<PAGE>
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 2, 1995
-------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ---------------------
Commission File Number 1-8116
------
WENDY'S INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-0785108
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 256, 4288 West Dublin-Granville Road, Dublin, Ohio 43017-0256
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 614-764-3100
----------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
------ ------
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 5, 1995
- ----------------------------------- --------------------------
Common shares, $.10 stated value 102,056,000 shares
Exhibit index on page 12.
- 1 of 13 -
<PAGE>
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Pages
-----
PART I: Financial Information
Item 1. Financial Statements:
Consolidated Statement of Income for the quarters
ended April 2, 1995, and April 3, 1994 3
Consolidated Balance Sheet as of April 2, 1995,
and January 1, 1995 4 - 5
Consolidated Statement of Cash Flows for the
quarters ended April 2, 1995, and April 3, 1994 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 6 10
Signature 11
Index to Exhibits 12
Exhibit 11 - Computation of Net Income Per Share 13
- 2 -
<PAGE>
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 2 APRIL 3
1995 1994
------- -------
<S> <C> <C>
REVENUES
Retail sales. . . . . . . . . . . . . . $315,398 $291,792
Royalties . . . . . . . . . . . . . . . 26,935 24,521
Other . . . . . . . . . . . . . . . . . 4,022 3,477
--------- --------
346,355 319,790
--------- --------
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . 186,412 173,388
Company restaurant operating
costs . . . . . . . . . . . . . . . . 85,924 80,436
General and administrative
expenses. . . . . . . . . . . . . . . 29,893 27,180
Depreciation and amortization
of property and equipment . . . . . . 17,607 16,657
Interest, net . . . . . . . . . . . . . 1,823 2,619
--------- --------
321,659 300,280
--------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . 24,696 19,510
INCOME TAXES . . . . . . . . . . . . . . . . 8,890 7,024
--------- --------
NET INCOME . . . . . . . . . . . . . . . . . $ 15,806 $ 12,486
--------- --------
--------- --------
PRIMARY EARNINGS PER SHARE . . . . . . . . . $.15 $.12
---- ----
---- ----
FULLY DILUTED EARNINGS PER SHARE . . . . . . $.15 $.12
---- ----
---- ----
DIVIDENDS PER SHARE. . . . . . . . . . . . . $.06 $.06
---- ----
---- ----
PRIMARY SHARES . . . . . . . . . . . . . . . 104,521 104,541
--------- --------
--------- --------
FULLY DILUTED SHARES . . . . . . . . . . . . 112,778 104,541
--------- --------
--------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
- 3 -
<PAGE>
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(IN THOUSANDS)
APRIL 2 JANUARY 1
1995 1995
------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . $ 127,660 $ 119,639
Short-term investments, at
market . . . . . . . . . . . . . . . . 15,292
Accounts receivable, net. . . . . . . . 27,030 28,015
Notes receivable, net . . . . . . . . . 6,975 7,446
Deferred income taxes . . . . . . . . . 11,693 9,959
Inventories and other . . . . . . . . . 20,204 19,702
------------ -----------
193,562 200,053
------------ -----------
PROPERTY AND EQUIPMENT, AT COST
Land . . . . . . . . . . . . . . . . . 226,336 222,671
Buildings . . . . . . . . . . . . . . . 364,959 359,503
Leasehold improvements. . . . . . . . . 187,563 189,243
Restaurant equipment. . . . . . . . . . 340,875 335,474
Other equipment . . . . . . . . . . . . 53,777 53,265
Capital leases. . . . . . . . . . . . . 62,884 63,531
------------ -----------
1,236,394 1,223,687
Accumulated depreciation
and amortization. . . . . . . . . . . (469,392) (457,368)
------------ -----------
767,002 766,319
------------ -----------
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET . . . . . . . . . . . . . 31,701 30,780
DEFERRED INCOME TAXES. . . . . . . . . . . . 15,750 16,142
OTHER ASSETS . . . . . . . . . . . . . . . . 73,215 69,690
------------ -----------
$1,081,230 $1,082,984
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
- 4 -
<PAGE>
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(IN THOUSANDS)
APRIL 2 JANUARY 1
1995 1995
---------- ---------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and drafts payable . . . . . . $ 47,706 $ 69,845
Accrued expenses:
Salaries and wages . . . . . . . . 14,344 22,173
Taxes. . . . . . . . . . . . . . . 15,350 15,248
Insurance. . . . . . . . . . . . . 25,943 26,037
Other. . . . . . . . . . . . . . . 18,955 11,409
Income taxes. . . . . . . . . . . . . . 9,076 1,683
Current portion of long-term
obligations . . . . . . . . . . . . . . 58,123 57,674
----------- ----------
189,497 204,069
----------- ----------
LONG-TERM OBLIGATIONS
Term debt . . . . . . . . . . . . . . . 104,647 104,842
Capital leases. . . . . . . . . . . . . 38,341 40,018
----------- ----------
142,988 144,860
----------- ----------
DEFERRED INCOME TAXES. . . . . . . . . . . . 41,159 39,799
OTHER LONG-TERM LIABILITIES. . . . . . . . . 14,342 12,758
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock,
Authorized: 250,000 shares
Common stock, $.10 stated value
Authorized: 200,000,000 shares
Issued: 101,971,000 and
101,787,000 shares, respectively . 10,197 10,179
Capital in excess of stated value . . . 172,973 171,004
Retained earnings . . . . . . . . . . . 513,406 503,712
Translation adjustments . . . . . . . . 46 (19)
Pension liability adjustment. . . . . . (3,212) (3,212)
----------- ----------
693,410 681,664
----------- ----------
Treasury stock at cost: 29,000 shares . (166) (166)
----------- ----------
693,244 681,498
----------- ----------
$1,081,230 $1,082,984
----------- ----------
----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
- 5 -
<PAGE>
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
QUARTER ENDED QUARTER ENDED
APRIL 2 APRIL 3
1995 1994
------- -------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES. . . . . . . . . . . . . . . $29,568 $ 20,396
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from asset dispositions. . . . 4,434 1,052
Capital expenditures. . . . . . . . . . (33,548) (27,377)
Acquisition of franchises . . . . . . . (1,708)
Investment in marketable securities . . (1,276)
Proceeds from sale of marketable
securities. . . . . . . . . . . . . . . 15,292 4,552
Other investing activities. . . . . . . 133 (118)
-------- --------
Net cash used in investing
activities . . . . . . . . . . . . (15,397) (23,167)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock. 1,542 2,154
Principal payments on long-term
obligations . . . . . . . . . . . . . . (1,580) (1,184)
Dividends paid. . . . . . . . . . . . . (6,112) (6,061)
-------- --------
Net cash used in financing
activities . . . . . . . . . . . . (6,150) (5,091)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . 8,021 (7,862)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD. . . . . . . . . . . . . . . . . 119,639 71,698
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . $127,660 $63,836
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid . . . . . . . . . . . . . $ 1,453 $ 4,697
Interest received . . . . . . . . . . . 2,991 2,185
Income taxes paid . . . . . . . . . . . 1,034 422
Acquisition of franchises:
Fair value of assets acquired, net. . . 3,266
Cash paid . . . . . . . . . . . . . . . 1,721
Liabilities assumed . . . . . . . . . . 1,851
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
- 6 -
<PAGE>
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 2, 1995, and
January 1, 1995, and the results of operations and cash flows for the
quarters ended April 2, 1995 and April 3, 1994. The Notes to the
Consolidated Financial Statements which are contained in the 1994 Form 10-K
should be read in conjunction with these Consolidated Financial Statements.
The adoption of Financial Accounting Standard Number 114 (SFAS 114) -
"Accounting by Creditors for Impairment of a Loan", effective in 1995, did
not have a material impact on net income or cash flows of the company. The
adoption of Financial Accounting Standards Number 121 (SFAS 121) -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", effective in 1996, is not expected to have a
material impact on net income or cash flows of the company.
Certain prior year information has been reclassified to conform with 1995's
presentation.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
In the first quarter of 1995 and 1994, nine restaurants were franchised for
a net pretax gain of $657,000 and one restaurant for a net pretax gain of
$25,000, respectively.
In the first quarter of 1995, the company acquired its partners' share of
two restaurants in London, England. Total consideration in this
transaction was $2,122,000 of which $1,255,000 is payable after April 1,
1998. One domestic restaurant was also acquired for $854,000.
- 7 -
<PAGE>
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 $15.8 million for the first quarter ended
April 2, 1995, while $12.5 million was reported for the first quarter ended
April 3, 1994.
RETAIL SALES
Domestic retail sales increased 7.6% for the first quarter of 1995 compared to
the first quarter of 1994. This was primarily a result of a 4.0% increase in
average domestic net sales and a 3.4% increase in average restaurants open. In
general, weather conditions in the first quarter of 1995 were favorable compared
with the first quarter of 1994. Selling prices remained constant for the first
quarter of 1995.
The improvement in average domestic net sales is a result of solid restaurant
operations, effective marketing campaigns featuring both existing and new
products, and a value menu strategy combined with the quality and variety of
offerings.
Average net sales per domestic Wendy's restaurant for the quarter ended April 2,
1995, and April 3, 1994, were as follows:
<TABLE>
<CAPTION>
First Quarter %
1995 1994 Increase
---- ---- --------
<S> <C> <C> <C>
Company........... $246,750 $237,150 4.0
Franchise......... 236,550 227,850 3.8
Total Domestic.... 239,500 230,650 3.9
</TABLE>
The number of systemwide Wendy's restaurants open as of April 2, 1995, and April
3, 1994, was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Company............. 1,267 1,229
Franchise........... 3,187 2,977
----- -----
Total Wendy's....... 4,454 4,206
----- -----
----- -----
</TABLE>
COST OF SALES AND RESTAURANT OPERATING COSTS
The company restaurant operating profit margin increased in the first quarter
1995 to 13.7% versus 13.0% for 1994. The increase reflected an improvement in
domestic cost of sales related to lower beef and chicken prices partly offset by
higher labor costs. Restaurant operating costs were reduced, as a percent of
retail sales, in the first quarter 1995 versus 1994 due to rent and utility
costs being lower as a percent of retail sales.
ROYALTIES
Royalties before reserve provisions increased $2.9 million in the first quarter
1995 compared with 1994. This was primarily a result of increases in franchise
domestic average net sales of 3.8% over the first quarter of 1994 and an
increase of 179 average franchise domestic restaurants open. Reserves provided
were $2.4 million for the first quarter 1995 and $1.9 million for the first
quarter of 1994.
- 8 -
<PAGE>
OTHER REVENUES
Other revenues increased $545,000 over the first quarter of 1994. Gains from
franchising restaurants increased $632,000 and rental income from properties
leased to franchises increased $263,000. These benefits were partly offset by
increased asset write-offs and retirements of $649,000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the first quarter of 1995 were 8.6% of
total revenues versus 8.5% in 1994. The $2.7 million increase for the quarter
reflects increases in salaries and benefits of $1.3 million. Salary increases
were a result of annual employee merit and performance pay increases and minimal
increases in staffing of overhead personnel in the last twelve months to support
new restaurant development planned for 1995 and beyond. There were also
increases in legal and professional fees, and costs to support international
expansion.
FINANCIAL CONDITION
The company's financial condition remains solid at the end of the first quarter
of 1995. The debt to equity and debt to total capitalization ratios were 21%
and 17%, respectively, at April 2, 1995. These compare to a debt to equity
ratio and debt to total capitalization ratio of 24% and 20%, respectively, at
April 3, 1994. Capital expenditures amounted to $33.5 million for 1995 compared
to $27.4 million for 1994. On April 3, 1995 the company retired $50 million of
12-1/8% notes carried in current liabilities.
OUTLOOK
The company continues to employ its strategies as outlined in the company's 1994
Annual Report. As was expected, competition in the quick-service restaurant
industry has been intense and will remain so in the foreseeable future.
Pressure on retail sales appears to be continuing into 1995. Emphasis continues
to be on solid restaurant operations, new products, effective marketing, new
restaurant development, and the overall financial health of the entire system.
The company anticipates that as many as 400 new restaurants will be opened or
under construction systemwide (both company and franchise) during 1995. Cash
flow from operations, cash and investments on hand, and possible asset sales
should adequately provide for projected cash requirements. If additional cash
is needed for future acquisitions of restaurants from franchisees, or for other
corporate purposes, the company believes it would be able to obtain additional
cash through existing revolving credit agreements, or the issuance of all or a
portion of the $200 million debt securities covered by a shelf registration
statement that was filed in December of 1994.
- 9 -
<PAGE>
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
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 2, 1995.
- 10 -
<PAGE>
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: 5/12/95 /s/ John K. Casey
--------------------------- --------------------------------------
John K. Casey
Vice Chairman and Chief
Financial Officer
- 11 -
<PAGE>
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 Common Share.
</TABLE>
- 12 -
<PAGE>
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 2 APRIL 3
1995 1994
------- -------
<S> <C> <C>
Weighted average number
of common shares outstanding . . . . . . . . 101,835 100,942
Add net shares issuable pursuant
to employee stock option plans
less shares assumed repurchased
at the average market price. . . . . . . 2,686 3,599
-------- ---------
Number of shares for computation of
primary earnings per share . . . . . . . . . 104,521 104,541
Add net additional shares issuable
pursuant to employee stock option plans
at period-end market price . . . . . . . . 127 -
Add additional shares issuable
assuming conversion of
subordinated debentures. . . . . . . . . 8,130 8,130
-------- ---------
Number of shares for computation of
fully diluted earnings per share . . . . . . 112,778 112,671 (A)
-------- ---------
-------- ---------
Net income for computation of primary
earnings per share . . . . . . . . . . . . . $ 15,806 $ 12,486
Add savings on assumed dilutive conversion
of subordinated debentures net of tax. . . 1,139 1,136
-------- ---------
Net income for computation of fully diluted
earnings per share . . . . . . . . . . . . . $ 16,945 $ 13,622 (A)
-------- ---------
-------- ---------
Net income per share:
Assuming primary dilution. . . . . . . . . . $.15 $.12
---- ----
---- ----
Assuming full dilution . . . . . . . . . . . $.15 $.12 (A)
---- ----
---- ----
<FN>
(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.
</TABLE>
- 13 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> APR-02-1995
<CASH> 127,660
<SECURITIES> 0
<RECEIVABLES> 34,005<F1>
<ALLOWANCES> 0
<INVENTORY> 20,204
<CURRENT-ASSETS> 193,562
<PP&E> 1,236,394
<DEPRECIATION> (469,392)
<TOTAL-ASSETS> 1,081,230
<CURRENT-LIABILITIES> 189,497
<BONDS> 104,647
<COMMON> 10,197
0
0
<OTHER-SE> 683,047
<TOTAL-LIABILITY-AND-EQUITY> 1,081,230
<SALES> 315,398
<TOTAL-REVENUES> 346,355
<CGS> 186,412
<TOTAL-COSTS> 272,336<F2>
<OTHER-EXPENSES> 47,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,823<F3>
<INCOME-PRETAX> 24,696
<INCOME-TAX> 8,890
<INCOME-CONTINUING> 15,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,806
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<FN>
<F1>REPRESENTS ACCOUNTS AND NOTES RECEIVABLE, NET
<F2>COST OF SALES AND COMPANY RESTAURANT OPERATING COSTS
<F3>REPRESENTS INTEREST EXPENSE NET OF INTEREST INCOME
</FN>
</TABLE>
