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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1994
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to _________________
Commission File Number 1-8116
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WENDY'S INTERNATIONAL, INC.
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-0785108
- - ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 256, 4288 West Dublin-Granville Road, Dublin, Ohio 43017-0256
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 614-764-3100
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
------ ------
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 6, 1994
- - ---------------------------------- --------------------------
Common shares, $.10 stated value 101,144,000 shares
Exhibit index on page 13.
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
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<S> <C> <C>
PART I: Financial Information
Item 1. Financial Statements:
Consolidated Statement of Income for the quarters
ended April 3, 1994 and April 4, 1993 3
Consolidated Balance Sheet as of April 3, 1994
and January 2, 1994 4 - 5
Consolidated Statement of Cash Flows for the
quarters ended April 3, 1994 and April 4, 1993 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 9
PART II: Other Information
Item 1 9 - 10
Item 6 10
Signature 11
Index to Exhibits 12
Exhibit 11 - Computation of Net Income Per Share 13
</TABLE>
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands except per share data)
Quarter Ended Quarter Ended
April 3 April 4
1994 1993
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<S> <C> <C>
Revenues
Retail sales........................... $291,792 $286,154
Royalties.............................. 24,521 22,902
Other.................................. 3,477 1,315
-------- --------
319,790 310,371
-------- --------
Costs and expenses
Cost of sales.......................... 173,388 169,810
Company restaurant operating costs..... 80,436 80,504
General and administrative expenses.... 27,180 25,148
Depreciation and amortization
of property and equipment............ 16,657 16,385
Interest, net.......................... 2,619 3,151
-------- --------
300,280 294,998
-------- --------
Income before income taxes............... 19,510 15,373
Income taxes............................. 7,024 5,534
-------- --------
Net income............................... $ 12,486 $ 9,839
======== ========
Primary earnings per share............... $.12 $.10
==== ====
Fully diluted earnings per share......... $.12 $.10
==== ====
Dividends per share...................... $.06 $.06
==== ====
Primary shares........................... 104,541 102,265
======== ========
Fully diluted shares..................... 104,541 102,348
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands)
April 3 January 2
1994 1994
-------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........... $ 63,836 $ 71,698
Short-term investments, at cost
which approximates market......... 37,371 40,647
Accounts receivable, net............ 25,521 27,381
Notes receivable, net............... 4,513 5,259
Deferred income taxes............... 11,263 12,244
Inventories and other............... 22,095 21,478
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164,599 178,707
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Property and equipment, at cost
Land................................ 209,293 203,651
Buildings........................... 332,945 329,023
Leasehold improvements.............. 182,579 182,519
Restaurant equipment................ 292,982 289,242
Other equipment..................... 65,216 65,197
Capital leases...................... 62,761 64,148
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1,145,776 1,133,780
Accumulated depreciation
and amortization.................. (438,676) (426,496)
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707,100 707,284
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Cost in excess of net assets
acquired, net....................... 23,932 24,314
Deferred income taxes................. 14,778 15,250
Other assets.......................... 74,421 70,931
---------- ----------
$ 984,830 $ 996,486
========== ==========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands)
April 3 January 2
1994 1994
----------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts and drafts payable............ $ 49,489 $ 68,735
Accrued expenses:
Salaries and wages................... 13,155 16,288
Taxes................................ 15,462 14,935
Insurance............................ 20,850 21,345
Other................................ 10,648 11,160
Income taxes........................... 9,418 2,896
Deferred income taxes.................. 2,047 2,299
Current portion of long-term
obligations.......................... 55,715 5,611
-------- --------
176,784 143,269
-------- --------
Long-term obligations
Term debt.............................. 106,677 156,741
Capital leases......................... 42,028 43,892
-------- --------
148,705 200,633
-------- --------
Deferred income taxes.................... 39,926 40,859
Other long-term liabilities.............. 11,325 10,930
Commitments and contingencies
Shareholders' equity
Preferred stock,
Authorized: 250,000 shares
Common stock, $.10 stated value
Authorized: 200,000,000 shares
Issued: 101,132,000 and
100,823,000 shares, respectively..... 10,113 10,082
Capital in excess of stated value...... 163,363 161,238
Retained earnings...................... 437,286 430,866
Translation adjustments................ 66 1,347
Pension liability adjustment........... (2,572) (2,572)
-------- --------
608,256 600,961
-------- --------
Treasury stock at cost: 29,000 shares.. (166) (166)
-------- --------
608,090 600,795
-------- --------
$984,830 $996,486
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</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Quarter Ended Quarter Ended
April 3 April 4
1994 1993
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<S> <C> <C>
Net cash provided by operating
activities................................. $ 20,396 $ 37,992
-------- --------
Cash flow from investing activities
Proceeds from asset dispositions........... 1,052 2,858
Capital expenditures....................... (27,377) (26,112)
Acquisition of franchises.................. (8,529)
Investment in marketable securities........ (1,276) (662)
Proceeds from marketable securities........ 4,552
Other investing activities................. (118) (720)
-------- --------
Net cash used in investing activities.. (23,167) (33,165)
-------- --------
Cash flows from financing activities
Proceeds from issuance of common stock..... 2,154 1,588
Principal payments on long-term
obligations.............................. (1,184) (1,415)
Dividends paid............................. (6,061) (5,934)
-------- --------
Net cash used in financing activities.. (5,091) (5,761)
-------- --------
Decrease in cash and cash equivalents........ (7,862) (934)
Cash and cash equivalents at beginning of
period...................................... 71,698 77,412
-------- --------
Cash and cash equivalents at end of period... $ 63,836 $ 76,478
======== ========
Supplemental disclosures of cash flow
information
Interest paid.............................. $ 4,697 $ 8,206
Interest received.......................... 2,185 2,259
Income taxes paid.......................... 422 1,336
Acquisition of franchises:
Fair value of assets acquired, net......... $ 13,169
Cash paid.................................. 8,529
--------
Liabilities assumed.................... $ 4,640
========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. MANAGEMENT'S STATEMENT
- - -------------------------------
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position of Wendy's International,
Inc. and Subsidiaries (the company) at April 3, 1994, and the results of
operations and cash flows for the quarters ended April 3, 1994 and April 4,
1993. The Notes to the Consolidated Financial Statements which are contained
in the 1993 Form 10-K should be read in conjunction with these Consolidated
Financial Statements.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
- - --------------------------------------
In both the first quarter of 1994 and 1993, one restaurant was disposed of
for a net pretax gain of $25,000 and $400,000, respectively.
During the first quarter of 1993, the company acquired 27 restaurants in the
Ft. Lauderdale, Florida market and three restaurants in the Milwaukee,
Wisconsin market for approximately $8,500,000.
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
The company recorded net income of $12.5 million for the first quarter ended
April 3, 1994, while $9.8 million was reported for the first quarter ended April
4, 1993.
RETAIL SALES
- - ------------
Domestic retail sales increased 1.8% for the first quarter of 1994 compared to
the first quarter of 1993. This was primarily a result of a 1.9% increase in
average domestic net sales. Selling prices remained constant for the first
quarter of 1994, and domestic coupon sales were .7% of retail sales in 1994 and
.8% in 1993. The first quarter 1994 sales results were somewhat hampered by
much of the country's severe winter weather conditions.
The company believes its value strategy, such as Combo Meals, Kids' Meals, and
Super Value Menu, along with solid restaurant operations and effective marketing
campaigns, have contributed to sales increases.
Average net sales per domestic Wendy's restaurant for the quarters ended April
3, 1994 and April 4, 1993 were as follows:
<TABLE>
<CAPTION>
First Quarter %
1994 1993 Increase
---- ---- --------
<S> <C> <C> <C>
Company......... $237,150 $232,700 1.9
Franchise....... 227,850 225,150 1.2
Total Domestic.. 230,650 227,500 1.4
</TABLE>
The number of Wendy's restaurants open as of April 3, 1994 and April 4, 1993 was
as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Company................ 1,229 1,244
Franchise.............. 2,977 2,744
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Total Wendy's.......... 4,206 3,988
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</TABLE>
COST OF SALES AND RESTAURANT OPERATING COSTS
- - --------------------------------------------
The company restaurant operating profit margin increased in the first quarter
1994 to 13.0% versus 12.5% for 1993. The increase reflected an improvement in
domestic company restaurant operating costs. As a percent of domestic retail
sales restaurant operating costs decreased to 27.9% from 28.4% for the first
quarter 1994. This reflects lower insurance and advertising costs.
ROYALTIES
- - ---------
Royalties before reserve provisions increased $2.3 million in the first quarter
1994 compared to 1993. This was primarily a result of increases in franchise
domestic average net sales of 1.2% over the first quarter of 1993 and an
increase of 190 average domestic restaurants open. Reserves provided were $1.9
million for the first quarter of 1994 and $1.2 million for the first quarter of
1993. This increase reflects a provision of $.7 million for potential
international issues.
OTHER REVENUES
- - --------------
Other revenues increased $2.2 million over the first quarter of 1993. This was
primarily a result of $2.0 million in losses related to surplus property held
for disposition and casualty losses that were recognized in 1993 while no
similar items were recorded in 1994.
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GENERAL AND ADMINISTRATIVE EXPENSES
- - -----------------------------------
General and administrative expenses for the first quarter of 1994 increased $2.0
million over 1993. This primarily reflects increases in salaries and benefits
of $2.0 million. This was a result of annual employee merit and performance pay
increases and minimal increases in staffing of overhead personnel throughout
1993 to support new restaurant development planned for 1994 and beyond.
FINANCIAL CONDITION
-------------------
The company's financial condition remains solid at the end of the first quarter
of 1994. The debt to equity and debt to total capitalization ratios were 24%
and 20%, respectively, at April 3, 1994. These compare to a debt to equity
ratio and debt to total capitalization ratio of 33% and 25%, respectively, at
fiscal year-end 1993. The decline in these ratios reflects the transfer of
long-term debt to current liabilities as $50 million of 12 1/8% Notes is payable
April 1, 1995. Capital expenditures amounted to $27.4 million for 1994 compared
to $26.1 million for 1993.
OUTLOOK
-------
The company continues to employ its strategies as outlined in the company's 1993
Annual Report. Emphasis continues to be on solid restaurant operations, new
products, effective marketing, new restaurant development, and the financial
health of the entire system. The company anticipates that as many as 350 new
restaurants will be opened or under construction systemwide (both company and
franchise) during 1994. During the first quarter of 1994, the company opened 53
new restaurants with another 63 under construction. Cash flow from operations,
cash and investments on hand, and possible asset sales should adequately provide
for projected cash requirements for 1994.
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On April 12, 1994, Richard Johnson and 12 other individuals, individually and
purportedly on behalf of a putative class of other persons similarly situated,
filed a complaint against the company and others in the U.S. District Court for
the Northern District of Georgia. The Complaint alleges that the company has
engaged in racial discrimination in violation of Title VII and 42 U.S.C. Section
1981. The plaintiffs further allege that the company conspired with certain of
its franchisees to deprive the plaintiffs and employees of such franchisees of
their rights under 42 U.S.C. Section 1985. The plaintiffs seek judgment in an
undetermined amount against the company for punitive and compensatory damages
(including benefits) as well as injunctive and equitable relief, including
reinstatement of the plaintiffs to their former positions. The company intends
to defend the action vigorously, and believes that it has meritorious defenses
to the claims sought to be asserted and that the resolution of the action will
not materially effect the company's financial condition.
On April 29, 1994, Mercy Health Services filed a complaint against the Company
in the U.S. District Court for the Southern District of New York. The
plaintiff, who purports to be a shareholder of the company, alleges that the
company wrongfully refused to include a shareholder resolution in the company's
notice of proxy and proxy statement for the May 2, 1994 Annual Meeting of
Shareholders. The shareholder resolution requested the Board of Directors to
adopt a policy making all company restaurants smoke-free by 1995, and requested
that the
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policy include stipulations that, beginning in 1995, all new franchisees'
facilities be smoke-free and all renewals of franchise agreements include smoke-
free facilities in the agreements. The plaintiff seeks a declaration that the
company's failure to include the shareholder resolution in the proxy statement
was unlawful, an injunction which would enjoin the company from excluding the
plaintiff's shareholder resolution from any future proxy statements when the
resolution otherwise qualifies for inclusion under the applicable rules of the
Securities and Exchange Commission, and an award for costs, expenses and
attorneys' fees. The company intends to defend the action vigorously, and
believes that it has meritorious defenses to this action and that an unfavorable
judgment would not have a material impact upon the financial condition of the
company.
Item 6. Exhibits and Reports on Form 8-K.
a. Index to Exhibits on Page 12.
b. No report on Form 8-K was filed during the quarter ended April 3,
1994.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WENDY'S INTERNATIONAL, INC.
---------------------------
(Registrant)
Date: 5/13/94 /s/ John K. Casey
------------- ---------------------------
John K. Casey
Vice Chairman and Chief
Financial Officer
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- - ------- ----------- --------
<S> <C> <C>
11 Computation of Net 13
Income Per Share.
</TABLE>
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WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
(In thousands except per share data)
Quarter Ended Quarter Ended
April 3 April 4
1994 1993
------- -------
<S> <C> <C>
Weighted average number
of common shares outstanding............................. 100,942 98,936
Add net shares issuable pursuant
to employee stock option plans
less shares assumed repurchased
at the average market price............................. 3,599 3,329
-------- --------
Number of shares for computation of
primary earnings per share.............................. 104,541 102,265
Add net additional shares issuable
pursuant to employee stock option plans at
period-end market price............................... 83
-------- --------
Number of shares for computation
of fully diluted earnings per share................... 104,541 102,348
Add additional shares issuable
assuming conversion of
subordinated debentures............................... 8,130 (a) 9,854 (a)
-------- --------
Number of shares for computation of
fully diluted earnings per share (a)..................... 112,671 112,202
======== ========
Net income................................................. $ 12,486 $ 9,839
Less requirements of preferred stock of
subsidiary.............................................. - 15
-------- --------
Net income for computation of primary
earnings per share....................................... 12,486 9,824
Add savings on assumed dilutive conversion
of subordinated debentures net of tax................... 1,136 1,465
-------- --------
Net income for computation of fully diluted
earnings per share....................................... $ 13,622 $ 11,289
======== ========
Net income per share:
Assuming primary dilution................................ $.12 $.10
==== ====
Assuming full dilution................................... $.12 $.10
==== ====
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
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