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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2003
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8116
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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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 2, 2003
- --------------------------------- -------------------------------
Common shares, $.10 stated value 113,935,000 shares
Exhibit index on page 28.
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Pages
-----
PART I: Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Income for the
quarters and year-to-date periods ended September 28, 2003
and September 29, 2002 3 - 4
Consolidated Condensed Balance Sheets as of September 28, 2003
and December 29, 2002 5 - 6
Consolidated Condensed Statements of Cash Flows for the
year-to-date periods ended September 28, 2003 and
September 29, 2002 7
Notes to the Consolidated Condensed Financial Statements 8 - 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 27
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K 27
Signature 28
Index to Exhibits 29
Exhibit 31(a) 30
Exhibit 31(b) 31
Exhibit 32(a) 32
Exhibit 32(b) 33
Exhibit 99 34 - 35
2
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
QUARTER ENDED QUARTER ENDED
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------ ------------------
REVENUES
Retail sales $ 648,887 $ 578,358
Franchise revenues 157,641 143,775
--------- ---------
806,528 722,133
--------- ---------
COSTS AND EXPENSES
Cost of sales 417,031 362,715
Company restaurant operating costs 137,130 122,591
Operating costs 32,441 31,339
General and administrative expenses 64,538 63,568
Depreciation of property and equipment 40,491 34,293
Other expense (income) (897) 1,417
Interest expense 11,509 11,570
Interest income (1,504) (1,633)
--------- ---------
700,739 625,860
--------- ---------
INCOME BEFORE INCOME TAXES 105,789 96,273
INCOME TAXES 39,501 35,380
--------- ---------
NET INCOME $ 66,288 $ 60,893
========= =========
BASIC EARNINGS PER COMMON SHARE $.58 $.53
==== ====
DILUTED EARNINGS PER COMMON SHARE $.58 $.52
==== ====
DIVIDENDS PER COMMON SHARE $.06 $.06
==== ====
BASIC SHARES 113,437 115,689
======= =======
DILUTED SHARES 114,465 117,430
======= =======
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
3
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
YEAR-TO-DATE ENDED YEAR-TO-DATE ENDED
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------ -------------------
REVENUES
Retail sales $ 1,847,775 $ 1,620,279
Franchise revenues 438,762 398,297
----------- -----------
2,286,537 2,018,576
----------- -----------
COSTS AND EXPENSES
Cost of sales 1,188,791 1,019,418
Company restaurant operating costs 393,634 342,689
Operating costs 92,270 83,255
General and administrative expenses 192,560 178,650
Depreciation of property and equipment 119,293 102,212
Other expense (income) (5,715) 776
Interest expense 34,204 30,356
Interest income (3,403) (4,484)
----------- -----------
2,011,634 1,752,872
----------- -----------
INCOME BEFORE INCOME TAXES 274,903 265,704
INCOME TAXES 103,607 97,646
----------- -----------
NET INCOME $ 171,296 $ 168,058
=========== ===========
BASIC EARNINGS PER COMMON SHARE $1.51 $1.52
===== =====
DILUTED EARNINGS PER COMMON SHARE $1.49 $1.45
===== =====
DIVIDENDS PER COMMON SHARE $.18 $.18
==== ====
BASIC SHARES 113,771 110,793
======= =======
DILUTED SHARES 114,616 116,665
======= =======
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
4
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
SEPTEMBER 28, 2003 DECEMBER 29, 2002
------------------ -----------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 213,494 $ 171,944
Accounts receivable, net 91,911 86,416
Notes receivable, net 14,039 11,204
Deferred income taxes 13,856 13,822
Inventories and other 74,428 47,433
----------- -----------
407,728 330,819
----------- -----------
PROPERTY AND EQUIPMENT 2,837,156 2,588,695
Accumulated depreciation (859,499) (743,305)
----------- -----------
1,977,657 1,845,390
----------- -----------
NOTES RECEIVABLE, NET 16,522 20,548
GOODWILL 280,011 272,325
DEFERRED INCOME TAXES 64,260 48,966
INTANGIBLE ASSETS, NET 46,266 47,393
OTHER ASSETS 127,457 96,044
----------- -----------
$ 2,919,901 $ 2,661,485
=========== ===========
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
5
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
SEPTEMBER 28, 2003 DECEMBER 29, 2002
------------------ -----------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 94,677 $ 134,208
Accrued expenses:
Salaries and wages 44,658 44,932
Taxes 91,958 77,956
Insurance 42,480 42,898
Other 67,672 55,308
Current portion of long-term obligations 55,104 4,773
----------- -----------
396,549 360,075
----------- -----------
LONG-TERM OBLIGATIONS
Term debt 626,575 627,053
Capital leases 64,151 54,626
----------- -----------
690,726 681,679
----------- -----------
DEFERRED INCOME TAXES 122,164 108,906
OTHER LONG-TERM LIABILITIES 75,193 62,220
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Authorized: 250,000 shares
Common stock, $.10 stated value per share,
Authorized: 200,000,000 shares,
Issued and Exchangeable:
115,301,000 and 114,692,000 shares,
respectively 11,530 10,895
Capital in excess of stated value 13,968 0
Retained earnings 1,645,611 1,498,607
Accumulated other comprehensive
income (expense) 14,155 (60,897)
----------- -----------
1,685,264 1,448,605
Treasury stock, at cost:
1,881,000 shares at September 28, 2003 (49,995) 0
----------- -----------
1,635,269 1,448,605
----------- -----------
$ 2,919,901 $ 2,661,485
=========== ===========
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
6
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 270,563 $ 334,228
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from property dispositions 13,409 19,301
Capital expenditures (218,872) (234,800)
Acquisition of Baja Fresh 0 (287,374)
Acquisition of franchises (9,600) (746)
Principal payments on notes receivable 7,427 13,280
Investment in joint venture and other (6,215) (27,834)
Proceeds from sale of Conference Cup 0 19,959
Other investing activities (3,329) (4,375)
--------- ---------
Net cash used in investing activities (217,180) (502,589)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of
issuance costs 49,975 224,359
Proceeds from employee stock
options exercised 12,216 75,223
Repurchase of common stock (49,995) (24,723)
Principal payments on
long-term obligations (3,535) (3,251)
Dividends paid on common and
exchangeable shares (20,494) (20,155)
--------- ---------
Net cash provided by (used in)
financing activities (11,833) 251,453
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 41,550 83,092
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 171,944 111,121
--------- ---------
$ 213,494 $ 194,213
========= =========
CASH AND CASH EQUIVALENTS AT END OF PERIOD
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Interest paid $ 22,058 $ 20,155
Income taxes paid 104,042 46,892
Capitalized lease obligations incurred 7,426 8,727
NON-CASH INVESTING AND FINANCING ACTIVITIES
$2.50 Term Convertible Securities,
Series A, converted and redeemed 0 $ 200,000
The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.
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 Consolidated Condensed 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") as of September 28, 2003
and December 29, 2002, and the condensed results of operations and comprehensive
income (see Note 4) for the quarters and year-to-date periods ended September
28, 2003 and September 29, 2002, and cash flows for the year-to-date periods
ended September 28, 2003 and September 29, 2002. All of these financial
statements are unaudited with the exception of the December 29, 2002 balance
sheet, which is derived from audited financial statements. The Notes to the
audited Consolidated Financial Statements, which are contained in the Company's
Form 10-K/A filed with the Securities and Exchange Commission on April 22, 2003,
should be read in conjunction with these Consolidated Condensed Financial
Statements.
NOTE 2. NET INCOME PER SHARE
Basic earnings per common share are 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
assumed to be repurchased from the proceeds, and company-obligated mandatorily
redeemable preferred securities converted in the second quarter of 2002, when
outstanding and dilutive, and the elimination of after-tax related expenses.
Options to purchase 4.6 million shares of common stock in the current quarter
and year-to-date, and 3.3 million shares and 3.4 million shares in the prior
year quarter and year-to-date, respectively, were not included in the
computation of diluted earnings per common share. These options were excluded
from the calculation because the exercise price of these options was greater
than the average market price of the common shares in the respective periods,
and therefore, they are antidilutive.
The computations of basic and diluted earnings per common share are shown below:
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
2003 2002 2003 2002
------------- ------------ ------------- -------------
(In thousands, except per share data)
Income for computation of basic earnings per common share $ 66,288 $ 60,893 $171,296 $168,058
Interest savings (net of income taxes) on assumed conversions 0 0 0 1,395
-------- -------- -------- --------
Income for computation of diluted earnings per common share $ 66,288 $ 60,893 $171,296 $169,453
======== ======== ======== ========
Weighted average shares outstanding for computation of basic
earnings per common share 113,437 115,689 113,771 110,793
Dilutive stock options 1,028 1,741 845 1,879
Assumed conversions 0 0 0 3,993
-------- -------- -------- --------
Weighted average shares outstanding for computation of diluted
earnings per common share 114,465 117,430 114,616 116,665
======== ======== ======== ========
Basic earnings per common share $.58 $.53 $1.51 $1.52
==== ==== ===== =====
Diluted earnings per common share $.58 $.52 $1.49 $1.45
==== ==== ===== =====
8
NOTE 3. STOCK OPTIONS
The Company has various stock option plans that provide options for certain
employees and outside directors to purchase common shares of the Company. The
Company uses the intrinsic value method to account for stock-based employee
compensation as defined in Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees."
The pro forma disclosures below are provided as if the Company had adopted the
cost recognition requirements under Statement of Financial Accounting Standards
("SFAS") No. 123 - "Accounting for Stock-Based Compensation", as amended by SFAS
No. 148.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model. This model requires the use of
subjective assumptions that can materially affect fair value estimates, and
therefore, this model does not necessarily provide a reliable single measure of
the fair value of the Company's stock options.
Had compensation expense been recognized for stock-based compensation plans in
accordance with provisions of SFAS No. 123, the Company would have recorded net
income and earnings per share as follows:
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
(In millions, except per share data)
Net income $66.3 $60.9 $171.3 $168.1
Add: Stock compensation cost recorded under APB
Opinion No. 25, net of tax .1 0 .4 0
Deduct: Stock compensation cost calculated under
SFAS No. 123, net of tax (4.0) (3.4) (10.9) (8.4)
----- ----- ------ ------
Pro forma net income $62.4 $57.5 $160.8 $159.7
===== ===== ====== ======
Earnings per share:
Basic as reported $.58 $.53 $1.51 $1.52
==== ==== ===== =====
Basic pro forma $.55 $.50 $1.41 $1.44
==== ==== ===== =====
Diluted as reported $.58 $.52 $1.49 $1.45
==== ==== ===== =====
Diluted pro forma $.55 $.49 $1.42 $1.39
==== ==== ===== =====
The impact of applying SFAS No. 123 in this proforma disclosure is not
necessarily indicative of future results.
NOTE 4. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
The components of other comprehensive income (expense) and total comprehensive
income are shown below (in thousands):
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
2003 2002 2003 2002
------------- -------------- ------------- -------------
Net income $66,288 $60,893 $171,296 $168,058
Other comprehensive income (expense):
Translation adjustments and other (929) (18,230) 75,052 1,902
------- ------- -------- --------
Total comprehensive income $65,359 $42,663 $246,348 $169,960
======= ======= ======== ========
Other comprehensive income (expense) is primarily comprised of translation
adjustments related to fluctuations in the Canadian dollar. During the third
quarter 2003, there was a slight weakening in the Canadian dollar versus a
significant
9
weakening in the same quarter a year ago. For year-to-date 2003, there was a
significant strengthening in the Canadian dollar versus a slight strengthening
in 2002. At the end of the third quarter 2003, the Canadian exchange rate was
$1.35 versus $1.57 at December 29, 2002. At the end of the third quarter 2002,
the Canadian exchange rate was $1.58 versus $1.59 at December 30, 2001. Other
comprehensive income (expense) for the quarter and year-to-date 2003 also
includes $400,000 and $1.8 million, respectively, related to fair value losses
on forward contracts.
NOTE 5. SEGMENT REPORTING
The Company operates exclusively in the food-service industry and has determined
its reportable segments based on the Company's methods of internal reporting and
management structure. The Company's reportable segments are Wendy's, Tim Hortons
and Baja Fresh. There were no material amounts of revenues or transfers among
reportable segments for the quarters and year-to-date periods ended September
28, 2003 and September 29, 2002. The following table presents information about
reportable segments (in thousands):
QUARTER ENDED YEAR-TO-DATE ENDED
------------------------------------------------ ----------------------------------------------------
SEPTEMBER 28, % OF SEPTEMBER 29, % OF SEPTEMBER 28, % OF SEPTEMBER 29, % OF
2003 TOTAL 2002 TOTAL 2003 TOTAL 2002 TOTAL
-------------- ----- ------------ ----- ------------- ----- ------------ -------
REVENUES
Wendy's $562,677 69.8% $523,192 72.4% $1,598,815 70.0% $1,517,866 75.2%
Tim Hortons 203,611 25.2% 163,647 22.7% 574,731 25.1% 465,416 23.1%
Baja Fresh * 40,240 5.0% 35,294 4.9% 112,991 4.9% 35,294 1.7%
-------- ------ -------- ------ ---------- ------ ---------- ------
$806,528 100.0% $722,133 100.0% $2,286,537 100.0% $2,018,576 100.0%
======== ====== ======== ====== ========== ====== ========== ======
INCOME BEFORE INTEREST
AND INCOME TAXES
Wendy's $72,830 56.9% $71,393 60.6% $192,364 56.9% $204,138 63.4%
Tim Hortons 56,295 44.0% 44,344 37.6% 145,290 42.9% 115,719 35.9%
Baja Fresh * (1,226) (0.9)% 2,116 1.8% 748 0.2% 2,294 0.7%
-------- ------ -------- ------ ---------- ------ ---------- ------
$127,899 100.0% $117,853 100.0% $338,402 100.0% $322,151 100.0%
======== ====== ======== ====== ========== ====== ========== ======
CAPITAL EXPENDITURES
Wendy's $58,106 61.5% $67,434 76.8% $140,341 64.1% $181,856 77.4%
Tim Hortons 29,349 31.0% 13,817 15.7% 61,781 28.2% 46,392 19.8%
Baja Fresh * 7,059 7.5% 6,552 7.5% 16,750 7.7% 6,552 2.8%
-------- ------ -------- ------ ---------- ------ ---------- ------
$94,514 100.0% $87,803 100.0% $218,872 100.0% $234,800 100.0%
======== ====== ======== ====== ========== ====== ========== ======
* Baja Fresh was acquired by the Company on June 19, 2002. Information prior to
that date is not included.
A reconciliation of reportable segment income before interest and income taxes
to consolidated income before income taxes follows (in thousands):
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Income before interest and income taxes $127,899 $117,853 $338,402 $322,151
Corporate charges (1) (22,110) (21,580) (63,499) (56,447)
-------- --------- -------- --------
Consolidated income before income taxes $105,789 $ 96,273 $274,903 $265,704
======== ======== ======== ========
(1) Corporate charges include certain overhead costs and interest income and
expense. In the fourth quarter of 2002, the Company revised the allocation
of costs between the Wendy's segment and corporate charges as a result of a
change in its methods of internal reporting and management structure. The
prior year quarter and year-to-date amounts have been reclassified to
conform with the current year presentation.
10
NOTE 6. INTANGIBLE ASSETS
The table below presents amortizable and unamortizable intangible assets as of
September 28, 2003 and December 29, 2002 (in thousands):
SEPTEMBER 28, 2003 DECEMBER 29, 2002
--------------------------------------- ---------------------------------------
GROSS NET GROSS NET
CARRYING ACCUMULATED CARRYING CARRYING ACCUMULATED CARRYING
AMOUNT AMORTIZATION AMOUNT AMOUNT AMORTIZATION AMOUNT
-------- ------------ -------- -------- ------------ --------
Amortizable intangible assets:
Patents and trademarks $43,387 $(4,301) $ 39,086 $42,197 $(2,732) $ 39,465
Purchase options 7,500 (4,475) 3,025 7,500 (3,966) 3,534
Other 5,505 (1,350) 4,155 5,190 (796) 4,394
-------- --------
$ 46,266 $ 47,393
======== ========
Unamortizable intangible assets:
Goodwill $280,011 $272,325
======== ========
Total intangibles amortization expense was $863,000 and $2.6 million for the
quarter and year-to-date ended September 28, 2003, respectively, and $509,000
and $1.5 million for the quarter and year-to-date ended September 29, 2002,
respectively. The estimated annual intangibles amortization expense for each
year through 2007 is $3.4 million. The $7.7 million increase in goodwill from
December 29, 2002, primarily reflects the Company's goodwill allocation related
to its acquisition of five Baja Fresh franchise stores in second quarter 2003
and eight Wendy's Canada franchise stores in first quarter of 2003. Goodwill is
assigned to the Company's reportable segments as follows (in thousands):
As of As of
September 28, December 29,
2003 2002
------------- ------------
Goodwill, net
Wendy's $ 44,118 $ 42,897
Tim Hortons 434 538
Baja Fresh 235,459 228,890
-------- --------
$280,011 $272,325
======== ========
Under SFAS No. 142, goodwill and other indefinite-lived intangibles must be
tested for impairment annually (or in interim periods if events indicate
possible impairment). The Company tested for goodwill impairment as of year-end
2002, and no impairment was indicated.
NOTE 7. ACQUISITIONS AND INVESTMENTS
In 2001, the Company formed a joint venture between Tim Hortons ("Hortons") and
IAWS Group/Cuisine de France ("IAWS") to build a par-baked goods manufacturing
facility in Canada. The joint venture is owned and jointly controlled on a
fifty-fifty basis by Hortons and IAWS. The Company has committed to invest
approximately $49.6 million in this joint venture, of which $35.7 million was
invested through December 29, 2002, and an additional $6.2 million has been
invested year-to-date in 2003.
On June 19, 2002, the Company completed its acquisition of Fresh Enterprises,
Inc. ("Baja Fresh"), the owner and operator of the Baja Fresh Mexican Grill
restaurant chain, pursuant to a Merger Agreement dated May 30, 2002. The results
of Baja Fresh's operations have been included in the Company's Consolidated
Financial Statements since June 19, 2002.
11
If the acquisition had been completed as of the beginning of the period
indicated below, pro forma revenues, net income and basic and diluted earnings
per common share would have been as follows (in thousands, except per share
amounts):
YEAR-TO-DATE
ENDED
SEPTEMBER 29, 2002
------------------
Total revenues $2,062,439
Net income $ 162,525
Earnings per common share:
Basic $1.47
Diluted $1.41
The above selected unaudited pro forma information for the year-to-date ended
September 29, 2002, includes interest expense on the Company's $225 million of
6.20% senior notes that were issued in conjunction with the acquisition of Baja
Fresh. Expenses incurred by Baja Fresh in conjunction with its previously
planned public offering were excluded from the calculations.
The pro forma information is not necessarily indicative of the results of
operations had the acquisition actually occurred at the beginning the period,
nor is it necessarily indicative of future results.
NOTE 8. GUARANTEES AND INDEMNIFICATIONS The following table summarizes
guarantees of the Company which are primarily comprised of certain lease and
debt obligations related to franchisees and leases assigned to non-franchisees
(in thousands):
BALANCE AT
SEPTEMBER 28, 2003
------------------
Franchisee and other lease and loan guarantees:
Wendy's $129,995
Tim Hortons 458
Baja Fresh 4,138
--------
Total $134,591
--------
Contingently liable rent on leases:
Wendy's $ 22,517
Letters of credit:
Wendy's $ 6,631
Tim Hortons 3,075
Baja Fresh 600
--------
$ 10,306
--------
Total guarantees and indemnifications $167,414
========
In addition to the above guarantees, the Company is party to many agreements
executed in the ordinary course of business that provide for indemnification of
third parties under specified circumstances, such as lessors of real property
leased by the Company, distributors, service providers for various types of
services (including commercial banking, investment banking, tax, actuarial and
other services), software licensors, marketing and advertising firms, securities
underwriters and others. Generally, these agreements obligate the Company to
indemnify the third parties only if certain events occur or claims are made, as
these contingent events or claims are defined in each of these agreements. The
Company believes that the resolution of any claims that might arise in the
future, either individually or in the aggregate, would not materially affect the
earnings or financial condition of the Company. Effective January 1, 2003, the
Company adopted Financial Accounting Standards Board Interpretation ("FIN") No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". In accordance with FIN
No. 45 and based on available information, the Company has accrued $470,000 for
guarantees and indemnities entered into between January 1, 2003 and September
28, 2003.
12
NOTE 9. DEBT
In the first quarter of 2003 the Company took two steps to increase its
financial flexibility to respond to potential opportunities and longer term cash
requirements.
On January 30, 2003, the Company filed a shelf registration statement on Form
S-3 with the Securities and Exchange Commission which increased its capacity to
issue securities up to $500 million. As of September 28, 2003, no securities
under the Company's shelf registration statement have been issued.
The Company also entered into a new $200 million revolving credit facility that
replaced the six revolving credit facilities totaling $200 million that were
previously in place. The new revolving credit facility contains various
covenants which, among other things, require the maintenance of certain ratios,
including indebtedness to total capitalization and a fixed charge coverage ratio
and limits on the amount of assets that can be sold and liens that can be placed
on the Company's assets. As of September 28, 2003, the Company was in compliance
with its covenants under the revolving credit facility and no amounts under the
revolving credit facility were outstanding.
In the third quarter of 2003 the Company issued $50 million of commercial paper
in connection with the acquisition of franchise-owned and operated Wendy's
restaurants in Orlando and Tampa, Florida. The commercial paper is included in
the current portion of long-term obligations in the Company's financial
statements. The acquisition closed on the first day of the fourth quarter and
cost approximately $87 million in total, which was paid in cash.
NOTE 10. RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities". This Statement amends and clarifies the accounting guidance on
derivative instruments (including certain derivative instruments embedded in
other contracts) and hedging activities that fall within the scope of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
149 also amends certain other existing pronouncements, which will result in more
consistent reporting of contracts that are derivatives in their entirety or that
contain embedded derivatives that warrant separate accounting. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, with
certain exceptions, and for hedging relationships initiated after June 30, 2003.
The guidance outlined in this Statement is to be applied prospectively. The
Company adopted this Statement in the third quarter of 2003. Such adoption did
not result in an impact to the Company's financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities - an interpretation of "Accounting Research Bulletin" ("ARB") No. 51".
This Interpretation is intended to clarify the application of the majority
voting interest requirement of ARB No. 51, "Consolidated Financial Statements",
to certain entities in which equity investors do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. The controlling financial interest may be achieved
through arrangements that do not involve voting interests. FIN 46 is effective
immediately to variable interests in a variable interest entity ("VIE") created
or obtained after January 31, 2003. As amended by FASB Staff Position ("FSP")
No. FIN 46-6, FIN 46 is effective for variable interests in a VIE created
before February 1, 2003 at the end of the first interim or annual period ending
after December 15, 2003. FIN 46 may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first applied or by
restating previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated. The
Company adopted the disclosure provisions of this Interpretation in the fourth
quarter of 2002, and will adopt the remaining provisions in the fourth quarter
of 2003.
The FASB is currently proposing modifications and issuing FSPs that change and
clarify FIN 46. These modifications and FSPs, when finalized, could impact the
Company's analysis of the applicability of FIN 46 to entities that are
franchisees of the Company's concepts, to the Horton's joint venture with IAWS
Group/Cuisine de France, and to various advertising funds utilized by the
Company to administer its advertising programs and certain other arrangements.
The Company has no equity ownership interests in its franchisees and has a 50%
equity ownership in the Horton's joint venture. The advertising funds collect
money from franchise and company operated restaurants to be used for mutually
beneficial marketing programs. None of these entities have been consolidated in
the Company's third
13
quarter financial statements. While the Company will continue to monitor and
analyze developments regarding FIN 46 that would impact its applicability to
some franchisee and other relationships and arrangements, at this time the
Company does not believe that the consolidation of franchisees or other
entities, if required, would materially impact its future operating results.
In July 2003, the EITF released EITF No. 03-03, "Applicability of Topic No.
D-79, to Claims-Made Insurance Policies". This EITF clarifies that a claims-made
insurance policy that provides coverage for specific known claims prior to the
policy period contains a retroactive provision that should be accounted for
accordingly; either separately, if practicable, or, if not practicable, the
claims-made insurance policy should be accounted for entirely as a retroactive
contract. The Company adopted the provisions of EITF No. 03-03 in the third
quarter 2003. Such adoption did not result in an impact to the Company's
financial statements.
NOTE 11. SUBSEQUENT EVENT
On September 29, 2003, the Company acquired 68 franchise-owned and operated
Wendy's restaurants in Orlando and Tampa, Florida. The transaction cost
approximately $87 million, which was paid in cash.
14
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's net income increased 8.9% to $66.3 million in the current quarter,
and 1.9% to $171.3 million year-to-date. Diluted earnings per share ("EPS") were
$.58 and $1.49 in the current year quarter and year-to-date, respectively,
versus $.52 and $1.45, respectively, in the prior year. The overall impact of
Baja Fresh, including earnings less interest expense on the senior notes issued
in conjunction with the acquisition, was an approximate $.025 EPS reduction in
the current quarter versus $.015 EPS reduction in the prior year quarter and
year-to-date, and a $.06 EPS reduction year-to-date 2003. The Canadian dollar
has strengthened throughout 2003 and EPS has benefited approximately $.035 in
the quarter and $.10 year-to-date 2003. In the third quarter 2002, the Company
had a gain of $.02 per share from the sale of Tim Hortons' cup manufacturing
business.
Same-store sales results as a percentage change for the quarter and year-to-date
periods versus prior year are listed below:
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002 SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
------------------ ------------------ ------------------ ------------------
Wendy's U.S. company 0.5% 5.0% (1.6%) 5.9%
Wendy's U.S. franchise 0.9% 7.8% (0.9%) 8.5%
Tim Hortons Canada 5.5% 5.8% 4.5% 7.7%
Tim Hortons U.S. 6.8% 8.8% 3.6% 10.9%
Baja Fresh total system (4.1%) 1.2% (4.4%) 3.8%
Revenues for the quarter and year-to-date periods were as follows (in
thousands):
REVENUES
INCREASE FROM
QUARTER ENDED PRIOR YEAR
------------------------------------------------------- --------------------------
SEPTEMBER 28, % OF SEPTEMBER 29, % OF
2003 TOTAL 2002 TOTAL DOLLARS PERCENTAGE
------------- ----- ------------- ----- ------- ----------
RETAIL SALES
Wendy's $487,917 75.2% $449,909 77.8% $38,008 8.4%
Tim Hortons 123,114 19.0% 95,325 16.5% 27,789 29.2%
Baja Fresh 37,856 5.8% 33,124 5.7% 4,732 14.3%
-------- ------ -------- ------ -------
$648,887 100.0% $578,358 100.0% $70,529 12.2%
======== ====== ======== ====== =======
FRANCHISE REVENUES
Wendy's $74,760 47.4% $ 73,283 51.0% $ 1,477 2.0%
Tim Hortons 80,497 51.1% 68,322 47.5% 12,175 17.8%
Baja Fresh 2,384 1.5% 2,170 1.5% 214 9.9%
-------- ------ -------- ------ -------
$157,641 100.0% $143,775 100.0% $13,866 9.6%
======== ====== ======== ====== =======
TOTAL REVENUES
Wendy's $562,677 69.8% $523,192 72.4% $39,485 7.5%
Tim Hortons 203,611 25.2% 163,647 22.7% 39,964 24.4%
Baja Fresh 40,240 5.0% 35,294 4.9% 4,946 14.0%
-------- ------ -------- ------ -------
$806,528 100.0% $722,133 100.0% $84,395 11.7%
======== ====== ======== ====== =======
15
REVENUES
INCREASE FROM
YEAR-TO-DATE PRIOR YEAR
-------------------------------------------------------- ---------------------------
(In thousands):
SEPTEMBER 28, % OF SEPTEMBER 29, % OF
2003 TOTAL 2002 TOTAL DOLLARS PERCENTAGE
------------- ------ ------------- ------ ------- ----------
RETAIL SALES
Wendy's $1,385,262 75.0% $1,307,508 80.7% $77,754 5.9%
Tim Hortons 356,186 19.3% 279,647 17.3% 76,539 27.4%
Baja Fresh * 106,327 5.7% 33,124 2.0% 73,203 n/a
---------- ----- ---------- ----- --------
$1,847,775 100.0% $1,620,279 100.0% $227,496 14.0%
========== ===== ========== ====== ========
FRANCHISE REVENUES
Wendy's $213,553 48.7% $210,358 52.8% $ 3,195 1.5%
Tim Hortons 218,545 49.8% 185,769 46.7% 32,776 17.6%
Baja Fresh * 6,664 1.5% 2,170 0.5% 4,494 n/a
---------- ----- ---------- ----- --------
$438,762 100.0% $398,297 100.0% $40,465 10.2%
========== ===== ========== ====== ========
TOTAL REVENUES
Wendy's $1,598,815 69.9% $1,517,866 75.2% $80,949 5.3%
Tim Hortons 574,731 25.2% 465,416 23.1% 109,315 23.5%
Baja Fresh * 112,991 4.9% 35,294 1.7% 77,697 n/a
---------- ----- ---------- ----- --------
$2,286,537 100.0% $2,018,576 100.0% $267,961 13.3%
========== ===== ========== ====== ========
* Baja Fresh was acquired by the Company on June 19, 2002. Information prior to
that date is not included.
WENDY'S
RETAIL SALES
Total Wendy's retail sales for the third quarter increased $38.0 million, or
8.4%, to $487.9 million and $77.8 million, or 5.9%, to $1.4 billion
year-to-date. Of this total, domestic Wendy's retail sales increased $27.8
million, or 6.9%, to $430.9 million in the quarter and $56.9 million, or 4.8%,
to $1.2 billion year-to-date. For domestic company operated Wendy's restaurants,
the average number of restaurants increased by 84 in the quarter and 82
year-to-date. Average sales decreased .5% to $356,230 per restaurant in the
quarter and 2.3% to $1.0 million year-to-date. Same-store sales in Wendy's
domestic company restaurants increased .5% in the quarter and decreased 1.6%
year-to-date. The domestic company operated Wendy's restaurant same-store sales
increase during the quarter reflects an increase in the number of transactions
of .3% and an increase in the average check of .3%. The year-to-date decrease
reflects a decrease in the number of transactions of 1.2% and average check of
..4%. Domestic selling prices increased .5% in both the quarter and year-to-date.
Canadian Wendy's retail sales increased $10.2 million, or 31.0%, in the third
quarter and $21.2 million, or 22.9%, year-to-date. Approximately 41% and 43% of
the increase is due to strengthening of the Canadian dollar in the quarter and
year-to-date, respectively, as compared to the prior year. Also, at quarter-end,
the Company operated 143 Canadian Wendy's restaurants versus 128 in 2002.
Canadian Wendy's same-store sales for company operated restaurants, in local
currency, increased 4.3% in the third quarter and 2.1% year-to-date. Outside of
North America, the Company only operates two restaurants.
FRANCHISE REVENUES
Total Wendy's franchise revenues increased $1.5 million, or 2.0%, to $74.8
million in the quarter and $3.2 million, or 1.5%, to $213.6 million
year-to-date. Royalties increased $2.7 million, or 4.5%, to $63.2 million in the
quarter and $4.3 million, or 2.4%, to $179.1 million year-to-date, due primarily
to an increase in franchise stores open. The average number of domestic Wendy's
franchise restaurants increased by 145 in the quarter and year-to-date, to a
total of 4,438 as of September 28, 2003. Average net sales at franchise domestic
restaurants increased 1.0% to $329,767 per restaurant in the quarter and
decreased .8% to $942,944 year-to-date. Same-store sales at franchise domestic
restaurants
16
increased .9% for the quarter and decreased .9% year-to-date. In local currency,
Canadian Wendy's same-store franchise restaurant sales increased 2.6% in the
quarter and .7% year-to-date, while other international same-store franchise
sales increased 1.1% for the quarter and 1.2% year-to-date.
TIM HORTONS
The significant majority of Tim Hortons ("Hortons") operations are in Canada.
The strengthening of the Canadian dollar in the current year versus 2002
increased amounts reported in U.S. dollars from Hortons on average by
approximately 12% in the quarter and 9% year-to-date.
RETAIL SALES
Total Hortons retail sales increased $27.8 million, or 29.2%, to $123.1 million
in the third quarter and $76.5 million, or 27.4%, to $356.2 million
year-to-date. The strengthening of the Canadian dollar accounted for
approximately $11 million of the increase in the quarter and $25 million
year-to-date. The remaining increase reflected Canadian warehouse sales (sales
of dry goods to franchisees) which increased $18.5 million, or 22.1%, in the
quarter and $60.1 million, or 24.9%, year-to-date. This reflected a net increase
of 159 Hortons' Canadian franchised restaurants serviced compared to September
29, 2002 and same-store sales growth in local currency of 5.5% for the quarter
and 4.5% year-to-date. Retail sales in the U.S. decreased $2.7 million to $4.1
million in the quarter, and $8.6 million to $14.2 million year-to-date,
reflecting fewer company operated restaurants as Hortons continued the strategy
of franchising company operated restaurants in the U.S.
FRANCHISE REVENUES
Total Hortons franchise revenues increased $12.2 million, or 17.8%, to $80.5
million in the third quarter and $32.8 million, or 17.6%, to $218.5 million
year-to-date. The strengthening of the Canadian dollar accounted for
approximately $8 million of the increase in the quarter and $16 million
year-to-date. Of the remaining $4.2 million, or 6.6%, increase in the quarter
and $16.8 million, or 8.8%, increase year-to-date, Canadian rental income from
restaurants leased to franchisees increased $5.7 million, or 15.1%, in the
quarter and $17.0 million, or 16.0%, year-to-date. The increase reflected the
growth in the number and average sales of franchise stores (rent is generally
charged as a percent of sales). Canadian royalties also increased $1.9 million,
or 15.2%, in the quarter and $5.0 million, or 13.8%, year-to-date. This
reflected same-store sales increases in local currency of 5.5% for the quarter
and 4.5% year-to-date, and a net increase of 159 Canadian franchise restaurants
compared to September 29, 2002. Total Hortons franchise fees decreased $3.4
million, or 25.7%, for the quarter and $5.6 million, or 18.4%, year-to-date,
reflecting a decrease in the number of full-sized businesses sold to franchisees
versus last year.
BAJA FRESH
The results of Baja Fresh's operations have been included in the Company's
consolidated financial statements since June 19, 2002.
RETAIL SALES
Total Baja Fresh retail sales were $37.9 million for the third quarter 2003, an
increase of $4.7 million, or 14.3% from third quarter 2002, and were $106.3
million year-to-date. The increase in the third quarter 2003 over 2002 was
driven by a 35% increase in the number of company operated restaurants open. As
of September 28, 2003, there were 119 Baja Fresh company operated restaurants,
which is an increase of 31 from 2002. Same-stores sales in Baja Fresh company
operated restaurants decreased 3.1% for the quarter and 2.8% year-to-date.
FRANCHISE REVENUES
Total Baja Fresh franchise revenues were $2.4 million in the quarter, an
increase of $214,000, or 9.9% from third quarter 2002, and were $6.7 million
year-to-date. Royalties were $2.0 million in the quarter, an increase of
$360,000, or 21.6% from third quarter 2002, and were $5.5 million year-to date.
The remainder was comprised of franchise fees. Same-store sales at Baja Fresh
franchise restaurants decreased 5.0% in the quarter and 5.8% year-to-date. As of
September 28, 2003, there were 136 Baja Fresh franchise restaurants, which is an
increase of 36 from 2002.
17
COST OF SALES, COMPANY RESTAURANT OPERATING COSTS, AND OPERATING COSTS
INCREASE FROM
QUARTER ENDED PRIOR YEAR
-------------------------------------------------------- -----------------------
SEPTEMBER 28, % OF SEPTEMBER 29, % OF
2003 TOTAL 2002 TOTAL DOLLARS PERCENTAGE
------------ ----- ------------- ----- ------- ----------
COST OF SALES
Wendy's $296,176 71.0% $268,321 74.0% $27,855 10.4%
Tim Hortons 96,230 23.1% 72,992 20.1% 23,238 31.8%
Baja Fresh* 24,625 5.9% 21,402 5.9% 3,223 15.1%
-------- ------ -------- ------ -------
$417,031 100.0% $362,715 100.0% $54,316 15.0%
======== ====== ======== ====== =======
COMPANY RESTAURANT
OPERATING COSTS
Wendy's $122,271 89.1% $111,488 90.9% $10,783 9.7%
Tim Hortons 2,986 2.2% 3,610 3.0% (624) (17.3)%
Baja Fresh* 11,873 8.7% 7,493 6.1% 4,380 58.5%
-------- ------ -------- ------ -------
$137,130 100.0% $122,591 100.0% $14,539 11.9%
======== ====== ======== ====== =======
OPERATING COSTS
Wendy's $ 4,661 14.4% $ 4,314 13.8% $ 347 8.0%
Tim Hortons 27,780 85.6% 27,025 86.2% 755 2.8%
Baja Fresh* 0 0.0% 0 0.0% 0 0.0%
-------- ------ -------- ------ -------
$32,441 100.0% $31,339 100.0% $1,102 3.5%
======== ====== ======== ====== =======
INCREASE FROM
YEAR-TO-DATE PRIOR YEAR
------------------------------------------------------- ------------------------
(In thousands):
SEPTEMBER 28, % OF SEPTEMBER 29, % OF
2003 TOTAL 2002 TOTAL DOLLARS PERCENTAGE
------------- ------ ------------- ----- -------- ----------
COST OF SALES
Wendy's $ 841,845 70.8% $ 780,852 76.6% $ 60,993 7.8%
Tim Hortons 279,734 23.5% 217,164 21.3% 62,570 28.8%
Baja Fresh * 67,212 5.7% 21,402 2.1% 45,810 n/a
---------- ------ ---------- ------ --------
$1,188,791 100.0% $1,019,418 100.0% $169,373 16.6%
========== ====== ========== ====== ========
COMPANY RESTAURANT
OPERATING COSTS
Wendy's $353,063 89.7% $323,569 94.4% $ 29,494 9.1%
Tim Hortons 9,299 2.4% 11,627 3.4% (2,328) (20.0)%
Baja Fresh * 31,272 7.9% 7,493 2.2% 23,779 n/a
-------- ------ -------- ------ --------
$393,634 100.0% $342,689 100.0% $ 50,945 14.9%
======== ====== ======== ====== ========
OPERATING COSTS
Wendy's $13,470 14.6% $13,251 15.9% $ 219 1.7%
Tim Hortons 78,800 85.4% 70,004 84.1% 8,796 12.6%
Baja Fresh * 0 0.0% 0 0.0% 0 0.0%
------- ------- ------- ----- -------
$92,270 100.0% $83,255 100.0% $ 9,015 10.8%
======= ====== ======= ====== =======
* Baja Fresh was acquired by the Company on June 19, 2002. Information prior to
that date is not included.
18
WENDY'S
COST OF SALES AND RESTAURANT OPERATING COSTS
Wendy's cost of sales includes food, paper and labor for company operated
restaurants and the cost of goods sold to franchisees from Wendy's bun baking
facilities. Total Wendy's cost of sales increased $27.9 million, or 10.4%, to
$296.2 million in the quarter and $61.0 million, or 7.8%, to $841.8 million
year-to-date. The increase in cost of sales is primarily due to an increase in
the number of company operated restaurants and higher food costs. Wendy's
domestic restaurant cost of sales increased $21.3 million, or 8.9%, to $260.7
million in the quarter and $45.6 million, or 6.5%, to $744.5 million
year-to-date. Wendy's domestic cost of sales as a percent of Wendy's domestic
retail sales increased 1.1% in the quarter and 1.0% year-to-date. Domestic food
costs, as a percent of domestic retail sales, increased .8% in the quarter and
..3% year-to-date. The increase in food costs reflects an increase in beef prices
of 6.6% in the quarter and .3% year-to-date, a 30.7% increase in tomato prices
in the quarter and 14.5% year-to-date, and an overall increase in other
commodity prices. Domestic labor costs, as a percent of sales, increased .3% in
the quarter and .7% year-to-date, primarily reflecting the de-leverage impact of
lower average sales and a slight average crew wage rate increase of 1.3% for the
quarter and 1.5% year-to-date.
Wendy's company restaurant operating costs include costs necessary to manage and
operate restaurants other than cost of sales and depreciation. Total Wendy's
company restaurant operating costs increased $10.8 million, or 9.7%, to $122.3
million in the quarter and $29.5 million, or 9.1%, to $353.1 million
year-to-date. Of this total, domestic Wendy's company restaurant operating costs
increased $8.2 million, or 8.0%, to $111.6 million in the quarter and $23.8
million, or 8.0%, to $323.1 million year-to-date. The increase in domestic
Wendy's company restaurant operating costs is primarily due to an increase in
the number of company operated restaurants. The number of domestic Wendy's
company operated restaurants increased by 76 from 2002 to a total of 1,213 at
September 28, 2003.
Canadian Wendy's cost of sales increased $6.4 million in the quarter, or 31.5%,
and $13.9 million, or 23.5%, year-to-date. Canadian Wendy's company restaurant
operating costs increased $2.5 million in the quarter and $5.7 million
year-to-date. Approximately 40% of the increase in Wendy's Canada cost of sales
and company restaurant operating costs for the quarter and year-to-date reflects
the strengthening of the Canadian dollar. Canadian Wendy's same-store sales for
company operated restaurants, in local currency, increased 4.3% in the quarter
and 2.1% year-to-date. The number of Wendy's Canada company operated restaurants
increased by 15 from 2002. Outside of North America, the Company only operates
two restaurants.
OPERATING COSTS
Wendy's operating costs include rent expense related to properties subleased to
franchisees and costs related to operating and maintaining Wendy's bun making
facilities. Total Wendy's operating costs were comparable to the prior year with
an increase of 8.0% to $4.7 million in the quarter and 1.7% to $13.5 million
year-to-date.
TIM HORTONS
COST OF SALES
Hortons' cost of sales includes food, paper and labor for company operated
restaurants and the cost of goods sold to franchisees from Hortons' distribution
warehouses and coffee roasting facility. Total Hortons cost of sales increased
$23.2 million, or 31.8%, in the quarter and $62.6 million, or 28.8%,
year-to-date. The strengthening of the Canadian dollar accounted for
approximately $9 million of the increase in the quarter and $20 million
year-to-date. Of the remaining $14.2 million increase in the quarter and $42.6
million year-to-date, Hortons' Canadian warehouse cost of sales increased $15.7
million, or 24.0%, to $89.3 million in the quarter and $49.5 million, or 26.0%,
to $258.5 million year-to-date. These increases were more than offset by the
increase in retail sales previously discussed and reflect additional sales to
Canadian franchisees due to an increase in the number of franchise restaurants
and higher average sales per restaurant. Hortons U.S. cost of sales were $2.4
million in the quarter and $8.3 million year-to-date, a decrease of $1.9 million
and $7.1 million from 2002, respectively, reflecting the continuing strategy to
franchise company operated restaurants.
OPERATING COSTS
Hortons' operating costs include rent expense related to properties subleased to
franchisees, cost of equipment sold to Hortons' franchisees as part of the
initiation of the franchise business, costs to operate and maintain the
distribution
19
warehouses and coffee roasting facility, and training and other costs to ensure
successful franchise openings. Total Hortons' operating costs increased
$755,000, or 2.8%, to $27.8 million in the quarter and $8.8 million, or 12.6%,
to $78.8 million year-to-date. Operating costs increased $3 million in the
quarter and $6 million year-to-date due to the stronger Canadian dollar.
Canadian Hortons' rent expense also increased $236,000 to $10.1 million in the
quarter and $3.8 million, or 14.7%, to $32.1 million year-to-date, reflecting
the growth in the number of properties leased and then subleased to Canadian
franchisees, as well as higher percentage rent due to higher sales. Rental
income from these subleases is included in franchise revenues. Costs of
operating and maintaining Canadian warehouse operations increased $639,000 to
$7.7 million in the quarter and $2.5 million to $21.2 million year-to-date.
Partially offsetting these increases, total Hortons cost of equipment and other
franchise costs decreased $2.7 million to $8.7 million in the quarter and $3.9
million to $21.9 million year-to-date.
BAJA FRESH
COST OF SALES AND RESTAURANT OPERATING COSTS
Total Baja Fresh company restaurant cost of sales totaled $24.6 million for the
third quarter, an increase of $3.2 million, or 15.1%, from third quarter 2002,
and were $67.2 million year-to-date 2003. Total Baja Fresh company restaurant
operating costs totaled $11.9 million for the quarter, an increase of $4.4
million from third quarter 2002, and were $31.3 million for the year-to-date.
CONSOLIDATED
GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated general and administrative expenses increased $1.0 million, or
1.5%, to $64.5 million in the quarter and $13.9 million, or 7.8%, to $192.6
million for the year-to-date. As a percent of revenues, costs were .8% lower in
the quarter at 8.0% and .5% lower year-to-date at 8.4%. As a percent of
revenues, the decrease from the prior year quarter and year-to-date primarily
reflects lower performance-based bonuses, as well as controlled overhead costs.
The dollar increase for year-to-date 2003 includes incremental expenses for Baja
Fresh of $6.0 million and the impact of the stronger Canadian dollar. If the
incremental expense from Baja Fresh is excluded, general and administrative
expenses increased 4.5% over the prior year-to-date. The Company believes it is
useful to provide the impact that Baja Fresh had on general and administrative
expenses since the results of Baja Fresh's operations have only been included in
the Company's financial statements since June 19, 2002.
DEPRECIATION OF PROPERTY AND EQUIPMENT
Consolidated depreciation of property and equipment for the quarter and
year-to-date increased from 2002 reflecting the Company's information technology
initiatives and additional restaurant development.
OTHER EXPENSE AND INCOME
Consolidated other income includes expenses and 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 reserves for international
and legal issues.
Consolidated other expense and income improved $2.3 million over the prior year
quarter and $6.5 million over the prior year-to-date. Included in this
improvement is equity income related to the Company's joint venture with IAWS
Group/Cuisine de France, as well as favorable currency adjustments in the
year-to-date period associated with the strengthening of the Canadian dollar.
Partly offsetting the higher income was the gain from selling the Hortons cup
manufacturing business in the third quarter of 2002.
INCOME TAXES
Consolidated income tax expense increased $4.1 million in the quarter and $6.0
million year-to-date. The Company's effective tax rate increased to 37.34% in
the quarter from 36.75% in the third quarter of 2002, and 37.69% from 36.75% for
the year-to-date. The increases in the quarter and year-to-date periods both
include the impact from state tax law changes, particularly in Ohio, that took
effect during second quarter 2003. The increases also reflect a greater portion
of income from Hortons Canada, including higher earnings and a stronger Canadian
dollar, which has the impact of increasing the consolidated effective tax rate.
20
FOREIGN CURRENCY
The primary currency exposure the Company has is to the Canadian dollar. The
results of Wendy's and Hortons' Canadian operations are translated into U.S.
dollars. In addition, various cross border transactions must be "marked to
market" each quarter with the income impact included in "Other Income". The
positive impact on third quarter 2003 diluted earnings per share was
approximately $.035 and $.10 year-to-date, including marked-to-market amounts
and the favorable impact of translating Wendy's and Hortons' Canadian
operations. For the quarter and year-to-date periods 2003, the average Canadian
exchange rate was $1.38 and $1.43, respectively, versus $1.56 and $1.57 for the
prior year quarter and year-to-date.
COMPREHENSIVE INCOME
Comprehensive income increased $22.7 million in the quarter and $76.4 million
year-to-date and includes net income, which increased $5.4 million in the
quarter and $3.2 million year-to-date, and translation and other adjustments
that primarily include the effects from changes in foreign currency, primarily
the Canadian dollar. Translation and other adjustments increased $17.3 million
in the quarter and $73.2 million year-to-date, reflecting a stronger Canadian
dollar.
FINANCIAL POSITION
OVERVIEW
The Company continues to maintain a strong balance sheet to support system
growth and financial flexibility. The long-term debt-to-equity and debt-to-total
capitalization ratios were 42% and 30%, respectively, at September 28, 2003.
Standard & Poor's and Moody's rate the Company's senior unsecured debt BBB+ and
Baa-1, respectively. Cash increased $64.9 million during the quarter and $41.6
million year-to-date primarily reflecting the $50 million commercial paper
issued in anticipation of a fourth quarter franchise acquisition. Year-to-date
cash generated by operations was more than offset by capital expenditures, the
repurchase of common stock and the payment of dividends.
COMPARATIVE CASH FLOWS
Cash flows from operations were $270.6 million year-to-date, a decrease of $63.7
million compared to the prior year. The most significant component of the 2003
decrease was increased tax payments of $57.2 million in the current year.
Net cash used in investing activities totaled $217.2 million year-to-date
compared to $502.6 million for the prior year-to-date. The $285.4 million
decrease in cash used primarily relates to the acquisition of Baja Fresh in the
second quarter 2002 for $287.4 million. The difference also includes lower 2003
capital expenditures of $15.9 million due to timing of payments, and a decrease
in joint venture and equity investments of $21.6 million. In the prior year the
Company received $20.0 million from the sale of the Hortons cup manufacturing
business. Year-to-date through third quarter 2002, the Company invested $9.0
million for a 45% interest in Cafe Express, an owner of fast casual restaurants,
and invested an additional $18.3 million in a joint venture with IAWS
Group/Cuisine de France. Year-to-date 2003, the Company has invested an
additional $6.2 million in this joint venture.
Financing activities used cash of $11.8 million year-to-date 2003 compared to a
net cash inflow of $251.5 million in 2002. The difference of $263.3 million is
primarily due to proceeds from the issuance of debt of $224.4 million in the
second quarter 2002 compared to $50.0 million year-to-date 2003, reduced
proceeds from the exercise of employee stock options and a greater number of
common shares repurchased in 2003. Proceeds from the exercise of stock options
were $63.0 million higher in the prior year. A total of $50.0 million was used
to repurchase 1.9 million common shares in 2003 compared to 731,500 common
shares repurchased for $24.7 million in the first nine months of 2002. As of the
end of the third quarter 2003, $173 million remained under the repurchase
authorization as approved by the Company's Board of Directors.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows 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
short-term and long-term cash requirements, including cash for capital
expenditures, future acquisitions of restaurants from franchisees or other
corporate purposes. The Company is committed to a strong capital structure and
financial profile, and intends to maintain an investment grade rating. If
additional funds are needed for mergers, acquisitions or other strategic
investments, the Company believes it could borrow additional cash and still
maintain its investment grade
21
rating. In the event the Company's rating declines, the Company may incur an
increase in borrowing costs. If the decline in the rating is significant, it is
possible that the Company would not be able to borrow on acceptable terms.
Factors that could be significant to the determination of the Company's credit
ratings include sales and cost trends, margins at Wendy's U.S. company
restaurants, the Company's cash position, cash flow, capital expenditures and
capitalization and stability of earnings.
In the third quarter of 2003 the Company issued $50 million of commercial paper
in connection with the acquisition of 68 franchise-owned and operated Wendy's
restaurants in Orlando and Tampa, Florida. The acquisition closed on the first
day of the fourth quarter and cost approximately $87 million in total, which was
paid in cash. The Company plans to refranchise some of the 68 acquired
restaurants during the remainder of 2003 and 2004.
In the first quarter of 2003, the Company took two steps to increase its
financial flexibility to respond to potential opportunities and longer term cash
requirements. These included filing a shelf registration statement on Form S-3
with the Securities and Exchange Commission to issue up to $500 million of
securities and entering into a new $200 million revolving credit facility. The
new $200 million revolving credit facility replaced the six revolving credit
facilities totaling $200 million that were previously in place. The new
revolving credit facility contains various covenants which, among other things,
require the maintenance of certain ratios, including indebtedness to total
capitalization and a fixed charge coverage ratio, and limits on the amount of
assets that can be sold and liens that can be placed on the Company's assets. As
of September 28, 2003, the Company was in compliance with its covenants under
the revolving credit facility and no amounts under that facility were
outstanding.
The Company does not have significant term debt maturities until 2005. The
Company believes it will be able to pay or refinance future term debt
obligations based on its strong financial condition and sources of cash
described in the preceding paragraphs.
MANAGEMENT'S OUTLOOK
The Company continues to employ its strategic initiatives as outlined in its
10-K/A filed with the Securities and Exchange Commission on April 22, 2003.
These initiatives include leveraging the Company's core assets, growing
same-store sales, improving store-level productivity to enhance margins,
improving underperforming operations, developing profitable new restaurants and
implementing new technology initiatives. The Company intends to allocate
resources to improve long-term return on assets and invested capital, and to
remain focused on established long-term operational strategies of exceeding
customer expectations, fostering a performance-driven culture, delivering a
balanced message of brand equity plus value in marketing, growing a healthy
restaurant system and partnering finance with operations.
New restaurant development will continue to be very important to the Company.
The Company currently estimates that it will open between 560-605 new Wendy's,
Hortons and Baja Fresh restaurants during 2003 (both company and franchise),
subject to the continued ability of the Company and its franchisees to complete
permitting and meet other conditions and to comply with other regulatory
requirements for the completion of stores and to obtain financing for new
restaurant development. This would be a net growth rate of approximately 5% to
6%, including store closures. The new unit openings will be concentrated in
North America, specifically Wendy's U.S., Hortons Canada and Baja Fresh.
Third quarter and year-to-date new restaurant development for 2003 and 2002 is
summarized in the chart below:
THIRD THIRD YEAR-TO-DATE YEAR-TO-DATE FULL YEAR
QUARTER 2003 QUARTER 2002 2003 2002 2003 OUTLOOK
------------ ------------ ------------ ------------ ------------
Wendy's 68 71 159 169 295-315
Hortons 56 55 110 114 195-210
Baja Fresh * 14 17 46 26 70-80
--- --- --- --- -------
Totals 138 143 315 309 560-605
=== === === === =======
* Baja Fresh was acquired by the Company on June 19, 2002. Information prior to
that date is included for informational purposes only.
22
The Company will continue to evaluate potential mergers, acquisitions, joint
venture investments, alliances, vertical integration opportunities and
divestitures that could add to the Company's long-term earnings growth.
Year-to-date 2003, the Company has made an additional investment of $6.2 million
in its joint venture investment between Hortons Canada and IAWS Group/Cuisine de
France. Capital expenditures for 2003 are expected to be in the range of $325
million to $365 million for new restaurant development, remodeling, maintenance
and technology initiatives. In 2003, the Company also plans to invest $7 million
to $10 million on new business opportunities and to expand its Hortons joint
venture facility in Canada.
The Company's anticipated diluted earnings per share is in the range of $1.97 to
$2.03 for the full year 2003, which would be an increase of 4% to 7% from 2002.
The Company is maintaining its long-term annual EPS growth goal of 12% to 15%,
and will be evaluating the longer term impact of the tax rate change and other
factors during the remainder of 2003.
MARKET RISK
The Company's exposure to various market risks remains substantially the same as
of December 29, 2002. The Company's disclosures about market risk are
incorporated herein by reference from page 11 of the Company's Form 10-K/A filed
with the Securities and Exchange Commission on April 22, 2003.
The following is a summary of derivative contracts entered into and outstanding
as of September 28, 2003:
FOREIGN EXCHANGE RISK
The Company's exposure to foreign exchange risk is primarily related to
fluctuations in the Canadian dollar relative to the U.S. dollar. The exposure to
Canadian dollar exchange rates on the Company's 2003 cash flows primarily
includes imports paid for by Canadian operations in U.S. dollars and payments
from the Company's Canadian operations to the Company's U.S. operations. In
aggregate, these amounts are anticipated to be in excess of $100 million in
2003.
The Company seeks to manage its cash flows, net income, and balance sheet
exposure to changes in the value of foreign currencies. The Company may use
derivative products to reduce the risk of a significant negative impact on its
U.S. dollar cash flows or income. The Company does not hedge foreign currency
exposure in a manner that would entirely eliminate the effect of changes in
foreign currency exchange rates on net income and cash flows. The Company does
not speculate in foreign currency and does not hedge foreign currency
translation or foreign currency net assets and liabilities.
Forward currency contracts to sell Canadian dollars and buy $77.0 million U.S.
dollars were outstanding as of September 28, 2003. These contracts mature at
various dates through January 2005 and are considered to be highly effective
cash flow hedges according to criteria specified in SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities". In accordance with SFAS No.
133 the Company defers unrealized gains and losses arising from these contracts
until the related transactions occur. The fair value loss on the contracts as of
September 28, 2003 of $1.8 million is included as a component of accumulated
other comprehensive income and will be reclassified to earnings and offset
against the underlying transactions when the transactions occur. Fair values are
determined from quoted market prices.
INTEREST RATE RISK
The Company is exposed to interest rate risk impacting its net borrowing costs.
The Company seeks to manage its exposure to interest rate risk and to lower its
net borrowing costs by managing the mix of fixed and floating rate instruments
based on capital markets and business conditions.
To manage interest rate risk, the Company has entered into an interest rate
swap, effectively converting some of its fixed interest rate debt to variable
interest rates. By entering into the interest rate swap, the Company agreed to
exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principle
amount. The Company does not enter into speculative swaps or other financial
contracts.
23
The interest rate swap outstanding on September 28, 2003 is for the notional
amount of $100.0 million and meets specific conditions of SFAS No. 133 to be
considered a highly effective fair value hedge of a portion of the Company's
long-term debt. Accordingly, gains and losses arising from the swap are
completely offset against gains or losses of the underlying debt obligation. The
fair value gain on the interest rate swap was $576,000 as of September 28, 2003
based on quoted market prices. The swap matures in December 2005.
24
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS
AS OF AS OF INCREASE/ AS OF INCREASE /
SEPTEMBER 28, JUNE 29, (DECREASE) SEPTEMBER 29, (DECREASE)
2003 2003 FROM PRIOR QUARTER 2002 FROM PRIOR YEAR
------------- -------- ------------------ ------------- ---------------
Wendy's
U.S
Company 1,213 1,201 12 1,137 76
Franchise 4,438 4,405 33 4,291 147
------ ------ ------ ------ ------
5,651 5,606 45 5,428 223
====== ====== ====== ====== ======
Canada
Company 143 143 0 128 15
Franchise 214 213 1 216 (2)
------ ------ ------ ------ ------
357 356 1 344 13
====== ====== ====== ====== ======
Other International
Company * 4 4 0 5 (1)
Franchise 343 342 1 356 (13)
------ ------ ------ ------ ------
347 346 1 361 (14)
====== ====== ====== ====== ======
*Includes two Hawaii Stores
Total Wendy's
Company 1,360 1,348 12 1,270 90
Franchise 4,995 4,960 35 4,863 132
------ ------ ------ ------ ------
6,355 6,308 47 6,133 222
====== ====== ====== ====== ======
Tim Hortons
U.S
Company 26 28 (2) 42 (16)
Franchise 140 134 6 111 29
------ ------ ------ ------ ------
166 162 4 153 13
====== ====== ====== ====== ======
Canada
Company 35 34 1 28 7
Franchise 2,238 2,189 49 2,079 159
------ ------ ------ ------ ------
2,273 2,223 50 2,107 166
====== ====== ====== ====== ======
Total Tim Hortons
Company 61 62 (1) 70 (9)
Franchise 2,378 2,323 55 2,190 188
------ ------ ------ ------ ------
2,439 2,385 54 2,260 179
====== ====== ====== ====== ======
Baja Fresh
Company 119 112 7 88 31
Franchise 136 129 7 100 36
------ ------ ------ ------ ------
Total Baja Fresh 255 241 14 188 67
====== ====== ====== ====== ======
Total System
Company 1,540 1,522 18 1,428 112
Franchise 7,509 7,412 97 7,153 356
------ ------ ------ ------ ------
9,049 8,934 115 8,581 468
====== ====== ====== ====== ======
25
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This Statement amends and
clarifies the accounting guidance on derivative instruments (including certain
derivative instruments embedded in other contracts) and hedging activities that
fall within the scope of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 149 also amends certain other existing
pronouncements, which will result in more consistent reporting of contracts that
are derivatives in their entirety or that contain embedded derivatives that
warrant separate accounting. SFAS No. 149 is effective for contracts entered
into or modified after June 30, 2003, with certain exceptions, and for hedging
relationships initiated after June 30, 2003. The guidance outlined in this
Statement is to be applied prospectively. The Company adopted this Statement in
third quarter 2003. Such adoption did not have an impact on the Company's
financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities - an interpretation of "Accounting Research Bulletin" ("ARB") No. 51".
This Interpretation is intended to clarify the application of the majority
voting interest requirement of ARB No. 51, "Consolidated Financial Statements",
to certain entities in which equity investors do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. The controlling financial interest may be achieved
through arrangements that do not involve voting interests. FIN 46 is effective
immediately to variable interests in a variable interest entity ("VIE") created
or obtained after January 31, 2003. As amended by FASB Staff Position ("FSP")
No. FIN 46-6, FIN 46 is effective for variable interests in a VIE created
before February 1, 2003 at the end of the first interim or annual period ending
after December 15, 2003. FIN 46 may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first applied or by
restating previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated. The
Company adopted the disclosure provisions of this Interpretation in the fourth
quarter of 2002, and will adopt the remaining provisions in the fourth quarter
of 2003.
The FASB is currently proposing modifications and issuing FSPs that change and
clarify FIN 46. These modifications and FSPs, when finalized, could impact the
Company's analysis of the applicability of FIN 46 to entities that are
franchisees of the Company's concepts, to the Horton's joint venture with IAWS
Group/Cuisine de France, and to various advertising funds utilized by the
Company to administer its advertising programs and certain other arrangements.
The Company has no equity ownership interests in its franchisees and has a 50%
equity ownership in the Horton's joint venture. The advertising funds collect
money from franchise and company operated restaurants to be used for mutually
beneficial marketing programs. None of these entities have been consolidated in
the Company's third quarter financial statements. While the Company will
continue to monitor and analyze developments regarding FIN 46 that would impact
its applicability to some franchisee and other relationships and arrangements,
at this time the Company does not believe that the consolidation of franchisees
or other entities, if required, would materially impact its future operating
results.
Emerging Issue Task Force 03-03, "Applicability of Topic No. D-79 to Claims-Made
Insurance Policies" was issued in July 2003. This Issue clarifies that a
claims-made insurance policy that provides coverage for specific known claims
prior to the policy period contains a retroactive provision that should be
accounted for accordingly; either separately, if practicable, or, if not
practicable, the claims-made insurance policy should be accounted for entirely
as a retroactive contract. The Company adopted the provisions of EITF No. 03-03
in third quarter 2003. Such adoption did not result in an impact to 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
26
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is incorporated by reference from the section titled "Market
Risk" on page 23 of this Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Company, under the supervision, and with the participation, of its
management, including its Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the Company's disclosure controls and
procedures, as contemplated by Securities Exchange Act Rule 13a-15. Based
on that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded, as of the end of the period covered by this
report, that such disclosure controls and procedures were effective.
(b) No change was made in the Company's internal control over financial
reporting during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits on Page 29.
(b) The Company filed four reports on Form 8-K for the quarter ended September
28, 2003. The first report on Form 8-K was filed July 7, 2003 as the
Company issued a press release announcing an increase in its effective tax
rate, preliminary second quarter 2003 earnings per share, a revised
earnings per share goal for 2003, and June 2003 sales results. A copy of
the press release was attached to the filing.
The second report on Form 8-K was filed July 24, 2003 as the Company
issued a press release and other financial information regarding its
second quarter 2003 results. A copy of the press release and other
financial information was attached to the filing.
The third report on Form 8-K was filed August 5, 2003 as the Company
issued a press release reporting preliminary July 2003 sales results and
plans to acquire Wendy's restaurants from retiring Florida franchisees. A
copy of the press release was attached to the filing.
The fourth report on form 8-K was filed September 3, 2003 as the Company
issued a press release reporting August 2003 sales results. A copy of the
press release was attached to the filing.
27
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: November 10, 2003 /s/ Kerrii B. Anderson
----------------------
Kerrii B. Anderson
Executive Vice President and
Chief Financial Officer
28
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
------ ----------- --------
31(a) Rule 13a-14(a)/15d-14(a) 30
Certification of
Chief Executive Officer
31(b) Rule 13a-14(a)/15d-14(a) 31
Certification of
Chief Financial Officer
32(a) Section 1350 Certification of 32
Chief Executive Officer
32(b) Section 1350 Certification of 33
Chief Financial Officer
99 Safe Harbor Under 34 - 35
the Private Securities
Litigation Reform Act of 1995
The Company and its subsidiaries are parties to instruments with respect to
long-term debt for which securities authorized under each such instrument do
not exceed ten percent of the total assets of the Company and its
subsidiaries on a consolidated basis. Copies of these instruments will be
furnished to the Commission upon request.
29