
Revenues $369,144 $117,500 $33,196 $519,840
Income before income taxes 61,451 24,993 1,290 87,734
Capital expenditures 36,811 20,366 5,234 62,411
QUARTER ENDED APRIL 4, 1999
Revenues $342,872 $106,154 $27,517 $476,543
Income (loss) before income taxes 57,286 17,432 (182) 74,536
Capital expenditures 31,480 19,542 3,828 54,850
</TABLE>
A reconciliation of reportable segment income before income taxes to
consolidated income before income taxes follows:
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
APRIL 2, 2000 APRIL 4, 1999
------------- -------------
(In thousands)
<S> <C> <C>
Income before income taxes $87,734 $74,536
Corporate charges (30,255) (22,918)
------- -------
Consolidated income before income taxes $57,479 $51,618
======= =======
</TABLE>
Corporate charges include certain overhead costs and net interest expense.
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
---------------------
In the first quarter of 2000, the Company's net income increased 12.3% to $35.9
million from $32.0 million in 1999, and diluted earnings per common share
increased 20% to $.30. Average same store sales increased for Wendy's
domestic stores, Hortons Canada and Hortons U.S. during the quarter.
RETAIL SALES
Retail sales for the first quarter 2000 increased $34.3 million, or 8.8%, to
$423.6 million. Average restaurant sales increased 2.9% for the first quarter
2000 and average same-store sales in Wendy's domestic company restaurants
increased approximately 3.5% in the first quarter. Average domestic Wendy's
transaction counts were up 1.2% for the first quarter and the domestic selling
price increased .9%. Hortons warehouse sales for the first quarter 2000
increased 13.3%, or $7.1 million, to $60.7 million. This increase was primarily
the result of the development of new stores by Hortons and average same-store
sales increases (in local currency) of 9.9% for Hortons Canada and 14.8% for
Hortons U.S.
Average sales per domestic Wendy's restaurant for the quarters ended April 2,
2000 and April 4, 1999 were as follows:
First Quarter
-------------
%
2000 1999 Increase
---- ---- --------
Company........................ $312,900 $304,150 2.9
Franchise........................ 266,700 259,600 2.7
Total Domestic.................. 276,000 268,450 2.8
The number of systemwide restaurants open as of April 2, 2000 and April 4, 1999
was as follows:
2000 1999
---- ----
Company............................... 1,114 1,043
Franchise............................. 4,441 4,319
----- -----
Total Wendy's......................... 5,555 5,362
===== =====
Total Hortons......................... 1,829 1,696
===== =====
Total System.......................... 7,384 7,058
===== =====
COST OF SALES AND RESTAURANT OPERATING COSTS
In the first quarter 2000, the total domestic company operating margin was even
with 1999 at 15.8%. Wendy's domestic restaurant operating costs, as a percent of
retail sales, decreased .4% from 1999, primarily reflecting the leverage benefit
of higher average sales, as well as lower salaries and bonus accruals. This
decrease was partly offset due to lower advertising costs in 1999.
Domestic Wendy's cost of sales, as a percent of sales, increased .3% in the
first quarter 2000 versus 1999, reflecting higher labor costs. Hortons warehouse
cost of sales remained relatively constant as a percent of warehouse sales
during the quarter.
9
<PAGE> 10
FRANCHISE REVENUES
Domestic Wendy's royalties, before reserve provisions, increased $2.5 million in
the first quarter 2000 to $41.4 million. An average of 136 more Wendy's domestic
franchise restaurants were open in 2000 and average sales of Wendy's domestic
franchise restaurants increased 2.7% in the first quarter 2000 over 1999.
Average same-store sales at Hortons Canadian restaurants increased 9.9% (in
local currency) for the first quarter 2000 resulting in increased royalty income
of $1.9 million. Franchise reserves of $302,000 and $1.1 million were provided
year-to-date 2000 and 1999, respectively.
Gains on sale of rental properties were $1.2 million in the current year versus
$600,000 in 1999. The prior year included $1.2 million in fee income related to
refinancing notes receivable.
Rental income for the quarter increased $4.3 million to $33.2 million in 2000.
This was primarily a result of more Hortons franchise leased properties and the
increased average sales at Hortons resulting in increased rental income of $4.7
million in the first quarter. Wendy's rental income decreased reflecting the
sale of rental properties throughout 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the first quarter of 2000 were $51.0
million versus $47.0 million in 1999, or 9.8% and 9.9% of total revenues,
respectively. The expense increase includes salaries and benefits.
OTHER EXPENSE
Other expense increased $2.0 million net in the first quarter 2000 from 1999,
primarily as a result of an increase in estimated legal and settlement costs and
an expense related to the Company's search for a chief executive officer. During
the quarter, the Company finalized the disposition of the United Kingdom company
operated restaurants, and took action to close three company operated stores in
Argentina and one in the United States. These actions had no material impact on
other expenses.
INTEREST, NET
Net interest increased $1.7 million to $3.5 million in the first quarter 2000.
This primarily reflects a decrease in interest income as cash was reduced,
primarily by share repurchases.
COMPREHENSIVE INCOME
Comprehensive income decreased reflecting unfavorable movement in the Canadian
exchange rate (see Note 3).
FINANCIAL CONDITION
The Company's financial condition continues to be very strong at the end of the
first quarter of 2000. The long-term debt to equity and debt-to-total
capitalization ratios were 24% and 20%, respectively, at April 2, 2000. The
Company has implemented a program to maximize return on assets over the long
term by redeploying assets to opportunities that have higher potential returns.
A total of 252 rental properties have been sold and a total of $134 million in
notes receivable have been refinanced since 1998. The Company plans on
continuing the strategy of improving return on assets. During the quarter, cash
of $73.7 million was used to repurchase 4.3 million common shares. A total of
$472 million in cash has been used to purchase 20.8 million shares since the
repurchase program was announced in February 1998. The board has authorized
share repurchase up to a total of $600 million. Capital expenditures amounted to
$62 million for 2000 compared with $55 million for 1999.
OUTLOOK
The Company continues to employ its strategic initiatives as outlined in the
Financial Statements and Other Information furnished with the Company's 2000
Proxy Statement. These initiatives include growing same-store sales, improving
store-level productivity to increase margins, disposing of underperforming
restaurants, writing down underperforming and non-recoverable assets,
accelerating restaurant development in North America, and repurchasing common
shares.
The Company currently anticipates that up to 520 new Wendy's and Hortons
restaurants could be opened systemwide (both company and franchise) during 2000,
subject to the continued ability of the Company and its franchisees to complete
permitting and to overcome other regulatory requirements for the completion of
stores in process, and to
10
<PAGE> 11
obtain financing for new restaurant development. Year-to-date 2000, there have
been 72 new restaurants opened. While the majority of international business
outside North America continues to be through franchising, last year the Company
acquired the Wendy's restaurants in Argentina. The restaurants operated in
Argentina are not currently profitable, although international operations except
for Argentina are profitable. In the United States, Hortons is a new concept in
the investment phase and not currently profitable.
Cash flow from operations, cash and investments on hand, possible asset sales,
and cash available through existing revolving credit agreements and through the
possible issuance of securities should provide for the Company's projected cash
requirements, including cash for capital expenditures, future acquisitions of
restaurants from franchisees, stock repurchases or other corporate purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, Financial Accounting Standard Number 133 - "Accounting for
Derivative Instruments and Hedging Activities" was issued. The statement is
effective for all quarters of fiscal years beginning after June 15, 2000. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the financial statements at fair
value. Currently this statement would not materially impact the Company's
financial statements.
SAFE HARBOR STATEMENT
Certain information contained in this Form 10-Q, particularly information
regarding future economic performance and finances, plans and objectives of
management, is forward looking. In some cases, information regarding certain
important factors that could cause actual results to differ materially from any
such forward-looking statement appears 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;
changes in 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 (including
currency fluctuations); 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; the ability of the Company to successfully complete
transactions designed to improve its return on investment; and other factors set
forth in Exhibit 99 attached hereto.
PART II: OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
(a) Index to Exhibits on Page 13.
(b) The Company filed three Reports on Form 8-K during the first quarter 2000.
The Form 8-K filed January 7, 2000 announced the appointment of John T.
(Jack) Schuessler as a director of the Company. A copy of the press release
issued January 6, 2000 was attached.
The Form 8-K filed March 17, 2000 announced that John T. Schuessler was
named Chief Executive Officer and President of the Company. A copy of the
press release issued March 17, 2000 was attached.
The Form 8-K filed January 13, 2000 announced December and fourth quarter
sales, and new restaurant development figures for fiscal 1999. A copy of
the press release issued January 13, 2000 was attached.
11
<PAGE> 12
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements 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: 5/16/00 /s/ Ronald E. Musick
----------------- ------------------------------
Ronald E. Musick
Executive Vice President
(As authorized signatory
and principal financial officer)
12
<PAGE> 13
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
------ ----------- --------
99 Safe Harbor Under 14 - 15
the Private Securities
Litigation Reform Act of 1995
13
<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 international, 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.
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 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
14
<PAGE> 2
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 expectation of gains from future
dispositions of restaurants depends in part on the ability of the Company to
complete disposition transactions on acceptable terms.
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.
15
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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.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
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<RECEIVABLES> 79,283
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<INVENTORY> 33,101
<CURRENT-ASSETS> 251,850
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0
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<SALES> 423,593
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<CGS> 267,587
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<OTHER-EXPENSES> 80,033
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<INTEREST-EXPENSE> 3,456
<INCOME-PRETAX> 57,479
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<INCOME-CONTINUING> 35,925
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