form10q_050709.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(X)
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended March 29, 2009
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: 1-2207
WENDY’S/ARBY’S GROUP,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
38-0471180
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
1155
Perimeter Center West, Atlanta, GA
|
|
30338
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(678)
514-4100
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year,
if
changed since last report)
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer [
] Accelerated filer [
X ] Non-accelerated
filer [ ] Smaller
reporting company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes [ ] No [X]
There
were 469,629,729 shares of the registrant’s Class A Common Stock outstanding as
of April 30, 2009.
PART
I. FINANCIAL INFORMATION
Item 1. Financial
Statements.
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
Thousands)
|
|
March
29,
|
|
|
December
28,
|
|
|
|
2009
|
|
|
|
2008(A)
|
|
ASSETS
|
|
(Unaudited)
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
122,434 |
|
|
$ |
90,090 |
|
Restricted
cash equivalents
|
|
|
15,050 |
|
|
|
20,792 |
|
Accounts
and notes receivable
|
|
|
93,904 |
|
|
|
97,258 |
|
Inventories
|
|
|
24,282 |
|
|
|
24,646 |
|
Prepaid
expenses and other current assets
|
|
|
46,669 |
|
|
|
28,990 |
|
Deferred
income tax benefit
|
|
|
40,073 |
|
|
|
37,923 |
|
Advertising
fund restricted assets
|
|
|
82,521 |
|
|
|
81,139 |
|
Total
current assets
|
|
|
424,933 |
|
|
|
380,838 |
|
Restricted
cash equivalents
|
|
|
28,888 |
|
|
|
34,032 |
|
Notes
receivable
|
|
|
34,307 |
|
|
|
34,608 |
|
Investments
|
|
|
116,731 |
|
|
|
133,052 |
|
Properties
|
|
|
1,734,407 |
|
|
|
1,770,372 |
|
Goodwill
|
|
|
859,007 |
|
|
|
853,775 |
|
Other
intangible assets
|
|
|
1,409,017 |
|
|
|
1,411,473 |
|
Deferred
costs and other assets
|
|
|
35,388 |
|
|
|
27,470 |
|
Total
assets
|
|
$ |
4,642,678 |
|
|
$ |
4,645,620 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
30,732 |
|
|
$ |
30,426 |
|
Accounts
payable
|
|
|
108,861 |
|
|
|
139,340 |
|
Accrued
expenses and other current liabilities
|
|
|
258,650 |
|
|
|
247,334 |
|
Advertising
fund restricted liabilities
|
|
|
82,521 |
|
|
|
81,139 |
|
Liabilities
related to discontinued operations
|
|
|
4,225 |
|
|
|
4,250 |
|
Total
current liabilities
|
|
|
484,989 |
|
|
|
502,489 |
|
Long-term
debt
|
|
|
1,078,494 |
|
|
|
1,081,151 |
|
Deferred
income
|
|
|
43,865 |
|
|
|
16,859 |
|
Deferred
income taxes
|
|
|
478,401 |
|
|
|
475,243 |
|
Other
liabilities
|
|
|
181,997 |
|
|
|
186,433 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
47,042 |
|
|
|
47,042 |
|
Additional
paid-in capital
|
|
|
2,757,223 |
|
|
|
2,753,141 |
|
Retained
deficit
|
|
|
(375,498 |
) |
|
|
(357,541 |
) |
Common
stock held in treasury
|
|
|
(15,594 |
) |
|
|
(15,944 |
) |
Accumulated
other comprehensive loss
|
|
|
(38,241 |
) |
|
|
(43,253 |
) |
|
|
|
2,374,932 |
|
|
|
2,383,445 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
4,642,678 |
|
|
$ |
4,645,620 |
|
_________________________
(A) Derived
from the audited consolidated financial statements as of December 28,
2008
See
accompanying notes to unaudited condensed consolidated financial
statements.
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
Thousands Except Per Share Amounts)
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
Sales
|
|
$ |
773,243 |
|
|
$ |
281,579 |
|
Franchise
revenues
|
|
|
90,741 |
|
|
|
21,275 |
|
|
|
|
863,984 |
|
|
|
302,854 |
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
675,942 |
|
|
|
233,445 |
|
General
and administrative
|
|
|
109,878 |
|
|
|
44,911 |
|
Depreciation
and amortization
|
|
|
51,662 |
|
|
|
15,914 |
|
Impairment
of long-lived assets`
|
|
|
6,880 |
|
|
|
79 |
|
Facilities
relocation and corporate restructuring
|
|
|
4,161 |
|
|
|
935 |
|
Other
operating expense (income), net
|
|
|
1,527 |
|
|
|
(487 |
) |
|
|
|
850,050 |
|
|
|
294,797 |
|
Operating
profit
|
|
|
13,934 |
|
|
|
8,057 |
|
Interest
expense
|
|
|
(22,149 |
) |
|
|
(13,491 |
) |
Investment
(expense) income, net
|
|
|
(1,794 |
) |
|
|
2,164 |
|
Other
than temporary losses on investments
|
|
|
(3,127 |
) |
|
|
(68,086 |
) |
Other
expense, net
|
|
|
(2,597 |
) |
|
|
(4,579 |
) |
Loss
before income taxes benefit
|
|
|
(15,733 |
) |
|
|
(75,935 |
) |
Benefit
from income taxes
|
|
|
4,809 |
|
|
|
8,464 |
|
Net
loss
|
|
$ |
(10,924 |
) |
|
$ |
(67,471 |
) |
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Class
A common stock
|
|
$ |
(.02 |
) |
|
$ |
(.73 |
) |
Class
B common stock (a)
|
|
|
N/A |
|
|
|
(.73 |
) |
|
|
|
|
|
|
|
|
|
Dividends
declared per share:
|
|
|
|
|
|
|
|
|
Class
A common stock
|
|
$ |
.015 |
|
|
$ |
.08 |
|
Class
B common stock (a)
|
|
|
N/A |
|
|
|
.09 |
|
____________
(a) In connection with the September 29,
2008 merger with Wendy’s International Inc. (“Wendy’s”), Wendy’s/Arby’s Group,
Inc. stockholders approved a charter amendment to convert each of the then
existing shares of Triarc Companies, Inc. Class B common stock into one share of
Wendy’s/Arby’s Group, Inc. Class A common stock.
See
accompanying notes to unaudited condensed consolidated financial
statements.
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
Thousands)
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
Cash
flows from continuing operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(10,924 |
) |
|
$ |
(67,471 |
) |
Adjustments
to reconcile net loss to net cash provided by continuing operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
51,662 |
|
|
|
15,914 |
|
Net
receipt of deferred vendor incentive
|
|
|
29,368 |
|
|
|
11,530 |
|
Impairment
of long-lived assets
|
|
|
6,880 |
|
|
|
79 |
|
Non-cash
rent expense (income)
|
|
|
5,196 |
|
|
|
(81 |
) |
Write-off
and amortization of deferred financing costs
|
|
|
5,069 |
|
|
|
5,637 |
|
Non-cash
operating investment adjustments, net (see below)
|
|
|
4,741 |
|
|
|
66,413 |
|
Share-based
compensation provision
|
|
|
4,371 |
|
|
|
1,586 |
|
Deferred
income tax benefit
|
|
|
(4,809 |
) |
|
|
(8,462 |
) |
Other,
net
|
|
|
8,819 |
|
|
|
(1,028 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
(3,667 |
) |
|
|
(2,523 |
) |
Inventories
|
|
|
348 |
|
|
|
964 |
|
Prepaid
expenses and other current assets
|
|
|
(15,577 |
) |
|
|
5,286 |
|
Accounts
payable, accrued expenses and other current liabilities
|
|
|
(23,213 |
) |
|
|
(10,911 |
) |
Net
cash provided by continuing operating activities
|
|
|
58,264 |
|
|
|
16,933 |
|
Cash
flows from continuing investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(17,203 |
) |
|
|
(16,770 |
) |
Proceeds
from dispositions
|
|
|
6,246 |
|
|
|
- |
|
Investing
investment activities, net (see below)
|
|
|
704 |
|
|
|
112 |
|
Cost
of acquisitions, less cash acquired
|
|
|
- |
|
|
|
(9,486 |
) |
Cost
of Wendy’s Merger
|
|
|
- |
|
|
|
(1,650 |
) |
Other,
net
|
|
|
(1,390 |
) |
|
|
49 |
|
Net
cash used in continuing investing activities
|
|
|
(11,643 |
) |
|
|
(27,745 |
) |
Cash
flows from continuing financing activities:
|
|
|
|
|
|
|
|
|
Deferred
financing costs incurred
|
|
|
(11,148 |
) |
|
|
- |
|
Repayments
of notes payable and long-term debt
|
|
|
(4,495 |
) |
|
|
(4,358 |
) |
Proceeds
from long-term debt
|
|
|
1,451 |
|
|
|
4,129 |
|
Dividends
paid (a)
|
|
|
- |
|
|
|
(8,045 |
) |
Other,
net
|
|
|
52 |
|
|
|
- |
|
Net
cash used in continuing financing activities
|
|
|
(14,140 |
) |
|
|
(8,274 |
) |
Net
cash provided by (used in) continuing operations before effect of exchange
rate changes on cash
|
|
|
32,481 |
|
|
|
(19,086 |
) |
Effect
of exchange rate changes on cash
|
|
|
(112 |
) |
|
|
- |
|
Net
cash provided by (used in) continuing operations
|
|
|
32,369 |
|
|
|
(19,086 |
) |
Net
cash used in operating activities of discontinued
operations
|
|
|
(25 |
) |
|
|
(4 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
32,344 |
|
|
|
(19,090 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
90,090 |
|
|
|
78,116 |
|
Cash
and cash equivalents at end of period
|
|
$ |
122,434 |
|
|
$ |
59,026 |
|
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
Thousands)
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
Detail
of cash flows related to investments:
|
|
|
|
|
|
|
Operating
investment adjustments, net:
|
|
|
|
|
|
|
Other
than temporary losses on investments (b)
|
|
$ |
3,127 |
|
|
$ |
68,086 |
|
Other
net recognized (gains) losses
|
|
|
1,614 |
|
|
|
(1,673 |
) |
|
|
$ |
4,741 |
|
|
$ |
66,413 |
|
Investing
investment activities, net:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of available-for-sale securities and other
investments
|
|
$ |
9,756 |
|
|
$ |
3,555 |
|
Decrease
in restricted cash held for investment
|
|
|
5,149 |
|
|
|
27,218 |
|
Payments
to cover short positions in securities and cost of available-for-sale
securities and other investments purchased
|
|
|
(14,201 |
) |
|
|
(30,661 |
) |
|
|
$ |
704 |
|
|
$ |
112 |
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the year from continuing operations for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
19,675 |
|
|
$ |
13,999 |
|
Income
taxes, net of refunds
|
|
$ |
1,097 |
|
|
$ |
625 |
|
Supplemental
schedule of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Total
capital expenditures
|
|
$ |
18,789 |
|
|
$ |
21,189 |
|
Capital
expenditures paid in cash
|
|
|
(17,203 |
) |
|
|
(16,770 |
) |
Non-cash
capitalized lease and certain sales-leaseback obligations
|
|
$ |
1,586 |
|
|
$ |
4,419 |
|
|
|
|
|
|
|
|
|
|
Non-cash
additions to long-term debt from acquisitions
|
|
$ |
- |
|
|
$ |
10,953 |
|
____________
(a) The dividend declared in the
first quarter of 2009 was paid on March 30, 2009, the first day of the 2009
second quarter.
(b) The
2008 amount relates to our investment in Deerfield Capital Corp. (“DFR”) common
stock as described in Note 8.
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
(1) Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements (the
“Financial Statements”) of Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s” and,
together with its subsidiaries, the “Company”, “we”, “us” or “our”) have been
prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the
Securities and Exchange Commission (the “SEC”) and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States of America
(“GAAP”). In our opinion, however, the Financial Statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly our financial position, results of operations and cash flows as
of and for the three-month periods as described in the following
paragraph. The results of operations for the three months ended March
29, 2009 are not necessarily indicative of the results to be expected for the
full 2009 fiscal year. The results of operations for the three months ended
March 30, 2008 and prior to September 29, 2008 do not include the results of
operations of Wendy’s International, Inc. (“Wendy’s”). These Financial
Statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
fiscal year ended December 28, 2008 (the “Form 10-K”).
We report
on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to
December 31. Our 2009 and 2008 fiscal first quarters ended on
March 29, 2009 and March 30, 2008, respectively. All quarters presented contain
13 weeks. Because our current 2009 fiscal year, ending on January 3, 2010, will
contain 53 weeks, our fourth quarter of 2009 will contain 14
weeks. All references to years and quarters relate to fiscal periods
rather than calendar periods.
(2) Acquisitions
and Dispositions
Merger
with Wendy’s International, Inc.
On
September 29, 2008, we completed the merger with Wendy’s (“Wendy’s Merger”) as
described in the Form 10-K. Immediately prior to the Wendy’s Merger, our Class B
Common Stock was converted into Class A Common Stock on a one for one basis (the
“Conversion”). The results of operations and cash flows of Wendy’s® have
been included in the accompanying unaudited condensed consolidated statements of
operations and cash flows for the three months ended March 29, 2009, but were
not included in the three months ended March 30, 2008.
The
preliminary allocation of the Wendy’s merger consideration to the assets
acquired and liabilities assumed, which remains subject to finalization, is as
follows:
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
Value
of shares of Wendy’s/Arby’s common stock issued in exchange for Wendy’s
common shares
|
|
$ |
2,476,197 |
|
|
|
|
|
|
Value
of Wendy’s stock options that have been converted into Wendy’s/Arby’s
options
|
|
|
18,296 |
|
Estimated
Wendy’s Merger costs
|
|
|
20,819 |
|
Total
estimated merger consideration
|
|
|
2,515,312 |
|
|
|
|
|
|
Net
book value of Wendy’s assets acquired and liabilities
assumed
|
|
|
796,588 |
|
Less: Wendy’s
historical goodwill acquired
|
|
|
(83,794 |
) |
Net
book value of Wendy’s assets acquired and liabilities
assumed
|
|
|
712,794 |
|
Excess
of merger consideration over book value of Wendy’s assets acquired and
liabilities assumed
|
|
|
1,802,518 |
|
Change
in fair values of assets and liabilities allocated to:
|
|
|
|
|
(Increase)/decrease
in:
|
|
|
|
|
Current
assets
|
|
|
|
|
Accounts
and notes receivable
|
|
|
(694 |
) |
Prepaid
expenses and other current assets
|
|
|
985 |
|
Investments
|
|
|
(64,169 |
) |
Properties
|
|
|
(45,920 |
) |
Other
intangible assets
|
|
|
|
|
Trademark
|
|
|
(900,109 |
) |
Franchise
agreements
|
|
|
(353,000 |
) |
Favorable
leases
|
|
|
(119,362 |
) |
Computer
software
|
|
|
9,566 |
|
Deferred
costs and other assets
|
|
|
(377 |
) |
|
|
|
|
|
Increase/(decrease)
in:
|
|
|
|
|
Accrued
expenses and other current liabilities
|
|
|
829 |
|
Long-term
debt, including current portion of $228
|
|
|
(56,337 |
) |
Other
liabilities
|
|
|
(46,574 |
) |
Unfavorable
leases
|
|
|
64,673 |
|
Deferred
income tax liability
|
|
|
556,599 |
|
Total adjustments
|
|
|
(953,890 |
) |
Goodwill
|
|
$ |
848,628 |
|
Summarized
below is the change in goodwill during the three months ended March 29, 2009
resulting from changes in the estimated merger consideration and in the
allocation of the revised merger consideration to the estimated fair vales of
assets acquired and liabilities assumed:
Goodwill
as reported at December 28, 2008
|
|
$ |
845,631 |
|
Change
in total estimated merger consideration:
|
|
|
|
|
Decrease
in the value of Wendy’s stock options that have been converted into
Wendy’s/Arby’s options
|
|
|
(199 |
) |
Increase
in Wendy’s Merger costs
|
|
|
116 |
|
Changes
to fair values of assets and liabilities:
|
|
|
|
|
Increase
in properties
|
|
|
(1,002 |
) |
Increase
in favorable leases
|
|
|
(2,094 |
) |
Decrease
in accrued expenses and other current liabilities
|
|
|
(4,712 |
) |
Increase
in unfavorable leases
|
|
|
620 |
|
Increase
in deferred income tax liability
|
|
|
10,268 |
|
Goodwill
as reported at March 29, 2009
|
|
$ |
848,628 |
|
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
The
following unaudited supplemental pro forma condensed consolidated summary
operating data (the "As Adjusted” data) of the Company for the three months
ended March 30, 2008 has been prepared by adjusting the historical data as set
forth in the accompanying unaudited condensed consolidated statement of
operations to give effect to the Wendy’s Merger and the Conversion as if they
had been consummated as of December 31, 2007:
|
|
Three
months ended March 30, 2008
|
|
|
|
As
Reported
|
|
|
As
Adjusted
|
|
Revenues:
|
|
|
|
|
|
|
Sales
|
|
$ |
281,579 |
|
|
$ |
794,596 |
|
Franchise
revenues
|
|
|
21,275 |
|
|
|
91,184 |
|
Total
revenues
|
|
|
302,854 |
|
|
|
885,780 |
|
Operating
profit
|
|
|
8,057 |
|
|
|
19,410 |
|
Net
loss
|
|
|
(67,471 |
) |
|
|
(65,083 |
) |
Basic
and diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
Class
A Common Stock:
|
|
|
(.73 |
) |
|
|
(.14 |
) |
Class
B Common Stock:
|
|
|
(.73 |
) |
|
|
N/A |
|
This As
Adjusted data is presented for comparative purposes only and does not purport to
be indicative of the Company's actual results of operations had the Wendy’s
Merger and Conversion actually been consummated as of December 31, 2007 or of
the Company's future results of operations.
Other
acquisitions
We
completed the acquisitions of the operating assets, and assumed liabilities, of
45 Arby’s® franchised
restaurants during the quarter ended March 30, 2008. The total then estimated
consideration for the acquisitions was $15,756 consisting of (1) $8,890 of cash
(before consideration of $45 of cash acquired), (2) the assumption of $6,239 of
debt and (3) $627 of related estimated expenses. The aggregate purchase price of
$16,243 also included $693 of losses from the settlement of unfavorable
franchise rights and a $1,180 gain on the termination of subleases both included
in “Other operating expense (income), net” in the accompanying unaudited
condensed consolidated statement of operations.
Dispositions
During
the 2009 first quarter, the Company received proceeds from dispositions of
$6,246 consisting of $3,384 from the sale of 10 Wendy’s units to a franchisee
and $2,862 related to other dispositions. These sales resulted in a gain of
$2,334 which is included in “Depreciation and amortization”.
(3) Fair
Value Measurement of Financial Assets and Liabilities
Our
financial assets and liabilities as of March 29, 2009 include available-for-sale
investments, investment derivatives, and various investments in liability
positions, which include those managed (the “Equities Account”) by a management
company (the “Management Company”) formed by certain former executives who are
also current directors. We determine fair value of our
available-for-sale securities and investment derivatives principally using
quoted market prices, broker/dealer prices or statements of account received
from investment managers, which were principally based on quoted market or
broker/dealer prices.
Valuation
techniques under Statement of Financial Accounting Standard (‘SFAS”) No. 157, as
amended, “Fair Value Measurements,” (“SFAS 157”) are based on observable and
unobservable inputs. Observable inputs reflect readily
obtainable data from independent sources, while unobservable inputs reflect our
market assumptions. SFAS 157 classifies these inputs into the
following hierarchy:
Level 1 Inputs—Quoted prices
for identical assets or liabilities in active markets.
|
Level 2 Inputs—Quoted
prices for similar assets or liabilities in active markets; quoted prices
for identical or similar assets or liabilities in markets that are not
active; and model-derived valuations whose inputs are observable or whose
significant value drivers are
observable.
|
|
Level 3 Inputs— Pricing
inputs are unobservable for the assets or liabilities and include
situations where there is little, if any, market activity for the assets
or liabilities. The inputs into the determination of fair value require
significant
|
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
|
management
judgment or estimation.
|
The fair
values of our financial assets or liabilities and the hierarchy of the level of
inputs are summarized below:
|
|
March
29,
|
|
|
Fair
Value Measurements
|
|
|
|
2009
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments (included in “Prepaid expenses and
other current assets”)
|
|
$ |
124 |
|
|
$ |
124 |
|
|
$ |
- |
|
|
$ |
- |
|
Investments
– restricted (included in “Investments-other”)
|
|
|
18,755 |
|
|
|
18,755 |
|
|
|
- |
|
|
|
- |
|
Total
assets
|
|
$ |
18,879 |
|
|
$ |
18,879 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold with an obligation to purchase-restricted
|
|
$ |
3,923 |
|
|
$ |
3,923 |
|
|
$ |
- |
|
|
$ |
- |
|
Other
derivatives in liability positions-restricted
|
|
|
3,984 |
|
|
|
3,984 |
|
|
|
- |
|
|
|
- |
|
Total
liabilities (included in “Other liabilities”)
|
|
$ |
7,907 |
|
|
$ |
7,907 |
|
|
$ |
- |
|
|
$ |
- |
|
|
(4)
|
Impairment
of Long-lived Assets
|
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
2009
|
|
|
2008
|
Arby’s
restaurant segment:
|
|
|
|
|
|
Impairment
of Company-owned restaurants:
|
|
|
|
|
|
Properties
|
|
$ |
5,894 |
|
|
$ |
48 |
|
Favorable
leases
|
|
|
232 |
|
|
|
- |
|
Franchise
agreements
|
|
|
318 |
|
|
|
- |
|
Other
|
|
|
17 |
|
|
|
31 |
|
|
|
|
6,461 |
|
|
|
79 |
|
Wendy’s
restaurant segment:
|
|
|
|
|
|
|
|
|
Impairment
of surplus properties:
|
|
|
419 |
|
|
|
- |
|
Total
impairment of long-lived assets
|
|
$ |
6,880 |
|
|
$ |
79 |
|
The
Arby’s restaurant segment impairment losses reflect (1) the deterioration in
operating performance of certain restaurants and (2) additional charges for
restaurants impaired in a prior year which did not subsequently recover. The Wendy’s restaurant
segment impairment losses reflect write-downs in the carrying value of surplus
properties and properties held for sale.
Impairment
losses represented the excess of the carrying value over the fair value of the
affected assets and are included in “Impairment of long-lived assets” in the
accompanying unaudited condensed consolidated statements of operations.
The fair values (Level 3 Inputs as described in SFAS 157) of impaired assets
discussed above for the Arby’s restaurants segment were estimated based
upon the present values of the anticipated cash flows associated with each
related Company-owned asset. The fair values (Level 2 Inputs as
described in SFAS 157) of the impaired assets discussed above for the Wendy’s
restaurants segment were estimated based upon their expected realizable value,
which reflect market declines in the areas where the properties are
located.
(5)
|
Facilities
Relocation and Corporate
Restructuring
|
The
facilities relocation and corporate restructuring charges in our Wendy’s
restaurant segment for the first quarter of 2009 of $4,161 primarily related to
severance costs in connection with the Wendy’s Merger. We expect to incur
additional facilities relocation and corporate restructuring charges with
respect to additional severance costs in connection with the Wendy’s Merger of
$3,190 in the remainder of 2009.
The
facilities relocation and corporate restructuring charge and an analysis of
activity in the facilities relocation and corporate restructuring accrual during
the three months ended March 29, 2009 is as follows:
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
|
Balance
December
28,
|
|
|
|
|
|
|
|
|
Balance
March
29,
|
|
|
Total
Expected to be
|
|
|
Total
Incurred
|
|
|
|
2008
|
|
|
Provision
|
|
|
Payments
|
|
|
2009
|
|
|
Incurred
|
|
|
to
Date
|
|
Wendy’s
restaurant segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
|
$ |
3,101 |
|
|
$ |
4,161 |
|
|
$ |
(1,197 |
) |
|
$ |
6,065 |
|
|
$ |
10,452 |
|
|
$ |
7,262 |
|
Total
Wendy’s restaurant segment
|
|
|
3,101 |
|
|
|
4,161 |
|
|
|
(1,197 |
) |
|
|
6,065 |
|
|
|
10,452 |
|
|
|
7,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arby’s
restaurant segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
relocation costs
|
|
|
72 |
|
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
4,651 |
|
|
|
4,651 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,471 |
|
|
|
7,471 |
|
|
|
|
72 |
|
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
12,122 |
|
|
|
12,122 |
|
Non-cash
charges
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
719 |
|
|
|
719 |
|
Total
Arby’s restaurant segment
|
|
|
72 |
|
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
12,841 |
|
|
|
12,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and retention incentive compensation
|
|
|
962 |
|
|
|
- |
|
|
|
(126 |
) |
|
|
836 |
|
|
|
84,622 |
|
|
|
84,622 |
|
Non-cash
charges
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
835 |
|
|
|
835 |
|
Total
corporate
|
|
|
962 |
|
|
|
- |
|
|
|
(126 |
) |
|
|
836 |
|
|
|
85,457 |
|
|
|
85,457 |
|
|
|
$ |
4,135 |
|
|
$ |
4,161 |
|
|
$ |
(1,323 |
) |
|
$ |
6,973 |
|
|
$ |
108,750 |
|
|
$ |
105,560 |
|
|
(6)
|
Discontinued
Operations
|
Prior to
2008, we sold the stock of the companies comprising our former premium beverage
and soft drink concentrate business segments (collectively, the “Beverage
Discontinued Operations”) and the stock or the principal assets of the companies
comprising the former utility and municipal services and refrigeration business
segments and closed two restaurants which were a component of the restaurant
segment (jointly, “Other Discontinued Operations”). We have accounted
for all of these operations as discontinued operations. There were no operating
results or charges for discontinued operations during the three months ended
March 29, 2009 or March 30, 2008.
Current
liabilities related to discontinued operations at March 29, 2009 and December
28, 2008 consisted of the following:
|
|
March
29,
|
|
|
December
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accrued
expenses, including accrued income taxes, of the Beverage Discontinued
Operations
|
|
$ |
3,805 |
|
|
$ |
3,805 |
|
Other
|
|
|
420 |
|
|
|
445 |
|
|
|
$ |
4,225 |
|
|
$ |
4,250 |
|
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
(7)
Retirement Benefit Plans
We
maintain two defined benefit plans, the benefits under which were frozen in 1992
and for which we have no unrecognized prior service cost. The components of the
net periodic pension cost incurred by us with respect to these plans are as
follows:
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Service
cost (consisting entirely of plan administrative expenses)
|
|
$ |
22 |
|
|
$ |
24 |
|
Interest
cost
|
|
|
56 |
|
|
|
55 |
|
Expected
return on the plans’ assets
|
|
|
(38 |
) |
|
|
(55 |
) |
Amortization
of unrecognized net loss
|
|
|
21 |
|
|
|
6 |
|
Net
periodic pension cost
|
|
$ |
61 |
|
|
$ |
30 |
|
(8)
|
Other
Than Temporary Losses on
Investments
|
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cost
method investments
|
|
$ |
2,326 |
|
|
$ |
- |
|
Available-for-sale
security
|
|
|
801 |
|
|
|
- |
|
Deerfield Capital Corp. (“DFR”)
common stock
|
|
|
- |
|
|
|
68,086 |
|
|
|
$ |
3,127 |
|
|
$ |
68,086 |
|
First
Quarter 2009
We
analyzed our unrealized losses as of March 29, 2009 and, due to current market
conditions and other factors, we recorded other than temporary losses in the
2009 first quarter of $2,326 attributable to the decline in fair value of three
of our cost investments. As described in the Form 10-K, prior to 2007 we
invested $75,000 in our Equities Account being managed by the Management
Company, formed by certain former executive officers who are also current
directors, which generally co-invests on a parallel basis with the Management
Company’s equity funds. We recorded charges of $801 related to other
than temporary losses on an available-for-sale security in the Equities
Account.
First
Quarter 2008
As
described in the Form 10-K, in December 2007 the Company sold its 63.6% capital
interest in Deerfield, the Company’s former asset management business (the
“Deerfield Sale”), to Deerfield Capital Corp. (“DFR”). Proceeds from
this sale included, among other consideration, 9,629 preferred shares of a
subsidiary of DFR which were converted to DFR common shares in the first quarter
of 2008. These shares, along with 206 additional shares we owned in DFR,
declined significantly in value in the first quarter of 2008. Based
on this decline in the market price of DFR common stock, we concluded that the
fair value and, therefore, the carrying value of our investment in the 9,835
common shares owned by us was impaired. As a result we recorded an
other than temporary loss for the 2008 first quarter of $68,086 (without tax
benefit) which included $11,074 of pre-tax unrealized holding losses recorded
prior to 2008. As a result of the distribution of the DFR common
stock, the income tax loss that resulted from the decline in value of our
investment of $68,086 is not deductible for income tax purposes and no income
tax benefit was recorded related to this loss.
The
effective tax benefit for the three months ended March 29, 2009 and March 28,
2008 on the loss before income taxes was 30.6% and 11.1%,
respectively. These rates vary from the U.S. federal statutory rate
of 35% due to the 2009 and 2008 first quarter effects of (1) the first
quarter 2008 effect of the other than temporary loss on our investment in
the common stock of DFR, which, as a result of its subsequent distribution to
shareholders, is not deductible for income tax purposes and no
tax
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
benefit
was recorded related to this loss, (2) state income taxes, net of federal income
tax benefit, (3) non-deductible expenses, (4) adjustments to our uncertain tax
positions, and (5) tax credits.
In the
first quarter of 2009 we increased our unrecognized tax benefits for prior
periods by $1,172. In the 2008 first quarter, an examination of one
state income tax return was settled for fiscal years 1998 through 2000. Since
this tax position was settled for less than we previously anticipated, we
recorded an income tax benefit of $1,516 in the first quarter of
2008. There were no other significant changes to unrecognized
tax benefits in the 2009 and 2008 first quarters.
As a
result of the completion in first quarter 2008 of the aforementioned state
examination, a benefit was recorded for a reduction of interest expense related
to unrecognized tax benefits of $1,071. There were no other
significant changes to interest or penalties related to uncertain tax positions
in the 2009 or 2008 first quarters.
We
include unrecognized tax benefits and the related interest and penalties for
discontinued operations in “Liabilities related to discontinued operations” in
the accompanying unaudited condensed consolidated balance
sheets. There were no changes in those amounts during the 2009 or
2008 first quarters.
The
Internal Revenue Service (the “IRS”) is currently conducting an examination of
our U.S. Federal income tax return for the tax period ended December 28, 2008 as
part of the Compliance Assurance Program (“CAP”). Our December 28,
2008 U.S. Federal income tax return includes Wendy’s for all of 2008 and
Wendy’s/Arby’s for the period September 30, 2008 to December 28, 2008. Prior to
the Wendy’s Merger, Wendy’s was a participant in the CAP since the beginning of
the 2006 tax year. CAP is a voluntary, real-time audit arrangement
whereby taxpayers and the IRS address issues throughout the year as they
emerge. Any matters relating to Wendy’s U.S. Federal income tax
returns for 2007 and prior years have been settled.
Wendy’s/Arby’s U.S. Federal income tax
returns for periods ending January 1, 2006 (fiscal 2005) to September 29, 2008
are not currently under examination by the IRS. Our foreign income
tax returns and Wendy’s foreign income tax returns for periods prior to the
Wendy’s Merger are open to examination primarily for periods ending on or after
January 2, 2005. Certain of these foreign income tax returns are
currently under examination. Some of our state income tax returns and some of
the Wendy’s state income tax returns for periods prior to the Wendy’s Merger are
currently under examination. Certain of these states have issued
notices of proposed tax assessments aggregating $11,279. We dispute
these notices and believe ultimate resolution will not have a material adverse
impact on our consolidated financial position or results of
operations.
Basic
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding. As described in the Form 10-K, in
connection with the Wendy’s Merger, Wendy’/Arby’s stockholders approved the
Conversion whereby each of the then existing shares of Triarc class B common
stock (“Class B Common Stock”) were converted into one share of Wendy’s/Arby’s
class A common stock (“Class A Common Stock”) and accordingly we now only have
Class A Common Stock. Net loss for the three months ended March 30,
2008 of ($67,471) was allocated equally among each share of Class A Common Stock
of ($21,059) and Class B Common Stock of ($46,412), resulting in the same loss
per share for each class.
Diluted
loss per share for the three months ended March 29, 2009 and March 28, 2008 was
the same as basic loss per share for each share of the Class A Common Stock and
Class B Common Stock, as applicable, since we reported a net loss and,
therefore, the effect of all potentially dilutive securities on the net loss per
share would have been antidilutive.
Our
securities as of March 29, 2009 that could dilute basic income per share for
periods subsequent to March 29, 2009 are (1) outstanding stock options which can
be exercised into 26,803 shares of our Class A Common Stock, (2) 409 restricted
shares of the Company’s Class A Common Stock which principally vest over three
years and (3) $2,100 of Convertible Notes which are convertible into 160 shares
of our Class A Common Stock.
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
The
weighted average number of outstanding shares used to calculate basic and
diluted loss per share is as follows:
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Class
A Common Stock
|
|
|
469,237 |
|
|
|
28,884 |
|
|
|
|
|
|
|
|
|
|
Class
B Common Stock
|
|
|
N/A |
|
|
|
63,660 |
|
(11)
|
Stockholder’s
Equity
|
The
following is a summary of the changes in stockholder’s equity:
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
2,383,291 |
|
|
$ |
448,874 |
|
Effect
of change in accounting for minority interests
|
|
|
154 |
|
|
|
972 |
|
Beginning
balance, as adjusted
|
|
|
2,383,445 |
|
|
|
449,846 |
|
Comprehensive
loss (1)
|
|
|
(5,912 |
) |
|
|
(64,340 |
) |
Dividend
declared
|
|
|
(7,033 |
) |
|
|
- |
|
DFR
stock dividend
|
|
|
- |
|
|
|
(14,464 |
) |
Dividend
paid
|
|
|
- |
|
|
|
(8,044 |
) |
Share-based
compensation expense
|
|
|
4,371 |
|
|
|
1,585 |
|
Other
|
|
|
61 |
|
|
|
(25 |
) |
Ending
balance
|
|
$ |
2,374,932 |
|
|
$ |
364,558 |
|
(1) The
following is a summary of the components of comprehensive loss, net of income
taxes:
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(10,924 |
) |
|
$ |
(67,471 |
) |
Net
change in currency translation adjustment (a)
|
|
|
5,752 |
|
|
|
(152 |
) |
Net
unrealized (losses) gains on available-for-sale securities
(b)
|
|
|
(740 |
) |
|
|
4,436 |
|
Net
unrealized losses on cash flow hedges (c)
|
|
|
- |
|
|
|
(1,153 |
) |
Other
comprehensive loss
|
|
|
5,012 |
|
|
|
3,131 |
|
Comprehensive
loss
|
|
$ |
(5,912 |
) |
|
$ |
(64,340 |
) |
_______________________
|
|
|
|
|
|
|
|
|
|
(a)
|
The
2009 amount is primarily due to changes to the allocation of the Wendy’s
merger consideration. See Note 2 for further
information.
|
(b) Net unrealized
(losses) gains on available-for-sale securities:
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Unrealized
holding losses arising during the period
|
|
$ |
(993 |
) |
|
$ |
(3,920 |
) |
Reclassifications
of prior period unrealized holding (gains) losses into net
loss
|
|
|
(178 |
) |
|
|
11,074 |
|
Change
in unrealized holding gains and losses arising during the period from
investments under the equity method of accounting
|
|
|
- |
|
|
|
(201 |
) |
|
|
|
(1,171 |
) |
|
|
6,953 |
|
Income
tax benefit (provision)
|
|
|
431 |
|
|
|
(2,517 |
) |
|
|
$ |
(740 |
) |
|
$ |
4,436 |
|
(c) Net unrealized losses
on cash flow hedges:
|
|
Three
Months Ended
|
|
|
|
March
30,
|
|
|
|
2008
|
|
Unrealized
holding losses arising during the period
|
|
$ |
(1,916 |
) |
Reclassifications
of prior period unrealized holding losses into net loss
|
|
|
28 |
|
Change
in unrealized holding gains and losses arising during the period from
investments under the equity method of accounting
|
|
|
3 |
|
|
|
|
(1,885 |
) |
Income
tax benefit
|
|
|
732 |
|
|
|
$ |
(1,153 |
) |
We manage
and internally report our operations in two brand segments: (1) the operation
and franchising of Wendy’s restaurants, including its wholesale bakery
operations, and (2) the operation and franchising of Arby’s restaurants. We
evaluate segment performance and allocate resources based on each segment’s
operating profit (loss).
The following is a summary of our
segment information:
|
|
Three
months ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy’s
|
|
|
Arby’s
|
|
|
|
|
|
|
|
|
|
restaurants
|
|
|
restaurants
|
|
|
Corporate
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
507,003 |
|
|
$ |
266,240 |
|
|
$ |
- |
|
|
$ |
773,243 |
|
Franchise
revenues
|
|
|
71,238 |
|
|
|
19,503 |
|
|
|
- |
|
|
|
90,741 |
|
|
|
|
578,241 |
|
|
|
285,743 |
|
|
|
- |
|
|
|
863,984 |
|
Depreciation
and amortization
|
|
|
36,687 |
|
|
|
14,517 |
|
|
|
458 |
|
|
|
51,662 |
|
Operating
profit (loss)
|
|
|
20,025 |
|
|
|
(2,047 |
) |
|
|
(4,044 |
) |
|
|
13,934 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,149 |
) |
Investment
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,794 |
) |
Other
than temporary losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,127 |
) |
Other
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,597 |
) |
Loss
before income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,733 |
) |
Benefit
from income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,809 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10,924 |
) |
Wendy’s
is a partner in a Canadian restaurant real estate joint venture (“TimWen”).
Income from our equity investments in TimWen of $1,658 during the 2009 first
quarter is included in the operating profit of Wendy’s restaurants
segment.
On
December 29, 2008, Wendy’s/Arby’s began charging the restaurant segments for
support services. Prior to that date, the restaurant segments had directly
incurred such costs. For the three months ended March 29, 2009, Wendy’s/Arby’s
allocated these costs to the restaurant segments based upon budgeted segment
revenues.
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
|
|
Three
months ended March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arby’s
|
|
|
|
|
|
|
|
|
|
restaurants
|
|
|
Corporate
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
281,579 |
|
|
$ |
- |
|
|
$ |
281,579 |
|
Franchise
revenues
|
|
|
21,275 |
|
|
|
|
|
|
|
21,275 |
|
|
|
|
302,854 |
|
|
|
- |
|
|
|
302,854 |
|
Depreciation
and amortization
|
|
|
14,838 |
|
|
|
1,076 |
|
|
|
15,914 |
|
Operating
profit (loss)
|
|
|
17,349 |
|
|
|
(9,292 |
) |
|
|
8,057 |
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
(13,491 |
) |
Investment
income, net
|
|
|
|
|
|
|
|
|
|
|
2,164 |
|
Other
than temporary loss on investment
|
|
|
|
|
|
|
|
|
|
|
(68,086 |
) |
Other
expense, net
|
|
|
|
|
|
|
|
|
|
|
(4,579 |
) |
Loss
before income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(75,935 |
) |
Benefit
from income taxes
|
|
|
|
|
|
|
|
|
|
|
8,464 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
$ |
(67,471 |
) |
|
|
Wendy’s
|
|
|
Arby’s
|
|
|
|
|
|
|
|
|
|
restaurants
|
|
|
restaurants
|
|
|
Corporate
|
|
|
Total
|
|
Three
months ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
capital expenditures
|
|
$ |
8,743 |
|
|
$ |
7,825 |
|
|
$ |
635 |
|
|
$ |
17,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
capital expenditures
|
|
|
|
|
|
$ |
16,770 |
|
|
$ |
- |
|
|
$ |
16,770 |
|
(13)
|
Legal
and Environmental Matters
|
In the
Form 10-K for the fiscal year ended December 28, 2008, the Company disclosed an
environmental matter with Adams Packing Association, Inc., an inactive
subsidiary of the Company, whereby Adams was listed by the United States
Environmental Protection Agency on the Comprehensive Environmental Response,
Compensation and Liability Information System list of known or suspected
contaminated sites. As discussed in our Form 10-K, based on amounts
spent prior to 2008 of approximately $1,667 and after taking into consideration
various legal defenses available to us, including Adams, we expect that the
final resolution of this matter will not have a material effect on our financial
position or results of operations.
The
Company also disclosed putative class action complaints in the Form 10-K for the
fiscal year ended December 28, 2008 that had been filed against Wendy’s, its
directors, and in two cases also the Company, between April 25 and June 13,
2008, alleging breach of fiduciary duties arising out of the Wendy’s board of
directors’ search for a merger partner and out of its approval of the merger
agreement on April 23, 2008, and failure to disclose material information
related to the merger in Amendment No. 3 to the Form S-4 under the Securities
Act of 1933 (the “Form S-4”). These cases were described in the Form
10-K as the Guiseppone, Henzel, Smith and Ravanis cases.
On April
1, 2009, the Common Pleas Court of Franklin County, Ohio entered an order
preliminarily approving settlement of all claims and certifying a class for
settlement purposes only, which provided for notice of settlement to the class
and set a final settlement hearing date of July 1, 2009. On May 1,
2009, the Company mailed a notice of pendency of the class actions, the proposed
settlement and the final hearing date.
The
defendants believe that the Guiseppone, Henzel, Smith and Ravanis cases
described above are without merit and intend to vigorously defend them in the
event that court approval is not obtained. While we do not believe that these
actions will have a material adverse effect on our financial condition or
results of operations, unfavorable rulings could occur. Were an unfavorable
ruling to occur, there exists the possibility of a material adverse impact on
our financial position or results of operations for the period in which the
ruling occurs or for future periods.
In
addition to the matters described above, we are involved in other litigation and
claims incidental to our current and prior businesses. We have
reserves for all of our legal and environmental matters aggregating $2,755 as of
March 29, 2009. Although
WENDY’S/ARBY’S
GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands Except Per Share Amounts)
the
outcome of these matters cannot be predicted with certainty and some of these
matters may be disposed of unfavorably to us, based on currently available
information, including legal defenses available to us, and given the
aforementioned reserves and our insurance coverage, we do not believe that the
outcome of these legal and environmental matters will have a material adverse
effect on our consolidated financial position or results of
operations.
(14)
|
Accounting
Standards
|
Accounting
Standards Adopted at the Beginning of 2009
In
December 2007, FASB issued SFAS
No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”), and SFAS
No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51” (“SFAS 160”). These statements change the
way companies account for business combinations and noncontrolling interests by,
among other things, requiring (1) more assets and liabilities to be measured at
fair value as of the acquisition date, including a valuation of the entire
company being acquired where less than 100% of the company is acquired, (2) an
acquirer in preacquisition periods to expense all acquisition-related costs, (3)
changes in acquisition related deferred tax balances after the completion of the
purchase price allocation be recognized in the statement of operations as
opposed to through goodwill and (4) noncontrolling interests in subsidiaries
initially to be measured at fair value and classified as a separate component of
stockholders’ equity.
In
addition, in April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
“Determination of the Useful Life of Intangible Assets” (“FSP FAS
142-3”). In determining the useful life of acquired intangible
assets, FSP FAS 142-3 removes the requirement to consider whether an intangible
asset can be renewed without substantial cost or material modifications to the
existing terms and conditions and, instead, requires an entity to consider its
own historical experience in renewing similar arrangements. FSP FAS
142-3 also requires expanded disclosure related to the determination of
intangible asset useful lives.
In April
2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies” (“FSP FAS 141(R)-1”). FSP FAS 141(R)-1 requires
acquirers to recognize an asset acquired or liability assumed in a business
combination that arises from a contingency at fair value if the acquisition-date
fair value of that asset or liability can be determined during the measurement
period.
SFAS
141(R), which became effective in our fiscal 2009 first quarter, will not impact
our recording of the Wendy’s Merger except for any potential adjustments to
deferred taxes included in the allocation of the purchase price after such
allocation has been finalized. The presentation and disclosure requirements of
SFAS 160 have been applied retrospectively for all periods presented. The
adoption of SFAS 160 resulted in a reclassification of our minority interests
from a liability to “Additional paid in capital” in our unaudited condensed
consolidated balance sheets and the income statement effect for our minority
interests has been included in “Other expense, net”, as such amounts are
insignificant. SFAS 141 (R), FSP FAS 142-3, FSP FAS 141(R)-1 and SFAS
160 will impact future acquisitions, if any, the effect of which will depend
upon the nature and terms of such agreements. The application of FSP FAS 142-3
did not have a material effect on our unaudited condensed consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS 161"). SFAS 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (“SFAS 133”) and how these items affect a company's financial
position, results of operations and cash flows. SFAS 161 affects only these
disclosures and does not change the accounting for derivatives. SFAS
161 has been applied prospectively beginning with the first quarter of our 2009
fiscal year. The application of SFAS 161 did not have any effect on disclosures
in our unaudited condensed consolidated financial statements.
Accounting
Standards Not Yet Adopted
In April
2009, the FASB issued FASB Staff Position No. FAS 107-1, “Interim Disclosures
about Fair Value of Financial Instruments” (“FSP FAS 107-1”). FSP FAS
107-1 requires expanded fair value disclosures for all financial instruments
within the scope of FASB Statement No. 107, “Disclosures about Fair Value of
Financial Instruments.” These disclosures will now be required for
interim periods for publicly traded entities. In addition, entities
will be required to disclose the methods and significant assumptions used to
estimate the fair value of financial instruments in financial statements on an
interim basis. This Staff Position will be effective commencing with
our 2009 second quarter.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of Wendy’s/Arby’s Group, Inc (“Wendy’s/Arby’s” or, together with its
subsidiaries, the “Company” or “we”) should be read in conjunction with our
accompanying unaudited condensed consolidated financial statements included
elsewhere herein and “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our Annual Report on Form 10-K for the
fiscal year ended December 28, 2008 (the “Form 10-K”). There have
been no significant changes as of March 29, 2009 to the application of our
critical accounting policies, contractual obligations or guarantees and
commitments as described in Item 7 of our Form 10-K. Certain
statements we make under this Item 2 constitute “forward-looking statements”
under the Private Securities Litigation Reform Act of 1995. See
“Special Note Regarding Forward-Looking Statements and Projections” in “Part II
– Other Information” preceding “Item 1.” You should consider our
forward-looking statements in light of our unaudited condensed consolidated
financial statements, related notes, and other financial information appearing
elsewhere in this report, our Form 10-K and our other filings with the
Securities and Exchange Commission.
Introduction
and Executive Overview
Merger
with Wendy’s International, Inc.
On
September 29, 2008, we completed the merger (the “Wendy’s Merger”) with Wendy’s
International, Inc. (“Wendy’s”) in an all-stock transaction in which Wendy’s
shareholders received 4.25 shares of Wendy’s/Arby’s Class A Common Stock for
each share of Wendy’s common stock owned. Our consolidated results of
operations commencing September 29, 2008 include Wendy’s results of
operations.
Our
Business
Wendy’s/Arby’s
is the parent company of Wendy’s and Arby’s Restaurant Group, Inc. (“ARG”),
which are the owners and franchisors of the Wendy’s® and Arby’s® restaurant
systems, respectively. We currently manage and internally report our
operations as two business segments: the operation and franchising of Wendy’s
restaurants and the operation and franchising of Arby’s
restaurants. As of March 29, 2009, the Wendy’s restaurant system was
comprised of 6,623 restaurants, of which 1,399 were owned and operated by the
Company. As of March 29, 2009, the Arby’s restaurant system was
comprised of 3,741 restaurants, of which 1,171 were owned and operated by the
Company. All 2,570 Wendy’s and Arby’s Company-owned restaurants are
located principally in the United States and to a lesser extent in Canada (the
“North America Restaurants”).
Restaurant business revenues for the
2009 first quarter include: (1) $745.7 million of revenues from Company-owned
restaurants, (2) $27.5 million from the sale of bakery items and kid’s meal
promotion items to our franchisees, (3) $83.7 million from royalty income from
franchisees and (4) $7.1 million of other franchise related revenue. Our
revenues increased significantly in the 2009 first quarter due to the Wendy’s
Merger. The Wendy’s royalty rate was 4.0% for the quarter ended March
29, 2009. While over 80% of our existing Arby’s royalty agreements
and substantially all of our new domestic royalty agreements provide for
royalties of 4% of franchise revenues, our average Arby’s royalty rate was 3.6%
for the three months ended March 29, 2009.
Our
restaurant businesses have recently experienced trends in the following
areas:
Revenues
|
·
|
Significant
decreases in general consumer confidence in the economy as well as
decreases in many consumers’ discretionary income caused by factors such
as continuing deterioration in the financial markets and in economic
conditions, including high unemployment levels and significant
displacement in the real estate market, volatility in fuel costs, and high
food costs;
|
|
·
|
Increasing
price competition in the quick service restaurant (“QSR”) industry, as
evidenced by (1) value menu concepts, which offer comparatively lower
prices on some menu items, (2) the use of coupons and other price
discounting, (3) many recent product promotions focused on lower prices of
certain menu items and (4) combination meal concepts (“combos”), which
offer a complete meal at an aggregate price lower than the price of
individual food and beverage items;
|
|
·
|
Competitive
pressures due to extended hours of operation by many QSR competitors,
including breakfast and late night
hours;
|
|
·
|
Competitive
pressures from operators outside the QSR industry, such as the deli
sections and in-store cafes of major grocery and other retail store
chains, convenience stores and casual dining outlets offering take-out
food;
|
|
·
|
Increased
availability to consumers of product choices, including (1) healthy
products driven by a greater consumer awareness of nutritional issues, (2)
products that tend to offer a variety of portion sizes and more
ingredients; (3) beverage programs which offer a wider selection of
premium non-carbonated beverages, including coffee and tea products; and
(4) sandwiches with perceived higher levels of freshness, quality and
customization; and
|
|
·
|
Competitive
pressures from an increasing number of franchise opportunities seeking to
attract qualified franchisees.
|
Cost of
Sales
|
·
|
Higher
commodity prices which increased our food costs during 2008, with some
moderation in recent months;
|
|
·
|
The
recent volatility in fuel prices which, when at much higher than current
levels, contributed to an increase in utility, distribution, and freight
costs;
|
|
·
|
Federal,
state and local legislative activity, such as minimum wage increases and
mandated health and welfare benefits which is expected to continue to
increase wages and related fringe benefits, including health care and
other insurance costs; and
|
|
·
|
Legal
or regulatory activity related to nutritional content or menu labeling
which results in increased operating
costs.
|
|
·
|
Dislocation
and weakness in the overall credit markets and higher borrowing costs in
the lending markets typically used to finance new unit development and
remodels. These tightened credit conditions could negatively
impact the renewal of franchisee licenses as well as the ability of a
franchisee to meet their commitments under development, rental and
franchise license agreements;
|
|
·
|
A
significant portion of both our Wendy’s and Arby’s restaurants are
franchised and, as a result, we receive revenue in the form of royalties
(which are generally based on a percentage of sales at franchised
restaurants), rent and fees from franchisees. Franchisee related accounts
receivable and estimated reserves for uncollectibility have increased, and
may continue to increase, as a result of the deteriorating financial
condition of some of our franchisees;
and
|
|
·
|
Continued
competition for development sites among QSR competitors and other
businesses.
|
We
experience these trends directly to the extent they affect the operations of our
Company-owned restaurants and indirectly to the extent they affect sales by our
franchisees and, accordingly, the royalties and franchise fees we receive from
them.
Business
Highlights
Our
primary goal is to enhance the value of our Company by:
|
·
|
improving
the quality and affordability of our core menu items;
|
|
·
|
increasing
same store sales in the restaurants and revitalizing the Wendy’s and
Arby’s brands with new marketing programs, menu development and an
improved customer
experience; |
|
·
|
improving
Company-owned restaurant margins;
|
|
·
|
achieving
significant progress on synergies and efficiencies related to the Wendy’s
Merger;
|
|
·
|
expanding
the breakfast daypart at many Wendy’s and Arby’s locations over the next
several years; and
|
|
·
|
possibily
acquiring other restaurant brands.
|
Key
Business Measures
We track
our results of operations and manage our business using the following key
business measures:
We report
Arby’s North America Restaurants same-store sales commencing after a store has
been open for fifteen continuous months. Wendy’s North America
Restaurants same-store sales are reported after a store has been open for at
least fifteen continuous months as of the beginning of the fiscal
year. These methodologies are consistent with the metrics used by our
management for internal reporting and analysis.
We define
restaurant margin as sales from Company-owned restaurants (excluding sales from
bakery items and kid’s meal promotion items to franchisees) less cost of sales
(excluding costs from bakery items and kid’s meal promotion items), divided by
sales. Restaurant margin is influenced by factors such as restaurant
openings and closures, price increases, the effectiveness of our advertising and
marketing initiatives, featured products, product mix, the level of our fixed
and semi-variable costs, and fluctuations in food and labor costs.
Deerfield
On
December 21, 2007, we completed the sale of our majority capital interest in
Deerfield & Company LLC (“Deerfield”), our former subsidiary, to Deerfield
Capital Corp. (“DFR”) resulting in non-cash proceeds aggregating $134.6 million,
consisting of 9.6 million shares of convertible preferred stock of DFR (“the DFR
Preferred Stock”) with a then estimated fair value of $88.4 million and $48.0
million principal amount of series A senior secured notes of DFR due in December
2012 (the “DFR Notes”) with a then estimated fair value of $46.2
million. As discussed in the Form 10-K, we recorded a valuation
allowance of $21.2 million during the fourth quarter of 2008 for these DFR
Notes. We also owned an additional 0.2 million common shares in
DFR.
The DFR
Notes bear interest at the three-month LIBOR (1.22% at March 29, 2009) plus a
factor, initially 5% through December 31, 2009, increasing 0.5% each quarter
from January 1, 2010 through June 30, 2011 and 0.25% each quarter from July 1,
2011 through their maturity. The DFR Notes are secured by certain
equity interests of DFR and certain of its subsidiaries.
On March
11, 2008, DFR stockholders approved the one-for-one conversion of all its
outstanding convertible preferred stock into DFR common stock which converted
the 9.6 million preferred shares we held into a like number of shares of common
stock. During the first quarter of 2008, our Board of Directors
approved the distribution of our 9.8 million shares of DFR common stock, which
also included the 0.2 million common shares of DFR discussed above, to our
stockholders. The dividend, which was valued at $14.5 million, was paid on
April 4, 2008 to holders of record of our Class A common stock (the
“Class A Common Stock”) and our then outstanding Class B common stock (the
“Class B Common Stock”).
In the
first quarter of 2008, in response to unanticipated credit and liquidity events
in the first quarter of 2008, DFR announced changes to its business model and
significant losses. Based on these events and their negative effect
on the market price of DFR common stock, we concluded that the fair value and,
therefore, the carrying value of our investment in the 9.8 million common shares
was impaired. As a result, we recorded an other than temporary loss which is
included in “Other than temporary losses on investments,” of $68.1 million
(without tax benefit as described below). As a result of the
distribution of the DFR common stock, the income tax loss that resulted from the
decline in value of our investment of $68.1 million is not deductible for income
tax purposes and no income tax benefit was recorded related to this
loss.
Other
We
maintain an investment portfolio principally from the investment of our excess
cash with the objective of generating investment income, including in an account
(the “Equities Account”) which is managed by a management company (the
“Management Company”) formed by our Chairman, who is our former Chief Executive
Officer, and our Vice Chairman, who is our former President and Chief Operating
Officer, (collectively, the “Former Executives”) and a director, who is also our
former Vice Chairman (together with the Former Executives, the
“Principals”). The Equities Account is invested principally in equity
securities, including derivative instruments, of a limited number of
publicly-traded companies. In addition, the Equities Account sells
securities short and invests in market put options in order to lessen the impact
of significant market downturns. Investment income (loss) from this
account includes realized investment gains (losses) from
marketable
security transactions, realized and unrealized gains (losses) on derivative
instruments and securities sold with an obligation to purchase, other than
temporary losses, interest and dividends. The Equities Account,
including restricted cash equivalents and equity derivatives, had a fair value
of $33.7 million as of March 29, 2009. The fair value of the Equities
Account as of March 29, 2009 excludes $47.0 million of restricted cash released
from the Equities Account to Wendy’s/Arby’s in 2008. We obtained permission from
the Management Company to release this amount from the Equities Account and we
are obligated to return this amount to the Equities Account by January 29,
2010.
Presentation
of Financial Information
We report
on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to
December 31. All quarters presented contain 13
weeks. Because our 2009 fiscal year ending on January 3, 2010 will
contain 53 weeks, our fourth quarter of 2009 will contain 14
weeks. All references to years and quarters relate to fiscal periods
rather than calendar periods.
Results
of Operations
Presented
below is a table that summarizes our results, same-store sales and restaurant
margins for the 2009 first quarter and the 2008 first quarter. Due to
the Wendy’s Merger, the percentage change between these three month periods is
not meaningful.
|
|
Three
Months Ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
|
(In
Millions Except Restaurant Count and Percents)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
773.2 |
|
|
$ |
281.6 |
|
|
$ |
491.6 |
|
Franchise
revenues
|
|
|
90.8 |
|
|
|
21.3 |
|
|
|
69.5 |
|
|
|
|
864.0 |
|
|
|
302.9 |
|
|
|
561.1 |
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
676.0 |
|
|
|
233.5 |
|
|
|
442.5 |
|
General
and administrative
|
|
|
109.8 |
|
|
|
44.9 |
|
|
|
64.9 |
|
Depreciation
and amortization
|
|
|
51.7 |
|
|
|
15.9 |
|
|
|
35.8 |
|
Impairment
of long-lived assets
|
|
|
6.9 |
|
|
|
0.1 |
|
|
|
6.8 |
|
Facilities
relocation and corporate restructuring
|
|
|
4.2 |
|
|
|
0.9 |
|
|
|
3.3 |
|
Other
operating expense (income), net
|
|
|
1.5 |
|
|
|
(0.5 |
) |
|
|
2.0 |
|
|
|
|
850.1 |
|
|
|
294.8 |
|
|
|
555.3 |
|
Operating
profit
|
|
|
13.9 |
|
|
|
8.1 |
|
|
|
5.8 |
|
Interest
expense
|
|
|
(22.1 |
) |
|
|
(13.5 |
) |
|
|
(8.6 |
) |
Investment
(expense) income, net
|
|
|
(1.8 |
) |
|
|
2.2 |
|
|
|
(4.0 |
) |
Other
than temporary losses on investments
|
|
|
(3.1 |
) |
|
|
(68.1 |
) |
|
|
65.0 |
|
Other
expense, net
|
|
|
(2.6 |
) |
|
|
(4.6 |
) |
|
|
2.0 |
|
Loss
before income taxes benefit
|
|
|
(15.7 |
) |
|
|
(75.9 |
) |
|
|
60.2 |
|
Benefit
from income taxes
|
|
|
4.8 |
|
|
|
8.4 |
|
|
|
(3.6 |
) |
Net
loss
|
|
$ |
(10.9 |
) |
|
$ |
(67.5 |
) |
|
$ |
56.6 |
|
Restaurant
statistics:
|
|
|
Wendy’s
same-store sales:
|
First
Quarter 2009
|
|
|
|
|
North
America Company-owned restaurants
|
0.3%
|
|
|
|
|
|
|
North
America Franchised restaurants
|
1.2%
|
|
|
|
|
|
|
North
America Systemwide
|
1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arby’s
same-store sales:
|
First Quarter 2009
|
|
First Quarter
2008
|
|
|
|
|
North
America Company-owned restaurants
|
(8.0)%
|
|
(1.6)%
|
|
|
|
|
North
America Franchised restaurants
|
(9.1)%
|
|
1.0%
|
|
|
|
|
North
America Systemwide
|
(8.7)%
|
|
0.0%
|
|
|
|
|
|
|
|
Restaurant
margin:
|
|
|
|
|
|
First
Quarter 2009
|
|
|
|
Wendy’s
|
11.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter 2009
|
First Quarter 2008
|
|
|
|
Arby’s
|
14.2%
|
17.1%
|
|
|
|
Restaurant
count:
|
Company-owned
|
|
Franchised
|
|
Systemwide
|
|
Wendy’s
restaurant count:
|
|
|
|
|
|
|
Restaurant
count at December 28, 2008
|
1,406
|
|
5,224
|
|
6,630
|
|
Opened
|
5
|
|
11
|
|
16
|
|
Closed
|
(2)
|
|
(21)
|
|
(23)
|
|
Sold to
franchisees
|
(10)
|
|
10
|
|
-
|
|
Restaurant
count at March 29, 2009
|
1,399
|
|
5,224
|
|
6,623
|
|
|
|
|
|
|
|
|
Arby’s
restaurant count:
|
|
|
|
|
|
|
Restaurant
count at December 28 2008
|
1,176
|
|
2,580
|
|
3,756
|
|
Opened
|
1
|
|
17
|
|
18
|
|
Closed
|
(6)
|
|
(27)
|
|
(33)
|
|
Restaurant
count at March 29, 2009
|
1,171
|
|
2,570
|
|
3,741
|
|
|
|
|
|
|
|
|
Total
Wendy’s/Arby’s restaurant count at March
29, 2009
|
2,570
|
|
7,794
|
|
10,364
|
|
Three
Months Ended March 29, 2009 Compared with Three Months Ended March 30,
2008
Sales
Our
sales, which were generated primarily from our Company-owned restaurants,
increased $491.6 million to $773.2 million for the three months ended March 29,
2009 from $281.6 million for three months ended March 30, 2008. The
increase in sales was due to the Wendy’s Merger which added 1,399 net
Company-owned restaurants as of March 29, 2009 and generated $507.0 million in
sales during the 2009 first quarter. Wendy’s same-store sales, excluding the
impact of fewer restaurants serving breakfast in the first quarter of 2009,
would have increased approximately 1.6%. Excluding Wendy’s, sales decreased
$15.4 million, which is attributable to the 8.0% decrease in same store sales of
our Arby’s Company-owned restaurants stemming from lower customer traffic
primarily impacted by the previously described negative economic trends and
competitive pressures in “Introduction and Executive Overview – Our
Business.” The decrease in sales was mitigated by the effect of our
new Roastburger™ product launch and related advertising campaign in March 2009,
which improved sales to a decrease of 2.5% in that month, and partially offset
by the net increase in sales from the 15 net Arby’s Company-owned restaurants
added since March 30, 2008.
Franchise
Revenues
Total
franchise revenues, which were generated entirely from franchised restaurants,
increased $69.5 million to $90.8 million for the three months ended March 29,
2009 from $21.3 million for the three months ended March 30,
2008. The increase in franchise revenue was due to the Wendy’s Merger
which added 5,224 franchised restaurants as of March 29, 2009 to the
Wendy’s/Arby’s restaurant system and generated $71.2 million in franchise
revenue during the 2009 first quarter. Wendy’s franchise store-sales
were not significantly impacted by fewer restaurants serving breakfast in the
first quarter of 2009. Excluding Wendy’s, franchise revenues decreased $1.7
million, which is attributable to the 9.1% decrease in same-store sales for
Arby’s franchised restaurants. Same-store sales of our Arby's
franchise restaurants decreased primarily due to the same factors discussed
above under “Sales.”
Restaurant
Margin
Our
restaurant margin decreased to a consolidated 12.6% for the three months ended
March 29, 2009 from the Arby’s 17.1% for the three months ended March 30,
2008. The 2009 first quarter restaurant margin reflects the Wendy’s
restaurant margin of 11.1% and the Arby’s restaurant margin of
14.2%. Wendy’s restaurant margin for the first quarter of 2008 was
10.1%. The increase in the Wendy’s margin is attributable to decreases in labor
and certain controllable costs partially offset by increases in commodity costs
in the first quarter of 2009. The decrease in the Arby’s margin
was primarily attributable to the effect of the decrease in Arby’s same store
sales without comparable reductions in fixed and semi-variable costs. The
decrease in Arby’s margin was partially offset by price increases.
General
and Administrative
Our
general and administrative expenses increased $64.9 million to $109.8 million
for the three months ended March 29, 2009 from $44.9 million for the three
months ended March 30, 2008 principally due to the Wendy's Merger which added
$61.7 million of general and administrative expenses in the 2009 first
quarter. Excluding Wendy’s, general and administrative expenses
increased $3.2 million principally due to integration costs related to the
Wendy’s Merger.
Depreciation
and Amortization
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
Arby’s
restaurants, primarily properties
|
|
$ |
13.8 |
|
|
$ |
14.8 |
|
Wendy’s
restaurants, primarily properties
|
|
|
35.8 |
|
|
|
- |
|
Other
|
|
|
2.1 |
|
|
|
1.1 |
|
|
|
$ |
51.7 |
|
|
$ |
15.9 |
|
As a
result of 2009 refinements to the Wendy’s purchase price allocation (including
long-lived assets), the Company recorded an additional one time charge for
related depreciation and amortization of $6.5 million in the first quarter of
2009.
Impairment
of Long Lived Assets
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
Arby’s
restaurants, primarily properties at underperforming
locations
|
|
$ |
6.5 |
|
|
$ |
0.1 |
|
Wendy’s
restaurants
|
|
|
0.4 |
|
|
|
- |
|
|
|
$ |
6.9 |
|
|
$ |
0.1 |
|
Facilities
Relocation and Corporate Restructuring
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
|
(In
Millions)
|
|
Wendy’s
severance costs in the 2009 first quarter
|
|
$ |
4.2 |
|
|
$ |
- |
|
Other
|
|
|
- |
|
|
|
0.9 |
|
|
|
$ |
4.2 |
|
|
$ |
0.9 |
|
Interest
Expense
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
|
(In
Millions)
|
|
Wendy’s
debt
|
|
$ |
11.5 |
|
|
$ |
- |
|
Arby’s
debt:
|
|
|
|
|
|
|
|
|
Term
Loan
|
|
|
4.3 |
|
|
|
8.9 |
|
Other
|
|
|
5.9 |
|
|
|
5.4 |
|
Corporate
debt
|
|
|
0.4 |
|
|
|
(0.8 |
) |
|
|
$ |
22.1 |
|
|
$ |
13.5 |
|
Interest
expense increased $8.6 million principally reflecting $11.5 million of interest
on Wendy’s debt. This increase was partially offset by a decrease in
Arby’s Term Loan (the “Term Loan”) interest expense due to a decrease in
outstanding Term Loan debt resulting from the $143.2 million voluntary net
prepayments since the end of the first quarter of 2008.
Investment
Income, Net
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
|
(In
Millions)
|
|
Recognized
net (losses) gains
|
|
$ |
(1.6 |
) |
|
$ |
1.7 |
|
Interest
income
|
|
|
0.2 |
|
|
|
0.5 |
|
Other
|
|
|
(0.4 |
) |
|
|
- |
|
|
|
$ |
(1.8 |
) |
|
$ |
2.2 |
|
Our net
gains (losses) include realized gains (losses) on available-for-sale securities
and cost method investments and unrealized and realized gains (losses) on
derivative instruments. Our recognized net gains decreased $3.3
million to a loss of $1.6 million and is primarily attributable to (1) $1.8
million of lower unrealized gains on derivatives in the 2009 first quarter as
compared to the 2008 first quarter and (2) $2.7 million of unrealized losses on
securities sold short with an obligation to purchase in the 2009 first quarter
as compared to nominal gains in the prior year quarter. These
decreases were partially offset by a $2.2 million increase in realized gains on
securities sold short with an obligation to purchase in the 2009 first quarter
as compared to the 2008 first quarter.
As of
March 29, 2009, we had unrealized holding gains and (losses) on
available-for-sale securities before income taxes of $0.2 million and ($1.2)
million respectively, included in “Accumulated other comprehensive
loss.” We evaluated the unrealized losses to determine whether these
losses were other than temporary and concluded that they were
not. Should either (1) we decide to sell any of these investments
with unrealized losses or (2) any of the unrealized losses continue such that we
believe they have become other than temporary, we would recognize the losses on
the related investments at that time. All investment gains and losses may vary
significantly in future periods depending upon changes in the value of our
investments and the timing of the sales of our available-for-sale
investments.
Other
Than Temporary Losses on Investments
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
|
(In
Millions)
|
|
Cost
method investments
|
|
$ |
2.3 |
|
|
$ |
- |
|
Available-for-sale
securities
|
|
|
0.8 |
|
|
|
- |
|
DFR
common stock
|
|
|
- |
|
|
|
68.1 |
|
|
|
$ |
3.1 |
|
|
$ |
68.1 |
|
Based on
a review of our unrealized investment losses in both the 2009 and 2008 first
quarters, we determined that the decreases in the fair value of certain
investments held in the Equities Account, certain cost method investments, and
our former investment in the DFR common stock were other than temporary due to
the severity of the decline, the financial condition of the investee and the
prospect for future recovery in the market value of the
investment. Accordingly, we recorded other than temporary losses on
investments of $0.8 million for available-for-sale securities and $2.3 million
for cost investments in the 2009 first quarter. We also recorded
$68.1 million in losses for the DFR common stock in the 2008 first quarter as
discussed in “Introduction and Executive Overview – Deerfield.”
Any other
than temporary losses on our investments are dependent upon the underlying
economics and/or volatility in their value and may or may not recur in future
periods.
Other
Expense, Net
|
|
Three
Months Ended
|
|
|
|
March
29, 2009
|
|
|
March
30, 2008
|
|
|
|
(In
Millions)
|
|
Deferred
costs write-off
|
|
$ |
(4.3 |
) |
|
$ |
(5.1 |
) |
Other
|
|
|
1.7 |
|
|
|
0.5 |
|
|
|
$ |
(2.6 |
) |
|
$ |
(4.6 |
) |
The
deferred costs written off in the 2009 first quarter related to financing costs
incurred for a Wendy’s credit facility that was executed in January 2009 but was
refinanced by the amended and restated Arby’s credit agreement (the “Arby’s
Credit Agreement”) discussed below under “Liquidity and Capital Resources –
Long-term Debt.” The write-off of deferred costs in the 2008 first
quarter related to a financing alternative that was no longer being
pursued.
Benefit
From Income Taxes
The
effective tax benefit for the first quarter of 2009 was 30.6%, compared to an
11.1% benefit in the first quarter of 2008. The effective tax benefit is
higher in the 2009 first quarter principally as a result of the other than
temporary loss on our investment in the common stock of DFR and related declared
distribution as described above in “Introduction and Executive
Overview-Deerfield” recorded in the first quarter of 2008 which was not
deductible for income tax purposes.
Net
Loss
Our net
loss declined $56.6 million to a loss of $10.9 million in the 2009 first quarter
from a loss of $67.5 million in the 2008 first quarter. This decrease
is primarily attributed to (1) the 2008 first quarter effect of our other than
temporary loss on our investment in the common stock of DFR of $68.1 million,
for which there was no available tax benefit and (2) the inclusion of the after
tax results of operations for the 2009 first quarter for
Wendy’s. These factors were partially offset by the change in the
after tax results of operations for Arby’s in the 2009 first quarter as compared
to the same period in the prior year.
Outlook
for the Remainder of 2009
Sales
Our sales
will increase significantly for the remainder of 2009 as a result of the full
year effect in 2009 of the Wendy’s Merger. We anticipate that certain
of the negative factors described above which affected our 2009 first quarter
same-store sales will continue to impact our customer traffic for the remainder
of the 2009 fiscal year. Wendy’s same-store sales for the remainder
of 2009 are expected to be favorably impacted by continued operational
improvement, premium product introductions and a comprehensive menu pricing
strategy which includes focus on value menu offerings. Offsetting
factors include the uncertain economic environment, the impact of a more
aggressive value menu focus and a reduction in the number of stores serving
breakfast while refining this daypart strategy. For the remainder of
2009, the Arby’s marketing strategy will continue to emphasize Arby’s sliced
roasted meat products, including the recently launched Roastburger
line. While
recent sales trends at Arby’s have softened from the initial Roastburger launch
in March, we have retained much of the sales improvement from the Roastburger
introduction. We anticipate that these marketing initiatives will
improve Arby’s sales trends as compared to the first quarter of
2009. For the remainder of 2009, the net impact of new store openings
and closings for Wendy’s and Arby’s are not expected to have a significant
impact on consolidated sales. We continually review the performance
of any underperforming Company-owned restaurants and evaluate whether to close
those restaurants, particularly in connection with the decision to renew or
extend their leases. Specifically,
we have 44 Arby’s and 47 Wendy’s restaurant leases that are scheduled for
renewal or expiration during the remainder of 2009. We currently
anticipate the renewal or extension of approximately 36 Arby’s leases and 42
Wendy’s leases.
Franchise
Revenues
Our
franchise revenues will increase significantly for the remainder of 2009 as a
result of the full year effect in 2009 of the Wendy’s Merger. Despite
an overall increase in franchise revenues, the same-store sales trends for
franchised restaurants at Arby’s and Wendy’s will continue to be generally
impacted by many of the same factors described above under “Sales.”
Restaurant
Margin
We expect
that the restaurant margins at Company-owned restaurants for the remainder of
2009 for both of our brands will increase primarily as a result of the impact of
currently effective price increases, sales leverage from improved same-store
sales, higher margins on new premium menu items and tighter controls on fixed
and semi-variable costs. In addition, the Wendy’s margins are
expected to benefit from seasonal sales increases in the second and third
quarters of 2009. These factors are expected to be partially offset
by the negative impact on food cost of value menu offerings as well as higher
labor rates in 2009.
General
and Administrative
We expect
that our general and administrative expense for the remainder of 2009 will
increase significantly compared to the same period in 2008 as a result of the
full year effect in 2009 of the Wendy’s Merger, including integration
costs. This increase will be partially offset by the benefit from
merger related savings including combining the corporate functions for Wendy’s
and Arby’s in Atlanta, Georgia.
Depreciation
and Amortization
We expect
that our depreciation and amortization expense for the remainder of 2009 will
increase compared to the same period in 2008 as a result of the full year effect
in 2009 of the Wendy’s Merger. The additional one time charge of $6.5 million of
depreciation and amortization recorded in the first quarter of 2009, as a result
of refinements to the Wendy’s purchase price allocation (including long-lived
assets), is not expected to recur for the remainder of 2009.
Facilities
Relocation and Corporate Restructuring
We expect
that our facilities relocation and corporate restructuring expense for the
remainder of 2009 will be higher than the same period in 2008 primarily due to
additional Wendy’s Merger related costs that cannot yet be recognized under
applicable accounting standards.
Interest
Expense
We expect
that our interest expense for the remainder of 2009 will increase compared to
the same period in 2008 primarily as a result of the full year effect in 2009 of
the Wendy’s Merger and the increased interest rates on our amended Arby’s Credit
Agreement discussed in “Liquidity and Capital Resources-Long-term Debt,”
partially offset by the effect on interest expense of the $143.2 million in
voluntary net prepayments of the Term Loan in 2008.
Liquidity
and Capital Resources
Sources
and Uses of Cash for the Three Months Ended March 29, 2009
Cash and cash equivalents (“Cash”)
totaled $122.4 million at March 29, 2009 compared to $90.1 million at December
28, 2008. For the three months ended March 29, 2009, net cash
provided by continuing operating activities totaled $58.3 million, which
includes the following significant items:
|
·
|
Our
net loss of $10.9 million;
|
|
·
|
Depreciation
and amortization of $51.7 million;
|
|
·
|
The
receipt of deferred vendor incentives, net of amount recognized, of $29.4
million;
|
|
·
|
Impairment
of long-lived assets charges of $6.9
million;
|
|
·
|
The
write off and amortization of deferred financing costs of $5.1 million,
which includes $4.3 million related to the Wendy’s credit facility
executed in January 2009 but refinanced in March 2009 with the amended and
restated Arby’s Credit Agreement discussed below under “Long-term
Debt”;
|
|
·
|
Net
non-cash operating investment adjustments of $4.7 million principally
reflecting our $3.1 million of other than temporary losses on investments
related to our investments in certain available-for-sale equity securities
and other cost investments; and
|
|
·
|
Changes
in operating assets and liabilities of $42.1 million principally
reflecting a $23.2 million decrease in accounts payable, accrued expenses
and other current liabilities primarily due to payments to vendors and a
$15.6 million increase in prepaid expenses and other current
assets.
|
We expect
positive cash flows from continuing operating activities during the remainder of
2009.
Additionally,
for the three months ended March 29, 2009, we had the following significant
sources and uses of cash other than from operating activities:
|
·
|
Cash
capital expenditures totaling $17.2 million, including the construction of
new restaurants (approximately $6.5 million) and the remodeling of
existing restaurants;
|
|
·
|
Deferred
financing costs of $11.1 million;
|
|
·
|
Net
repayments of long-term debt of $3.0 million
and
|
|
·
|
Proceeds
from dispositions of $6.2 million, including $3.4 million from the sale of
10 Wendy’s Company-owned restaurants in Louisiana to a
franchisee.
|
The net
cash provided by continuing operations before the effect of exchange rate
changes on cash was approximately $32.5 million.
Working
Capital
Working
capital, which equals current assets less current liabilities, was a deficiency
of $60.1 million at March 29, 2009, reflecting a current ratio, which equals
current assets divided by current liabilities, of 0.9:1. The working
capital deficit at March 29, 2009 decreased $61.6 million from a deficit of
$121.7 million at December 28, 2008, primarily due to (1) $32.5 million of net
cash provided by continuing operations as discussed above and (2) $7.0 million
of accrued dividends discussed below.
Long-term
Debt
|
|
Outstanding
balance at
March
29, 2009
|
|
|
|
(in
millions)
|
|
|
|
|
|
Senior
secured term loan
|
|
$ |
384.0 |
|
6.20%
Senior Notes
|
|
|
200.2 |
|
6.25%
Senior Notes
|
|
|
189.9 |
|
Sale-leaseback
obligations, excluding interest
|
|
|
124.1 |
|
Capitalized
lease obligations, excluding interest
|
|
|
103.4 |
|
7%
Debentures
|
|
|
79.3 |
|
Secured
bank term loan
|
|
|
19.6 |
|
California
Restaurant Acquisition notes payable
|
|
|
5.0 |
|
Convertible
notes
|
|
|
2.1 |
|
Other
|
|
|
1.6 |
|
|
|
$ |
1,109.2 |
|
The
Arby’s Credit Agreement was amended and restated as of March 11, 2009 and
includes an amended senior secured term loan (the “Amended Term Loan”) and an
amended senior secured revolving credit facility (the “Amended
Revolver”). As a result of an agreement entered into on March 17,
2009, the amount of the senior secured revolving credit facility increased from
$100.0 million to $170.0 million. As a result of the amended and
restated Arby’s Credit Agreement, Wendy’s and certain of its affiliates in
addition to Arby’s and certain of its affiliates became
co-obligors. The Amended Term Loan is due July 2012 and the Amended
Revolver expires in July 2011. During the three months ended March
29, 2009, we borrowed a total of $51.2 million under the Amended Revolver;
however, no amounts were outstanding as of March 29, 2009. The
Amended Revolver includes a sub-facility for the issuance of letters of credit
up to $50.0 million. The availability under the Amended Revolver as
of March 29, 2009 was $120.5 million, which is net of $49.5 million for
outstanding letters of credit.
The
amended and restated Arby’s Credit Agreement contains covenants that, among
other things, require Wendy’s International Holdings, LLC (“WIH”), a subsidiary
of Wendy’s/Arby’s, and the parent company of Wendy’s and Arby’s, to maintain
certain aggregate maximum leverage and minimum interest coverage ratios and
restrict its ability to incur debt, pay dividends or make other distributions to
Wendy’s/Arby’s, make certain capital expenditures, enter into certain
transactions (including sales of assets and certain mergers and consolidations)
and create or permit liens.
There
were no material changes to the terms of any other debt obligations since
December 28, 2008 as discussed in our Form 10-K.
Other
Revolving Credit Facilities
AFA
Service Corporation (“AFA”), an independently controlled advertising cooperative
for the Arby’s restaurant system in which we have voting interests of less than
50%, has a $3.5 million line of credit. The availability under the AFA
line of credit as of March 29, 2009 was $3.1 million.
Wendy’s
National Advertising Program (”WNAP”) is an advertising fund established to
collect and administer funds for use in advertising and promotional programs for
Wendy’s company-owned and franchised stores. The fund has a $25.0
million line of credit that was fully available at March 29,
2009. The line of credit was established to fund these advertising
operations.
One of Wendy’s Canadian
subsidiaries has a
revolving credit facility of $4.8 million, Canadian $6.0 million, that was fully
available as of March 29, 2009.
In
addition, on January 14, 2009, Wendy’s executed a new $200.0 million revolving
credit facility which was terminated effective March 11, 2009, in connection
with the execution of the amended and restated Arby’s Credit
Agreement.
Debt
Covenants
We were
in compliance with all the covenants of the amended and restated Arby’s Credit
Agreement as of March 29, 2009 and we expect to remain in compliance with all of
these covenants through the remainder of 2009. As of March 29, 2009
there was $10.0 million immediately available for the payment of dividends
indirectly to Wendy’s/Arby’s under the covenants of the
amended
Arby’s Credit Agreement.
Wendy’s
6.20% and 6.25% Senior Notes and 7% Debentures contain covenants that specify
limits on the incurrence of indebtedness. We were in compliance with
these covenants as of March 29, 2009 and project that we will be in compliance
with these covenants throughout 2009.
A
significant number of the underlying leases in the Arby’s restaurants segment
for sale-leaseback obligations and capitalized lease obligations, as well as the
operating leases, require or required periodic financial reporting of certain
subsidiary entities within ARG or of individual restaurants, which in many cases
has not been prepared or reported. The Company has negotiated waivers
and alternative covenants with its most significant lessors which substitute
consolidated financial reporting of ARG for that of individual subsidiary
entities and which modify restaurant level reporting requirements for more than
half of the affected leases. Nevertheless, as of March 29, 2009, the
Company was not in compliance, and remains not in compliance, with the reporting
requirements under those leases for which waivers and alternative financial
reporting covenants have not been negotiated. However, none of the
lessors has asserted that the Company is in default of any of those lease
agreements. The Company does not believe that such non-compliance will have a
material adverse effect on its condensed consolidated financial position or
results of operations.
Credit
Ratings
The
Company’s corporate family and its senior debt are rated by Standard &
Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).
Following
the review of the amended Arby’s Credit Agreement in March 2009, the agencies
assigned the following ratings:
S&P
affirmed the B+ rating on the amended Arby’s Credit Agreement and raised its
corporate family rating to B+. At the same time, S&P removed the
ratings from CreditWatch – Developing and replaced that rating with a Stable
Outlook.
Moody’s
raised the rating on the amended Arby’s Credit Agreement to a Ba2
rating. Moody’s also raised the corporate family rating to a B1 and
assigned a probability of default rating of B1. The overall outlook is
Negative.
The
Wendy’s 6.20% and 6.25% Senior Notes and 7% Debentures are rated as B+ by
S&P and B2 by Moody’s.
There are
many factors that could lead to future upgrades or downgrades of our credit
ratings. Credit rating upgrades or downgrades could lead to,
among other things, changes in borrowing costs and changes in our ability to
access capital markets on acceptable terms.
A rating
is not a recommendation to buy, sell or hold any security, and may be subject to
revision or withdrawal at any time by the rating agency. Each rating
should be evaluated independently of any other rating.
Dividends
On March
30, 2009 (the first day of our fiscal second quarter), we paid quarterly cash
dividends of $0.015 per share on our Class A common stock, aggregating $7.0
million. On May 5, 2009 we declared a quarterly cash dividend of
$0.015 per share on our Class A common stock payable on June 15, 2009 to holders
of record on June 1, 2009. We currently intend to continue to declare
and pay quarterly cash dividends; however, there can be no assurance that any
quarterly dividends will be declared or paid in the future or of the amount or
timing of such dividends, if any. Based on these dividend
declarations and payment dates, if we pay quarterly cash dividends for the
remainder of 2009 at the same rate as declared in our 2009 second quarter, our
total cash requirement for dividends for the remainder of 2009, including $7.0
million of accrued dividends as of March 29, 2009, would be approximately $28.0
million.
Universal
Shelf Registration Statement
In
December 2008, the Company filed a universal shelf registration statement with
the Securities and Exchange Commission in connection with the possible future
offer and sale, from time to time, of an indeterminate amount of our common
stock, preferred stock, debt securities and warrants to purchase any of these
types of securities. This registration statement became effective
automatically upon filing. Unless otherwise described in the
applicable prospectus supplement relating to any offered securities, we
anticipate using the net proceeds of each offering for general corporate
purposes, including financing of acquisitions and capital expenditures,
additions to working capital and repayment of existing debt. We have
not presently made any decision to issue any specific securities under this
universal shelf registration statement.
Sources
and Uses of Cash for the Remainder of 2009
Our
anticipated consolidated cash requirements for continuing operations for the
remainder of 2009, exclusive of operating cash flow requirements, consist
principally of:
|
·
|
Cash
capital expenditures of approximately $124.8
million;
|
|
·
|
Quarterly
cash dividends aggregating up to approximately $28.0
million;
|
|
·
|
Scheduled
debt principal repayments aggregating $25.9
million;
|
|
·
|
Severance
payments of approximately $3.2 million related to our Wendy’s merger
integration program; and
|
|
·
|
The
costs of any potential business acquisitions or financing
activities.
|
We expect to meet these requirements
from operating cash flows. In the event operating cash flows are not
sufficient, the availability under the Amended Revolver is anticipated to
provide sufficient liquidity to meet cash flow requirements.
In
addition, the $47.0 million released from the Equities Account to Wendy’s/Arby’s
in 2008 is required to be returned to the Equities Account in January
2010.
Legal
and Environmental Matters
In the
Form 10-K for the fiscal year ended December 28, 2008, the Company disclosed an
environmental matter with Adams Packing Association, Inc., an inactive
subsidiary of the Company, whereby Adams was listed by the United States
Environmental Protection Agency on the Comprehensive Environmental Response,
Compensation and Liability Information System list of known or suspected
contaminated sites. As discussed in our Form 10-K, based on amounts
spent prior to 2008 of approximately $1.7 million and after taking into
consideration various legal defenses available to us, including Adams, we expect
that the final resolution of this matter will not have a material effect on our
financial position or results of operations.
The
Company also disclosed putative class action complaints in the Form 10-K for the
fiscal year ended December 28, 2008 that had been filed against Wendy’s, its
directors, and in two cases also the Company, between April 25 and June 13,
2008, alleging breach of fiduciary duties arising out of the Wendy’s board of
directors’ search for a merger partner and out of its approval of the merger
agreement on April 23, 2008, and failure to disclose material information
related to the merger in Amendment No. 3 to the Form S-4 under the Securities
Act of 1933 (the “Form S-4”). These cases were described in the Form
10-K as the Guiseppone, Henzel, Smith and Ravanis cases.
On April
1, 2009, the Common Pleas Court of Franklin County, Ohio entered an order
preliminarily approving settlement of all claims and certifying a class for
settlement purposes only, which provided for notice of settlement to the class
and set a final settlement hearing date of July 1, 2009. On May 1,
2009, the Company mailed to the class a notice of pendency of the class actions,
the proposed settlement and the final hearing date.
The
defendants believe that the Guiseppone, Henzel, Smith and Ravanis cases
described above are without merit and intend to vigorously defend them in the
event that court approval is not obtained. While we do not believe that these
actions will have a material adverse effect on our financial condition or
results of operations, unfavorable rulings could occur. Were an unfavorable
ruling to occur, there exists the possibility of a material adverse impact on
our results of operations for the period in which the ruling occurs or for
future periods.
In
addition to the matters described above, we are involved in other litigation and
claims incidental to our current and prior businesses. We have
reserves for all of our legal and environmental matters aggregating $2.8 million
as of March 29, 2009. Although the outcome of these matters cannot be
predicted with certainty and some of these matters may be disposed of
unfavorably to us, based on currently available information, including legal
defenses available to us, and given the
aforementioned
reserves and our insurance coverage, we do not believe that the outcome of these
legal and environmental matters will have a material adverse effect on our
consolidated financial position or results of operations.
Seasonality
Our
restaurant operations are moderately impacted by seasonality because
Wendy’s restaurant revenues are normally higher during the summer months than
during the winter months. Because of this seasonality, results for
any particular quarter are not necessarily indicative of the results that may be
achieved for any other quarter or for the full fiscal year.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In April
2009, the FASB issued FASB Staff Position No. FAS 107-1, “Interim Disclosures
about Fair Value of Financial Instruments” (“FSP FAS 107-1”). FSP FAS
107-1 requires expanded fair value disclosures for all financial instruments
within the scope of FASB Statement No. 107, “Disclosures about Fair Value of
Financial Instruments.” These disclosures will now be required for
interim periods for publicly traded entities. In addition, entities
will be required to disclose the methods and significant assumptions used to
estimate the fair value of financial instruments in financial statements on an
interim basis. This Staff Position will be effective commencing with
our 2009 second quarter.
Item
3. Quantitative and
Qualitative Disclosures about Market Risk
This
“Quantitative and Qualitative Disclosures about Market Risk” has been presented
in accordance with Item 305 of Regulation S-K promulgated by the Securities and
Exchange Commission (the “SEC”) and should be read in conjunction with “Item 7A.
Quantitative and Qualitative Disclosures about Market Risk” in our annual report
on Form 10-K for the fiscal year ended December 28, 2008 (the “Form
10-K”). Item 7A of our Form 10-K describes in more detail our
objectives in managing our interest rate risk with respect to long-term debt, as
referred to below, our commodity price risk, our equity market risk, credit risk
and our foreign currency risk. Certain statements we make under this
Item 2 constitute “forward-looking statements” under the Private Securities
Litigation Reform Act of 1995. See “Special Note Regarding
Forward-Looking Statements and Projections” in “Part II – Other Information”
preceding “Item 1.”
We are
exposed to the impact of interest rate changes, changes in commodity prices,
changes in the market value of our investments and foreign currency fluctuations
primarily related to the Canadian dollar. In the normal course of
business, we employ established policies and procedures to manage our exposure
to these changes using financial instruments we deem appropriate.
Interest
Rate Risk
Our
objective in managing our exposure to interest rate changes is to limit its
impact on our earnings and cash flows. As of March 29, 2009 our
long-term debt, including current portion, aggregated $1,109.2 million and
consisted of $497.7 million of fixed-rate debt, $384.0 million of variable-rate
debt, and $227.5 million of capitalized lease and sale-leaseback
obligations. Our variable interest rate debt consists of $384.0
million of Arby’s term loan borrowings under a variable-rate senior secured term
loan facility due through 2012. The amended and restated Arby’s Term
Loan and amounts borrowed under the revolving credit facility bear interest at
the borrowers’ option at either (1) LIBOR (1.22% at March 29, 2009) of not less
than 2.75% plus 4.0% or (2) the higher of a base rate determined by the
administrative agent for the amended and restated Arby’s Credit Agreement or the
Federal funds rate plus 0.5% (but not less than 3.75%), in either case plus
3.0%. As of March 29, 2009, we do not have any interest rate
protection vehicles due to the current prevailing interest rate
climate. We are continuing to evaluate whether to enter into interest
rate swap agreements. The fair value of our fixed-rate debt will
increase if interest rates decrease. The fair market value of our
investments in fixed-rate debt securities will decline if interest rates
increase.
Equity
Market Risk
Our
objective in managing our exposure to changes in the market value of our equity
investments is to balance the risk of the impact of these changes on our
earnings and cash flows with our expectations for long-term investment
returns. One significant exposure to equity price risk relates to our
investments (the “Equities Account”) that are managed by a management company
formed by certain former executives (the “Management Company”), which are
discussed in more detail below.
Overall
Market Risk
Our
overall market risk as of March 29, 2009 includes cash equivalents, investments
in the Equities Account that are managed by the Management Company and our
investment in TimWen. We maintain investment holdings of various issuers, types
and maturities. As of March 29, 2009, these investments were classified in our
unaudited condensed consolidated balance sheets as follows (in
millions):
Cash
equivalents included in “Cash and cash equivalents”
|
|
$ |
20.4 |
|
Current
restricted cash equivalents
|
|
|
15.1 |
|
Short-term
investments
|
|
|
0.1 |
|
Investment
related receivables
|
|
|
1.5 |
|
Non-current
restricted cash equivalents
|
|
|
28.9 |
|
Non-current
investments
|
|
|
116.7 |
|
|
|
$ |
182.7 |
|
Non-current
liability positions related to investments included in “Other
liabilities”:
|
|
|
|
|
Securities
sold with an obligation to purchase
|
|
$ |
(3.9 |
) |
Derivatives
|
|
|
(4.0 |
) |
|
|
$ |
(7.9 |
) |
Prior to
2008, we invested $75.0 million in the Equities Account. We entered into an
agreement under which (1) the Management Company will continue to manage the
Equities Account until at least December 31, 2010, (2) we will not
withdraw
our
investment from the Equities Account prior to December 31, 2010 and (3)
beginning January 1, 2008, we began to pay management and incentive fees to the
Management Company in an amount customary for other unaffiliated third party
investors with similarly sized investments. The Equities Account is invested
principally in debt and equity securities of a limited number of publicly-traded
companies, cash equivalents and equity derivatives and had a fair value of $33.7
million as of March 29, 2009, detailed below. The fair value of the Equities
Account at March 29, 2009 excludes $47.0 million of restricted cash released
from the Equities Account to Wendy’s/Arby’s in 2008. We obtained permission from
the Management Company to release this amount from the aforementioned investment
restriction and we are obligated to return this amount to the Equities Account
by January 29, 2010. As of March 29, 2009, the derivatives held in our Equities
Account investment portfolio consisted of total return swaps on equity
securities, and put options on equity securities. We did not designate any of
these strategies as hedging instruments and, accordingly all of these derivative
instruments were recorded at fair value with changes in fair value recorded in
our results of operations.
As of
March 29, 2009, the investments in the Equities Account consist of the following
(in millions):
Restricted
cash equivalents
|
|
$ |
21.4 |
|
Investments
|
|
|
18.8 |
|
Investment
related receivables included in “Deferred costs and other
assets”
|
|
|
1.4 |
|
Securities
sold with an obligation to purchase included in “Other
liabilities”
|
|
|
(3.9 |
) |
Derivatives
in a liability position included in “Other liabilities”
|
|
|
(4.0 |
) |
Total
fair value
|
|
$ |
33.7 |
|
Our cash
equivalents are short-term, highly liquid investments with maturities of three
months or less when acquired and consisted principally of cash in bank money
market and mutual fund accounts, and are primarily not in Federal Deposit
Insurance Corporation (“FDIC”) insured accounts, $44.0 million of which was
restricted as of March 29, 2009.
At March
29, 2009 our investments were classified in the following general types or
categories (in millions):
|
|
|
|
|
|
|
|
Carrying
Value
|
|
Type
|
|
At
Cost
|
|
|
At
Fair Value (a)(b)
|
|
|
Amount
|
|
|
Percent
|
|
Cash
equivalents
|
|
$ |
20.4 |
|
|
$ |
20.4 |
|
|
$ |
20.4 |
|
|
|
11.2 |
% |
Investment
related receivables
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
0.8 |
% |
Current
and non-current restricted cash equivalents
|
|
|
44.0 |
|
|
|
44.0 |
|
|
|
44.0 |
|
|
|
24.1 |
% |
Current
and non-current investments accounted for as available-for-sale
securities
|
|
|
20.0 |
|
|
|
18.9 |
|
|
|
18.9 |
|
|
|
10.4 |
% |
Other
non-current investments in investment limited partnerships accounted for
at cost
|
|
|
10.5 |
|
|
|
11.1 |
|
|
|
10.5 |
|
|
|
5.7 |
% |
Other
non-current investments accounted for at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
0.6 |
|
|
|
0.9 |
|
|
|
0.6 |
|
|
|
0.3 |
% |
Equity
|
|
|
86.8 |
|
|
|
86.8 |
|
|
|
86.8 |
|
|
|
47.5 |
% |
|
|
$ |
183.8 |
|
|
$ |
183.6 |
|
|
$ |
182.7 |
|
|
|
100 |
% |
Non-current
liability positions related to investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold with an obligation to purchase
|
|
|
(4.7 |
) |
|
|
(3.9 |
) |
|
|
(3.9 |
) |
|
|
49.4 |
% |
Derivatives
|
|
|
- |
|
|
|
(4.0 |
) |
|
|
(4.0 |
) |
|
|
50.6 |
% |
|
|
$ |
(4.7 |
) |
|
$ |
(7.9 |
) |
|
$ |
(7.9 |
) |
|
|
100.0 |
% |
_____________________
(a)
|
There
can be no assurance that we would be able to sell certain of these
investments at these amounts.
|
(b)
|
Includes
amounts managed in the Equities Account by the Management Company,
detailed above.
|
Our
marketable securities are reported at fair market value and are classified and
accounted for as “available-for-sale” with net unrealized holding gains or
losses, net of income taxes, reported as a separate component of comprehensive
income or loss bypassing net income or loss. Investment limited partnerships and
other non-current investments in which we do not have significant influence over
the investees are accounted for at cost. Unrealized holding gains or
losses for derivatives and securities sold with an obligation to purchase
(“short-sales”) are reported as a component of net income or
loss. Realized gains and losses on investment limited partnerships
and other non-current investments recorded at cost are reported as income or
loss in the period in which the securities are sold. Investments in
which we have significant influence over the investees are accounted for in
accordance with the equity method of accounting under which our results of
operations include our share of the income or loss of the
investees. We review all of our investments in which we have
unrealized losses and recognize investment losses currently for any unrealized
losses we deem to be other than temporary. The cost-basis component
of investments reflected in the tables above and below represents original cost
less a permanent reduction for any unrealized losses that were deemed to be
other than temporary and in the case of equity method investments, are shown
less any cash distributions received.
Sensitivity
Analysis
Our
estimate of market risk exposure is presented for each class of financial
instruments held by us at March 29, 2009 for which an immediate adverse market
movement causes a potential material impact on our financial position or results
of operations. We believe that the adverse market movements described below
represent the hypothetical loss to future earnings and do not represent the
maximum possible loss nor any expected actual loss, even under adverse
conditions, because actual adverse fluctuations would likely differ. In
addition, since our investment portfolio is subject to changes in our portfolio
management strategy, and general market conditions, these estimates are not
necessarily indicative of the actual results which may occur. As of
March 29, 2009, we did not hold any market-risk sensitive instruments which were
entered into for trading purposes. As such, the table below reflects
the risk for those financial instruments entered into for other than trading
purposes as of March 29, 2009 based upon assumed immediate adverse effects as
noted below (in millions):
|
|
Carrying
Value
|
|
|
Interest
Rate Risk
|
|
|
Equity
Price Risk
|
|
|
Foreign
Currency Risk
|
|
Cash
equivalents
|
|
$ |
20.4 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Investment
related receivables
|
|
|
1.5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Current
and non-current restricted cash equivalents
|
|
|
44.0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Available-for-sale
equity securities
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Available-for-sale
equity securities – restricted
|
|
|
18.8 |
|
|
|
- |
|
|
|
(1.9 |
) |
|
|
- |
|
Equity
investments
|
|
|
86.8 |
|
|
|
- |
|
|
|
(8.7 |
) |
|
|
(8.7 |
) |
Other
investments
|
|
|
11.1 |
|
|
|
- |
|
|
|
(1.1 |
) |
|
|
- |
|
DFR
Notes
|
|
|
25.4 |
|
|
|
(0.3 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
investments in liability positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
sold with an obligation to purchase - restricted
|
|
|
(3.9 |
) |
|
|
- |
|
|
|
(0.4 |
) |
|
|
- |
|
Total
return swaps on equity securities – restricted
|
|
|
(4.0 |
) |
|
|
- |
|
|
|
(1.4 |
) |
|
|
(0.9 |
) |
Long-term
debt, excluding capitalized lease and sale-leaseback
obligations-variable
|
|
|
(384.0 |
) |
|
|
(10.9 |
) |
|
|
- |
|
|
|
- |
|
Long-term
debt, excluding capitalized lease and sale-leaseback
obligations-fixed
|
|
|
(497.7 |
) |
|
|
(57.7 |
) |
|
|
- |
|
|
|
- |
|
The
sensitivity analysis of financial instruments held at March 29, 2009 assumes (1)
an instantaneous one percentage point adverse change in market interest rates,
(2) an instantaneous 10% adverse change in the equity markets in which we are
invested and (3) an instantaneous 10% adverse change in the foreign currency
exchange rates versus the United States dollar, each from their levels at March
29, 2009 and with all other variables held constant. The equity price
risk reflects the impact of a 10% decrease in the carrying value of our equity
securities, including those in “Other investments” in the tables
above. The sensitivity analysis also assumes that the decreases in
the equity markets and foreign exchange rates are other than
temporary. We have not reduced the equity price risk for
available-for-sale investments and cost investments to the extent of unrealized
gains on certain of those investments, which would limit or eliminate the effect
of the indicated market risk on our results of operations and, for cost
investments, our financial position.
Our cash
equivalents and restricted cash equivalents included $64.4 million as of March
29, 2009 of bank money market accounts and interest-bearing brokerage and bank
accounts which are all investments with a maturity of three months or less when
acquired and are designed to maintain a stable value.
As of
March 29, 2009, we had amounts of both fixed-rate debt and variable-rate debt.
On the fixed-rate debt, the interest rate risk presented with respect to our
long-term debt, excluding capitalized lease and sale-leaseback obligations,
primarily relates to the potential impact a decrease in interest rates of one
percentage point has on the fair value of our $497.7 million of fixed-rate debt
and not on our financial position or our results of operations. On the
variable-rate debt, the interest rate risk presented with respect to our
long-term debt, excluding capitalized lease and sale-leaseback obligations,
represents the potential impact an increase in interest rates of one percentage
point has on our results of operations related to our $384.0 million of
variable-rate long-term debt outstanding as of March 29, 2009. Our
variable-rate long-term debt outstanding as of March 29, 2009 had a weighted
average remaining maturity of approximately three years.
For
investments in investment limited partnerships and similar investment entities,
all of which are accounted for at cost, and other non-current investments
included in “Other investments” in the tables above, the decrease in the equity
markets was assumed for this analysis to be other than temporary.
Item
4. Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of March 29, 2009. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of March
29, 2009, our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act was recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission.
Change
in Internal Control Over Financial Reporting
On
September 29, 2008, Triarc Companies, Inc. (renamed “Wendy’s/Arby’s Group,
Inc.”) completed the acquisition of Wendy’s International, Inc. and its
subsidiaries. As part of the integration activities, our controls and
procedures are being incorporated into this recently acquired business. We
expect further integration of Wendy's processes in 2009.
There
were no changes in our internal control over financial reporting made during the
quarter that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Inherent
Limitations on Effectiveness of Controls
There are
inherent limitations in the effectiveness of any control system, including the
potential for human error and the circumvention or overriding of the controls
and procedures. Additionally, judgments in decision-making can be
faulty and breakdowns can occur because of simple error or
mistake. An effective control system can provide only reasonable, not
absolute, assurance that the control objectives of the system are adequately
met. Accordingly, our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our control system can
prevent or detect all error or fraud. Finally, projections of any
evaluation or assessment of effectiveness of a control system to future periods
are subject to the risks that, over time, controls may become inadequate because
of changes in an entity’s operating environment or deterioration in the degree
of compliance with policies or procedures.
Part
II. OTHER
INFORMATION
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
This
Quarterly Report on Form 10-Q and oral statements made from time to time by
representatives of the Company may contain or incorporate by reference certain
statements that are not historical facts, including, most importantly,
information concerning possible or assumed future results of operations of the
Company. Those statements, as well as statements preceded by,
followed by, or that include the words “may,” “believes,” “plans,” “expects,”
“anticipates,” or the negation thereof, or similar expressions, constitute
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 (the “Reform Act”). All statements that
address future operating, financial or business performance; strategies or
expectations; future synergies, efficiencies or overhead savings; anticipated
costs or charges; future capitalization; and anticipated financial impacts of
recent or pending transactions are forward-looking statements within the meaning
of the Reform Act. The forward-looking statements are based on our
expectations at the time such statements are made, speak only as of the dates
they are made and are susceptible to a number of risks, uncertainties and other
factors. Our actual results, performance and achievements may differ
materially from any future results, performance or achievements expressed or
implied by our forward-looking statements. For all of our
forward-looking statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Reform Act. Many
important factors could affect our future results and could cause those results
to differ materially from those expressed in or implied by the forward-looking
statements contained herein. Such factors, all of which are difficult
or impossible to predict accurately, and many of which are beyond our control,
include, but are not limited to, the following:
|
·
|
competition,
including pricing pressures, aggressive marketing and the potential impact
of competitors’ new unit openings on sales of Wendy’s® and Arby’s®
restaurants;
|
|
·
|
consumers’
perceptions of the relative quality, variety, affordability and value of
the food products we offer;
|
|
·
|
success
of operating initiatives, including advertising and promotional efforts
and new product and concept development by us and our
competitors;
|
|
·
|
development
costs, including real estate and construction
costs;
|
|
·
|
changes
in consumer tastes and preferences, including changes resulting from
concerns over nutritional or safety aspects of beef, poultry, French fries
or other foods or the effects of food-borne illnesses such as “mad cow
disease” and avian influenza or “bird flu,” and changes in spending
patterns and demographic trends, such as the extent to which consumers eat
meals away from home;
|
|
·
|
certain
factors affecting our franchisees, including the business and financial
viability of franchisees, the timely payment of franchisees’ obligations
due to us, and the ability of our franchisees to open new restaurants in
accordance with their development commitments, including their ability to
finance restaurant development and
remodels;
|
|
·
|
availability,
location and terms of sites for restaurant development by us and our
franchisees;
|
|
·
|
delays
in opening new restaurants or completing remodels of existing
restaurants;
|
|
·
|
the
timing and impact of acquisitions and dispositions of
restaurants;
|
|
·
|
our
ability to successfully integrate acquired restaurant
operations;
|
|
·
|
anticipated
or unanticipated restaurant closures by us and our
franchisees;
|
|
·
|
our
ability to identify, attract and retain potential franchisees with
sufficient experience and financial resources to develop and operate
Wendy’s and Arby’s restaurants
successfully;
|
|
·
|
availability
of qualified restaurant personnel to us and to our franchisees, and the
ability to retain such personnel;
|
|
·
|
our
ability, if necessary, to secure alternative distribution of supplies of
food, equipment and other products to Wendy’s and Arby’s restaurants at
competitive rates and in adequate amounts, and the potential financial
impact of any interruptions in such
distribution;
|
· changes
in commodity (including beef and chicken), labor, supply, fuel, utilities,
distribution and other operating costs;
|
·
|
availability
and cost of insurance;
|
|
·
|
adverse
weather conditions;
|
|
·
|
availability,
terms (including changes in interest rates) and deployment of
capital;
|
|
·
|
changes
in legal or self-regulatory requirements, including franchising laws,
accounting standards, payment card industry rules, overtime rules, minimum
wage rates, government-mandated health benefits, tax legislation and
menu-board labeling requirements;
|
|
·
|
the
costs, uncertainties and other effects of legal, environmental and
administrative proceedings;
|
|
·
|
the
impact of general economic conditions on consumer spending, including a
slower consumer economy and high unemployment rates, particularly in
geographic regions that contain a high concentration of Wendy’s or Arby’s
restaurants, and the effects of war or terrorist
activities;
|
|
·
|
the
impact of our continuing investment in series A senior secured notes of
Deerfield Capital Corp. following our 2007 corporate restructuring;
and
|
|
·
|
other
risks and uncertainties affecting us and our subsidiaries referred to in
our Form 10-K for the fiscal year ended December 28, 2008 (the “Form
10-K”) (see especially “Item 1A. Risk Factors” and “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”)
and in our other current and periodic filings with the Securities and
Exchange Commission.
|
All
future written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. New
risks and uncertainties arise from time to time, and it is impossible for us to
predict these events or how they may affect us. We assume no
obligation to update any forward-looking statements after the date of this
Quarterly Report on Form 10-Q as a result of new information, future events or
developments, except as required by federal securities laws. In
addition, it is our policy generally not to make any specific projections as to
future earnings, and we do not endorse any projections regarding future
performance that may be made by third parties.
Item
1. Legal Proceedings
In the
Form 10-K for the fiscal year ended December 28, 2008, the Company disclosed an
environmental matter with Adams Packing Association, Inc., an inactive
subsidiary of the Company, whereby Adams was listed by the United States
Environmental Protection Agency on the Comprehensive Environmental Response,
Compensation and Liability Information System list of known or suspected
contaminated sites. As discussed in our Form 10-K, based on amounts
spent prior to 2008 of approximately $1.7 million and after taking into
consideration various legal defenses available to us, including Adams, we expect
that the final resolution of this matter will not have a material effect on our
financial position or results of operations.
The
Company also disclosed putative class action complaints in the Form 10-K for the
fiscal year ended December 28, 2008 that had been filed against Wendy’s, its
directors, and in two cases also the Company, between April 25 and June 13,
2008, alleging breach of fiduciary duties arising out of the Wendy’s board of
directors’ search for a merger partner and out of its approval of the merger
agreement on April 23, 2008, and failure to disclose material information
related to the merger in Amendment No. 3 to the Form S-4 under the Securities
Act of 1933 (the “Form S-4”). These cases were described in the Form
10-K as the Guiseppone, Henzel, Smith and Ravanis cases.
On April
1, 2009, the Common Pleas Court of Franklin County, Ohio entered an order
preliminarily approving settlement of all claims and certifying a class for
settlement purposes only, which provided for notice of settlement to the class
and set a final settlement hearing date of July 1, 2009. On May 1,
2009, the Company mailed a notice of pendency of the class actions, the proposed
settlement and the final hearing date.
The
defendants believe that the Guiseppone, Henzel, Smith and Ravanis cases
described above are without merit and intend to vigorously defend them in the
event that court approval is not obtained. While we do not believe that these
actions will have a material adverse effect on our financial condition or
results of operations, unfavorable rulings could occur. Were an
unfavorable
ruling to
occur, there exists the possibility of a material adverse impact on our results
of operations for the period in which the ruling occurs or for future
periods.
In
addition to the matters described above, we are involved in other litigation and
claims incidental to our current and prior businesses. We have
reserves for all of our legal and environmental matters aggregating $2.8 million
as of March 29, 2009. Although the outcome of these matters cannot be
predicted with certainty and some of these matters may be disposed of
unfavorably to us, based on currently available information, including legal
defenses available to us, and given the aforementioned reserves and our
insurance coverage, we do not believe that the outcome of these legal and
environmental matters will have a material adverse effect on our consolidated
financial position or results of operations.
Item
1A. Risk Factors.
In
addition to the information contained in this report, you should carefully
consider the risk factors disclosed in our Form 10-K, which could materially
affect our business, financial condition or future results. Except as
described in this report, there have been no material changes from the risk
factors previously disclosed in our Form 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
The
following table provides information with respect to repurchases of shares of
our common stock by us and our “affiliated purchasers” (as defined in Rule
10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) during the
first fiscal quarter of 2009:
Issuer
Repurchases of Equity Securities
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid Per Share
|
December
29, 2008
through
January
25, 2009
|
4,332
|
$4.99
|
January
26, 2009
through
February
22, 2009
|
---
|
---
|
February
23, 2009
through
March
29, 2009
|
---
|
---
|
Total
|
4,332
|
$4.99
|
(1)
|
Includes
4,332 shares reacquired by the Company from holders of restricted stock
awards, either to satisfy tax withholding requirements, or upon forfeiture
of non-vested shares. The shares were valued at the closing prices of our
Class A Common Stock on the dates of
activity.
|
Item
6. Exhibits.
EXHIBIT NO.
|
DESCRIPTION
|
|
|
2.1
|
Agreement
and Plan of Merger, dated as of April 23, 2008, by and among Triarc
Companies, Inc., Green Merger Sub Inc. and Wendy’s International, Inc.,
incorporated herein by reference to Exhibit 2.1 to Triarc’s Current Report
on Form 8-K dated April 29, 2008 (SEC file no.
001-02207).
|
2.2
|
Side
Letter Agreement, dated August 14, 2008, by and among Triarc Companies,
Inc., Green Merger Sub, Inc. and Wendy’s International, Inc., incorporated
herein by reference to Exhibit 2.3 to Triarc’s Registration Statement on
Form S-4, Amendment No.3, filed on August 15, 2008 (Reg. no.
333-151336).
|
2.3
|
Agreement
and Plan of Merger, dated as of December 17, 2007, by and among Deerfield
Triarc Capital Corp., DFR Merger Company, LLC, Deerfield & Company LLC
and, solely for the purposes set forth therein, Triarc Companies, Inc. (in
such capacity, the Sellers’ Representative, incorporated herein by
reference to Exhibit 2.1 to Triarc’s Current Report on Form 8-K dated
December 21, 2007 (SEC file No. 001-02207).
|
3.1
|
Certificate
of Incorporation of Triarc Companies, Inc., incorporated herein by
reference to Exhibit 3.1 to Triarc’s Current Report on Form 8-K dated June
9, 2004 (SEC file no. 001-02207).
|
3.2
|
Amendment
to the Certificate of Incorporation of Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 3.1 to Wendy’s/Arby’s Group’s
Current Report on Form 8-K dated September 29, 2008 (SEC file no.
001-02207).
|
3.3
|
Amended
and Restated By-laws of Wendy’s/Arby’s Group, Inc., incorporated herein by
reference to Exhibit 3.2 to Wendy’s/Arby’s Group’s Current Report on Form
8-K dated September 29, 2008 (SEC file no. 001-02207).
|
10.1
|
Amended
and Restated Credit Agreement dated as of July 25, 2005, as amended and
restated as of March 11, 2009, by and between Wendy’s International, Inc.,
Wendy’s International Holdings, LLC, Arby’s Restaurant Group, Inc., and
Arby’s Restaurant Holdings, LLC, (collectively the “Borrowers”) among the
Borrowers, Triarc Restaurant Holdings, LLC, the Lenders and Issuers party
thereto, Citicorp North America, Inc., as administrative agent and
collateral agent, Bank of America, N.A. and Credit Suisse, Cayman Islands
Branch, as co-syndication agents, Wachovia Bank, National Association,
SunTrust Bank and GE Capital Franchise Finance Corporation, as
co-documentation agents, Citigroup Global Markets Inc., Banc of America
Securities LLC and Credit Suisse, Cayman Islands Branch, as joint lead
arrangers and joint book-running managers, incorporated herein by
reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form
8-K dated March 12, 2009 (SEC file no. 001-02207).
|
10.2
|
Pledge and Security Agreement dated as of
July 25, 2005 and amended and restated as of March 11, 2009, by and
between Wendy’s International, Inc., Wendy’s International Holdings, LLC,
Arby’s Restaurant Group, Inc., and Arby’s Restaurant Holdings, LLC, and
Citicorp North America, Inc., as Collateral Agent.*
|
10.3
|
Form
of Increase Joinder dated as of March 17, 2009 among Arby’s Restaurant
Group, Inc., Wendy’s International Holdings, Inc., Arby’s Restaurant
Holdings, LLC, Wendy’s International, Inc., Citicorp North America, Inc.,
The Huntington National Bank, Fifth Third Bank, Wells Fargo Bank, National
Association and Bank of America, N.A., incorporated by reference to
Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on
March 20, 2009 (SEC file no. 001-02207).
|
31.1
|
|
31.2
|
|
32.1
|
|
_______________________
* Filed
herewith.
SIGNATURES
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.
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WENDY’S/ARBY’S
GROUP, INC.
(Registrant)
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Date: May 7, 2009
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By:
/s/
Stephen E.
Hare
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Stephen
E. Hare
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Senior
Vice President and
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Chief
Financial Officer
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(On
behalf of the Company)
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Date: May 7, 2009
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By:
/s/
Steven B.
Graham
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Steven
B. Graham
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Senior
Vice President and
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Chief
Accounting Officer
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(Principal
Accounting Officer)
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EXHIBIT NO.
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DESCRIPTION
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2.1
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Agreement
and Plan of Merger, dated as of April 23, 2008, by and among Triarc
Companies, Inc., Green Merger Sub Inc. and Wendy’s International, Inc.,
incorporated herein by reference to Exhibit 2.1 to Triarc’s Current Report
on Form 8-K dated April 29, 2008 (SEC file no.
001-02207).
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2.2
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Side
Letter Agreement, dated August 14, 2008, by and among Triarc Companies,
Inc., Green Merger Sub, Inc. and Wendy’s International, Inc., incorporated
herein by reference to Exhibit 2.3 to Triarc’s Registration Statement on
Form S-4, Amendment No.3, filed on August 15, 2008 (Reg. no.
333-151336).
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2.3
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Agreement
and Plan of Merger, dated as of December 17, 2007, by and among Deerfield
Triarc Capital Corp., DFR Merger Company, LLC, Deerfield & Company LLC
and, solely for the purposes set forth therein, Triarc Companies, Inc. (in
such capacity, the Sellers’ Representative, incorporated herein by
reference to Exhibit 2.1 to Triarc’s Current Report on Form 8-K dated
December 21, 2007 (SEC file No. 001-02207).
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3.1
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Certificate
of Incorporation of Triarc Companies, Inc., incorporated herein by
reference to Exhibit 3.1 to Triarc’s Current Report on Form 8-K dated June
9, 2004 (SEC file no. 001-02207).
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3.2
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Amendment
to the Certificate of Incorporation of Triarc Companies, Inc.,
incorporated herein by reference to Exhibit 3.1 to Wendy’s/Arby’s Group’s
Current Report on Form 8-K dated September 29, 2008 (SEC file no.
001-02207).
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3.3
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Amended
and Restated By-laws of Wendy’s/Arby’s Group, Inc., incorporated herein by
reference to Exhibit 3.2 to Wendy’s/Arby’s Group’s Current Report on Form
8-K dated September 29, 2008 (SEC file no. 001-02207).
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10.1
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Amended
and Restated Credit Agreement dated as of July 25, 2005, as amended and
restated as of March 11, 2009, by and between Wendy’s International, Inc.,
Wendy’s International Holdings, LLC, Arby’s Restaurant Group, Inc., and
Arby’s Restaurant Holdings, LLC, (collectively the “Borrowers”) among the
Borrowers, Triarc Restaurant Holdings, LLC, the Lenders and Issuers party
thereto, Citicorp North America, Inc., as administrative agent and
collateral agent, Bank of America, N.A. and Credit Suisse, Cayman Islands
Branch, as co-syndication agents, Wachovia Bank, National Association,
SunTrust Bank and GE Capital Franchise Finance Corporation, as
co-documentation agents, Citigroup Global Markets Inc., Banc of America
Securities LLC and Credit Suisse, Cayman Islands Branch, as joint lead
arrangers and joint book-running managers, incorporated herein by
reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form
8-K dated March 12, 2009 (SEC file no. 001-02207).
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10.2
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Pledge and Security Agreement dated as of
July 25, 2005 and amended and restated as of March 11, 2009, by and
between Wendy’s International, Inc., Wendy’s International Holdings, LLC,
Arby’s Restaurant Group, Inc., and Arby’s Restaurant Holdings, LLC, and
Citicorp North America, Inc., as Collateral Agent.*
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10.3
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Form
of Increase Joinder dated as of March 17, 2009 among Arby’s Restaurant
Group, Inc., Wendy’s International Holdings, Inc., Arby’s Restaurant
Holdings, LLC, Wendy’s International, Inc., Citicorp North America, Inc.,
The Huntington National Bank, Fifth Third Bank, Wells Fargo Bank, National
Association and Bank of America, N.A., incorporated by reference to
Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on
March 20, 2009 (SEC file no. 001-02207).
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31.1
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31.2
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32.1
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_______________________