<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JULY 2, 2000
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission File Number 1-8116
------
WENDY'S INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
OHIO 31-0785108
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. BOX 256, 4288 WEST DUBLIN-GRANVILLE ROAD, DUBLIN, OHIO 43017-0256
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) 614-764-3100
----------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
--- ---
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding At August 4, 2000
----- -----------------------------
Common shares, $.10 stated value 113,489,000 shares
Exhibit index on page 16.
<PAGE> 2
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGES
<S> <C>
PART I: Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Income for the quarters
and year-to-date periods ended July 2, 2000 and July 4, 1999 3 - 4
Consolidated Condensed Balance Sheets as of July 2, 2000
and January 2, 2000 5 - 6
Consolidated Condensed Statements of Cash Flows for the
year-to-date periods ended July 2, 2000 and July 4, 1999 7
Notes to the Consolidated Condensed Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
PART II: Other Information
Item 4. Submission of Matters to Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Index to Exhibits 16
Exhibit 3 17 - 39
Exhibit 99 40 - 41
</TABLE>
2
<PAGE> 3
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
QUARTER ENDED QUARTER ENDED
JULY 2, 2000 JULY 4, 1999
------------ ------------
<S> <C> <C>
REVENUES
Retail sales..................................... $459,705 $422,838
Franchise revenues............................... 110,169 105,712
-------- --------
569,874 528,550
-------- --------
COSTS AND EXPENSES
Cost of sales.................................... 288,047 262,007
Company restaurant operating
costs.......................................... 96,650 90,673
Operating costs.................................. 20,534 19,327
General and administrative
expenses....................................... 51,733 48,752
Depreciation and amortization
of property and equipment...................... 26,609 24,120
Other expense.................................... 768 830
Interest, net.................................... 4,446 2,952
------ ------
488,787 448,661
-------- --------
INCOME BEFORE INCOME TAXES........................... 81,087 79,889
INCOME TAXES......................................... 30,409 30,357
------- -------
NET INCOME........................................... $ 50,678 $ 49,532
======== ========
BASIC EARNINGS PER COMMON SHARE...................... $.45 $.40
==== ====
DILUTED EARNINGS PER COMMON SHARE.................... $.43 $.39
==== ====
DIVIDENDS PER COMMON SHARE........................... $.06 $.06
==== ====
BASIC SHARES......................................... 113,712 123,118
======= =======
DILUTED SHARES....................................... 121,791 132,449
======= =======
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
3
<PAGE> 4
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
YEAR-TO-DATE ENDED YEAR-TO-DATE ENDED
JULY 2, 2000 JULY 4, 1999
------------ ------------
<S> <C> <C>
REVENUES
Retail sales..................................... $ 883,298 $ 812,158
Franchise revenues............................... 206,416 192,935
-------- --------
1,089,714 1,005,093
--------- ---------
COSTS AND EXPENSES
Cost of sales.................................... 555,634 508,446
Company restaurant operating
costs.......................................... 189,134 177,415
Operating costs.................................. 39,335 37,529
General and administrative
expenses....................................... 102,731 95,800
Depreciation and amortization
of property and equipment...................... 52,446 47,643
Other expense.................................... 3,966 2,054
Interest, net.................................... 7,902 4,699
------ ------
951,148 873,586
-------- --------
INCOME BEFORE INCOME TAXES........................... 138,566 131,507
INCOME TAXES......................................... 51,963 49,972
------- -------
NET INCOME........................................... $ 86,603 $ 81,535
======== ========
BASIC EARNINGS PER COMMON SHARE...................... $.75 $.66
==== ====
DILUTED EARNINGS PER COMMON SHARE.................... $.73 $.64
==== ====
DIVIDENDS PER COMMON SHARE........................... $.06 $.06
==== ====
BASIC SHARES......................................... 115,055 123,590
======= =======
DILUTED SHARES....................................... 123,030 132,751
======= =======
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
4
<PAGE> 5
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
JULY 2, 2000 JANUARY 2, 2000
------------ ---------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............. $ 135,845 $ 210,785
Accounts receivable, net.............. 73,230 71,763
Notes receivable, net................. 16,074 7,749
Deferred income taxes................. 16,458 19,267
Inventories and other................. 35,943 40,271
------- -------
277,550 349,835
-------- --------
PROPERTY AND EQUIPMENT.................... 1,952,781 1,937,697
Accumulated depreciation and
amortization........................ (549,132) (548,543)
--------- ---------
1,403,649 1,389,154
--------- ---------
NOTES RECEIVABLE, NET..................... 31,920 35,538
GOODWILL, NET............................. 46,814 48,306
DEFERRED INCOME TAXES..................... 16,189 22,390
OTHER ASSETS.............................. 34,161 38,374
------- -------
$1,810,283 $1,883,597
========== ==========
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
5
<PAGE> 6
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
JULY 2, 2000 JANUARY 2, 2000
------------ ---------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................. $ 79,110 $ 126,487
Accrued expenses:
Salaries and wages............................ 25,040 35,214
Taxes......................................... 48,143 37,577
Insurance..................................... 36,838 37,061
Other......................................... 43,630 43,422
Current portion of long-term
obligations................................... 3,963 4,448
------- -------
236,724 284,209
------- -------
LONG-TERM OBLIGATIONS
Term debt........................................ 204,287 204,788
Capital leases................................... 44,463 44,231
------- -------
248,750 249,019
------- -------
DEFERRED INCOME TAXES................................ 63,839 69,516
OTHER LONG-TERM LIABILITIES.......................... 14,866 15,414
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF WENDY'S
FINANCING I, HOLDING SOLELY WENDY'S
CONVERTIBLE DEBENTURES............................ 200,000 200,000
SHAREHOLDERS' EQUITY
Preferred stock, authorized: 250,000 shares
Common stock, $.10 stated value per share
Authorized: 200,000,000 shares
Issued and Exchangeable:
135,046,000 and 134,856,000 shares,
respectively................................. 11,959 11,941
Capital in excess of stated value................ 401,442 398,580
Retained earnings................................ 1,141,552 1,068,883
Accumulated other comprehensive expense.......... (22,220) (14,443)
---------- ----------
1,532,733 1,464,961
Treasury stock at cost: 21,645,000 and
16,626,000 shares, respectively................ (486,629) (399,522)
---------- ----------
1,046,104 1,065,439
---------- ----------
$1,810,283 $1,883,597
========== ==========
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
6
<PAGE> 7
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED
JULY 2, 2000 JULY 4, 1999
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES....................................... $127,053 $113,561
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from asset dispositions................. 32,107 58,828
Capital expenditures............................. (135,430) (114,050)
Acquisition of franchises........................ - (1,726)
Payments on notes receivable..................... 2,467 99,363
Other investing activities....................... 410 (1,260)
--------- ----------
Net cash provided by (used in) investing
activities.................................... (100,446) 41,155
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock........... 1,985 15,594
Repurchase of common shares...................... (87,107) (67,880)
Principal payments on long-term
obligations.................................... (2,548) (3,176)
Dividends paid on common and
exchangeable shares............................ (13,877) (14,838)
----------- ----------
Net cash used in financing activities.......... (101,547) (70,300)
----------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS....................................... (74,940) 84,416
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.......................................... 210,785 160,743
--------- --------
$ 135,845 $245,159
========= ========
CASH AND CASH EQUIVALENTS AT END OF PERIOD...........
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................... $14,314 $ 13,951
Capitalized lease obligations incurred........... 2,377 1,695
Income taxes paid................................ 42,951 43,344
Acquisition of franchises:
Fair value of assets acquired, net............. - 1,726
Cash paid...................................... - 1,726
Liabilities assumed............................ - -
</TABLE>
The accompanying Notes are an integral part of the Consolidated
Condensed Financial Statements.
7
<PAGE> 8
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. MANAGEMENT'S STATEMENT
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring
in nature) necessary to present fairly the condensed financial position of
Wendy's International, Inc. and Subsidiaries (the Company) as of July 2,
2000 and January 2, 2000 and the condensed results of operations and
comprehensive income (see Note 3) for the quarters and year-to-date periods
ended July 2, 2000 and July 4, 1999 and cash flows for the year-to-date
periods ended July 2, 2000 and July 4, 1999. The Notes to the audited
Consolidated Financial Statements which are contained in the Financial
Statements and Other Information furnished with the Company's 2000 Proxy
Statement should be read in conjunction with these Consolidated Condensed
Financial Statements.
NOTE 2. NET INCOME PER SHARE
Basic earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding. Diluted computations include assumed conversions of
stock options, net of shares repurchased from proceeds, and
company-obligated mandatorily redeemable preferred securities, when
dilutive, and the elimination of related expenses, net of income taxes.
The computations of basic and diluted earnings per common share are shown
below:
<TABLE>
<CAPTION>
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
JULY 2, 2000 JULY 4, 1999 JULY 2, 2000 JULY 4, 1999
------------ ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Income for computation of basic earnings
per common share............................ $50,678 $49,532 $86,603 $81,535
Interest savings (net of taxes) on assumed
conversions................................. 1,585 1,573 3,170 3,145
------- ------- ------- -------
Income for computation of diluted
earnings per common share................... $52,263 $51,105 $89,773 $84,680
======= ======= ======= =======
Weighted average shares for computation
of basic earnings per common share.......... 113,712 123,118 115,055 123,590
Dilutive stock options........................ 506 1,758 402 1,588
Assumed conversions........................... 7,573 7,573 7,573 7,573
------- ------- ------- -------
Weighted average shares for computation
of diluted earnings per common share........ 121,791 132,449 123,030 132,751
======= ======= ======= =======
Basic earnings per common share............... $.45 $.40 $.75 $.66
==== ==== ==== ====
Diluted earnings per common share............. $.43 $.39 $.73 $.64
==== ==== ==== ====
</TABLE>
8
<PAGE> 9
NOTE 3. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
The components of other comprehensive income (expense) and total comprehensive
income are shown below:
<TABLE>
<CAPTION>
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
JULY 2, 2000 JULY 4, 1999 JULY 2, 2000 JULY 4, 1999
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Net income................................................. $50,678 $49,532 $86,603 $81,535
Other comprehensive income (expense):
Translation adjustments.................................... (6,726) 4,749 (7,777) 10,675
Other (net of taxes of $128 and $320 for the
quarter and year-to-date periods ended
July 4, 1999)............................................ - 161 - (402)
---------- --------- --------- ---------
(6,726) 4,910 (7,777) 10,273
-------- -------- --------- --------
Comprehensive income....................................... $43,952 $54,442 $78,826 $91,808
======= ======= ======= =======
</TABLE>
NOTE 4. SEGMENT REPORTING
The Company operates exclusively in the food-service industry and has determined
that its reportable segments are those that are based on the Company's methods
of internal reporting and management structure. The Company's reportable
segments are: Domestic Wendy's, Tim Hortons and International Wendy's.
International Wendy's is comprised of Wendy's of Canada and other Wendy's
operations outside the United States. There were no material amounts of revenues
or transfers among reportable segments.
The table below presents information about reportable segments:
<TABLE>
<CAPTION>
DOMESTIC WENDY'S TIM HORTONS INTERNATIONAL WENDY'S TOTAL
---------------- ----------- --------------------- -----
(In thousands)
<S> <C> <C> <C> <C>
QUARTER ENDED JULY 2, 2000
Revenues $403,295 $129,826 $36,753 $569,874
Income before income taxes 76,236 28,606 1,687 106,529
Capital expenditures 51,323 17,178 5,618 74,119
QUARTER ENDED JULY 4, 1999
Revenues $379,132 $115,964 $33,454 $528,550
Income before income taxes 81,773 22,468 908 105,149
Capital expenditures 41,005 14,913 3,282 59,200
YEAR-TO-DATE ENDED JULY 2, 2000
Revenues $772,439 $247,326 $69,949 $1,089,714
Income before income taxes 137,687 53,599 2,977 194,263
Capital expenditures 88,134 37,544 10,852 136,530
YEAR-TO-DATE ENDED JULY 4, 1999
Revenues $722,004 $222,118 $60,971 $1,005,093
Income before income taxes 139,059 39,900 726 179,685
Capital expenditures 72,485 34,455 7,110 114,050
</TABLE>
A reconciliation of reportable segment income before income taxes to
consolidated income before income taxes follows:
9
<PAGE> 10
<TABLE>
<CAPTION>
QUARTER QUARTER YEAR-TO-DATE YEAR-TO-DATE
ENDED ENDED ENDED ENDED
JULY 2, 2000 JULY 4, 1999 JULY 2, 2000 JULY 4, 1999
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Income before income taxes.............................. $106,529 $105,149 $194,263 $179,685
Corporate charges....................................... (25,442) (25,260) (55,697) (48,178)
------- ------- ---------- -------
Consolidated income before income taxes............... $81,087 $79,889 $138,566 $131,507
======= ======= ======== ========
</TABLE>
Corporate charges include certain overhead costs and net interest expense.
10
<PAGE> 11
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
In the second quarter of 2000, the Company's diluted earnings per common share
(EPS) increased 10.3% to $.43. The second quarter 2000 included $4.5 million
($.02 per share) in pretax asset gains compared to $8.2 million ($.04 per share)
in the prior year. Average same store sales increased for Wendy's domestic
stores, Hortons Canada and Hortons U.S. during the quarter.
Year-to-date 2000 EPS was $.73, a 14.1% increase over $.64 for 1999. In the
year-to-date 2000, pretax asset gains were $6.1 million ($.03 per share)
compared to $10.0 million ($.05 per share) in the prior year.
RETAIL SALES
------------
Retail sales for the second quarter 2000 increased $36.9 million, or 8.7%, to
$459.7 million and increased $71.1 million, or 8.8%, to $883.3 million for
year-to-date 2000. Average restaurant sales increased 2.0% for the second
quarter 2000 and 2.4% year-to-date in Wendy's domestic company restaurants.
Average same-store sales in Wendy's domestic company restaurants increased 2.8%
in the second quarter and 3.2% year-to-date. Average domestic Wendy's
transaction counts were up .3% and .7% for the second quarter and year-to-date
2000, respectively. Domestic selling price increased 1.2% in the second quarter
and 1.0% year-to-date 2000. Hortons warehouse sales for the second quarter 2000
increased 18.5%, or $10.5 million, to $67.6 million and 16.0%, or $17.7 million,
year-to-date to $128.3 million. This increase was primarily the result of the
development of new stores by Hortons Canada and average same-store sales
increases (in local currency) of 8.7% in the quarter and 9.3% year-to-date.
International retail sales increased 17.6% to $31.5 million in the quarter and
19.6% to $59.9 million year-to-date. The increases in both periods reflect the
conversion of Argentina to a company operated market and additional company
store development in Canada.
Average sales per domestic Wendy's restaurant for the quarters ended July 2,
2000 and July 4, 1999 were as follows:
<TABLE>
<CAPTION>
SECOND QUARTER YEAR-TO-DATE
-------------- ------------
% %
2000 1999 INCREASE 2000 1999 INCREASE
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Company........................ $336,450 $329,900 2.0 $649,400 $634,050 2.4
Franchise........................ 288,300 282,350 2.1 555,100 542,050 2.4
Total Domestic.................. 298,000 291,750 2.1 574,100 560,300 2.5
</TABLE>
The number of systemwide restaurants open as of July 2, 2000 and July 4, 1999
was as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Company............................... 1,124 1,043
Franchise............................. 4,497 4,359
----- -----
Total Wendy's......................... 5,621 5,402
===== =====
Total Hortons......................... 1,866 1,721
===== =====
Total System.......................... 7,487 7,123
===== =====
</TABLE>
11
<PAGE> 12
COST OF SALES AND RESTAURANT OPERATING COSTS
--------------------------------------------
The domestic Wendy's company operating margin decreased in the second quarter
2000 to 17.3% versus 17.7% for 1999 and decreased to 16.6% from 16.8% for the
year-to-date comparison. Domestic Wendy's cost of sales, as a percent of sales,
increased .7% in the quarter and .5% year-to-date primarily due to higher food
and labor costs in both periods. Beef prices increased 9.3% in the quarter and
10.9% year-to-date. Average labor rates increased 5.1% in the quarter and 5.4%
year-to-date. These increases were partly offset by productivity enhancements in
the restaurants. Wendy's domestic restaurant operating costs, as a percent of
sales, improved .3% from 1999 for both the quarter and year-to-date periods,
primarily reflecting lower bonus and benefits expenses and, in the second
quarter, lower marketing expenses.
Hortons warehouse cost of sales remained relatively constant as a percent of
warehouse sales during the quarter. The total dollars increased $8.6 million in
the quarter and $13.3 million year-to-date reflecting the additional development
and higher average sales per restaurant.
International cost of sales increased 18.8% to $20.1 million in the quarter and
19.6% to $38.3 million in the year-to-date. The increases in both periods
reflect the conversion of Argentina to a company operated market and additional
company store development in Canada.
FRANCHISE REVENUES
------------------
Domestic Wendy's royalties, before reserve provisions, increased $2.5 million in
the second quarter 2000 to $45.1 million. In the second quarter 2000, an average
of 142 more Wendy's domestic franchise restaurants were open and average sales
of Wendy's domestic franchise restaurants increased 2.1% over 1999.
Year-to-date, domestic royalties before reserves increased $5.1 million to $86.5
million in 2000. This reflected an average of 139 more franchise restaurants and
an increase in average sales of Wendy's domestic franchise restaurants of 2.4%.
Average same-store sales at Hortons Canadian restaurants increased 8.7% (in
local currency) for the second quarter 2000 and 9.3% year-to-date resulting in
increased royalty income of $1.5 million for the quarter and $3.4 million
year-to-date. International royalties were $4.1 million and $7.8 million in the
quarter and year-to-date, respectively. Royalties for both periods increased
5.1% primarily from additional Canadian franchise store openings. Franchise
reserves of $302,000 and $1.1 million were provided year-to-date 2000 and 1999,
respectively.
Asset gains in franchise revenues for the second quarter 2000 included $2.2
million in pretax gains from franchising Wendy's restaurants, versus $6.7
million in 1999, and $2.2 million in pretax gains realized from the sale of
rental properties versus $843,000 in 1999. Asset gains for year-to-date 2000
included $2.2 million in pretax gains from franchising Wendy's restaurants,
versus $6.9 million in 1999, and $3.4 million in pretax gains realized from the
sale of rental properties, versus $1.3 million in 1999. The prior year also
included $.6 million in the quarter and $1.8 million year-to-date in fee income
related to refinancing notes receivable.
Rental income for the quarter increased $2.0 million to $36.3 million in 2000
and increased $6.2 million year-to-date 2000 to $69.5 million. This was
primarily a result of more Hortons franchise leased properties and the increased
average sales at Hortons resulting in increased rental income of $3.7 million in
the second quarter and $8.4 million year-to-date. Wendy's rental income
decreased reflecting the sale of rental properties throughout 1999 and 2000.
OPERATING COSTS
---------------
Operating costs for the second quarter 2000 increased $1.2 million to $20.5
million and increased $1.8 million to $39.3 million for the year-to-date. The
increase over 1999 reflects the growth in the number of properties being leased
and then subleased to franchisees by Hortons, and in the quarter, increased
equipment costs for Hortons reflecting more stores franchised.
GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------
General and administrative expenses for the second quarter 2000 were $51.7
million versus $48.8 million in 1999, or 9.1% and 9.2% of total revenues,
respectively. Year-to-date 2000 general and administrative costs were $102.7
million
12
<PAGE> 13
and 9.4% of total revenues compared with $95.8 million and 9.5% of total
revenues in 1999. The expense increase includes salaries and benefits, partly
offset by reduced information technology consulting expenditures in 2000.
DEPRECIATION AND AMORTIZATION EXPENSES
--------------------------------------
Depreciation and amortization expenses for both the quarter and year-to-date
periods increased over 1999 due to the implementation of the Company's new
enterprise-wide information technology systems.
INTEREST, NET
-------------
Net interest increased $1.5 million to $4.4 million in the second quarter 2000
and increased $3.2 million to $7.9 million for the year-to-date comparison. This
primarily reflects a decrease in interest income as cash and cash equivalents
were reduced by share repurchases and lower levels of notes receivable
outstanding.
COMPREHENSIVE INCOME
--------------------
Comprehensive income decreased $10.5 million and $13.0 million for the quarter
and year-to-date periods ended July 2, 2000, respectively. This was due to
unfavorable movement in the Canadian exchange rate (see Note 3).
FINANCIAL CONDITION
-------------------
The Company's financial condition continues to be very strong at the end of the
second quarter of 2000. The long-term debt to equity and debt-to-total
capitalization ratios were 24% and 19%, respectively, at July 2, 2000. The
Company has implemented a program to maximize return on assets over the long
term by redeploying assets to opportunities that have higher potential returns.
A total of 273 rental properties have been sold and a total of $134 million in
notes receivable have been refinanced since 1998. The Company plans on
continuing the strategy of improving return on assets. During the quarter, cash
of $13.4 million was used to repurchase 680,300 common shares. A total of $485
million in cash has been used to purchase 21.5 million shares since 1998.
Capital expenditures amounted to $137 million for 2000 compared with $114
million for 1999.
OUTLOOK
-------
The Company continues to employ its strategic initiatives as outlined in the
Financial Statements and Other Information furnished with the Company's 2000
Proxy Statement. These initiatives include growing same-store sales, improving
store-level productivity to increase margins, disposing of underperforming
restaurants, writing down underperforming and non-recoverable assets,
accelerating restaurant development in North America and repurchasing common
shares.
The Company currently anticipates that up to 520 new Wendy's and Hortons
restaurants could be opened systemwide (both company and franchise) during 2000,
subject to the continued ability of the Company and its franchisees to complete
permitting and to comply with other regulatory requirements for the completion
of stores in process, and to obtain financing for new restaurant development.
Year-to-date 2000, there have been 190 new restaurants opened. While the
majority of international business outside North America continues to be through
franchising, last year the Company acquired the Wendy's restaurants in
Argentina. The restaurants operated in Argentina are not currently profitable,
although international operations except for Argentina are profitable. In the
United States, Hortons is a new concept in the investment phase and not
currently profitable.
Cash flow from operations, cash and investments on hand, possible asset sales,
and cash available through existing revolving credit agreements and through the
possible issuance of securities should provide for the Company's projected cash
requirements, including cash for capital expenditures, future acquisitions of
restaurants from franchisees, stock repurchases or other corporate purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------
In June 1998, Financial Accounting Standard Number 133 - "Accounting for
Derivative Instruments and Hedging Activities" was issued. The statement is
effective for all quarters of fiscal years beginning after June 15, 2000. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative
13
<PAGE> 14
instruments embedded in other contracts, and for hedging activities. It requires
recognition of all derivatives as either assets or liabilities in the financial
statements at fair value. Currently this statement would not materially impact
the Company's financial statements.
SAFE HARBOR STATEMENT
---------------------
Certain information contained in this Form 10-Q, particularly information
regarding future economic performance and finances, plans and objectives of
management, is forward looking. In some cases, information regarding certain
important factors that could cause actual results to differ materially from any
such forward-looking statement appears together with such statement. In
addition, the following factors, in addition to other possible factors not
listed, could affect the Company's actual results and cause such results to
differ materially from those expressed in forward-looking statements. These
factors include: competition within the quick-service restaurant industry, which
remains extremely intense, both domestically and internationally, with many
competitors pursuing heavy price discounting; changes in economic conditions;
changes in consumer perceptions of food safety; harsh weather, particularly in
the first and fourth quarters; changes in consumer tastes; labor and benefit
costs; legal claims; risks inherent to international development (including
currency fluctuations); the continued ability of the Company and its franchisees
to obtain suitable locations and financing for new restaurant development;
governmental initiatives such as minimum wage rates, taxes and possible
franchise legislation; the ability of the Company to successfully complete
transactions designed to improve its return on investment; and other factors set
forth in Exhibit 99 attached hereto.
14
<PAGE> 15
PART II: OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders.
(a) The Annual Meeting of the Company's shareholders was held on May 3, 2000.
(b) The following table sets forth the name of each director elected at the
meeting and the number of votes for or withheld from each director:
Director For Withheld
-------- --- --------
James V. Pickett 82,992,910 1,547,647
Thomas F. Keller 82,980,553 1,560,003
Ronald V. Joyce 82,736,189 1,804,370
Andrew G. McCaughey 82,980,087 1,560,468
David P. Lauer 82,999,451 1,541,107
The following directors did not stand for reelection at the meeting (the year in
which each director's term expires is indicated in parenthesis): R. David Thomas
(2001), Ernest S. Hayeck (2001), Janet Hill (2001), True H. Knowles (2001), Paul
D. House (2001), Thekla R. Shackelford (2002), Ronald E. Musick (2002),
Frederick R. Reed (2002) and John T. Schuessler (2002). Mr. Reed resigned from
the Company's board of directors effective April 14, 2000.
(c) The following table sets forth the brief description of each other matter
voted on at the Annual Meeting and the number of votes cast for, against or
abstaining from, as well as broker nonvotes on each matter:
<TABLE>
<CAPTION>
Broker
For Against Abstain Nonvotes
--- ------- ------- --------
<S> <C> <C> <C> <C>
Ratify the selection of
PricewaterhouseCoopers LLP as
independent public accountants
of the Company 83,977,712 159,027 403,808 None
Approve the proposal to amend
the Company's 1990 Stock Option
Plan 71,787,350 11,931,427 821,764 None
Approve the amendment to the
Company's Regulations which
would permit electronic
proxy voting 83,547,807 345,485 647,246 None
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Index to Exhibits on Page 16.
(b) The Company filed one Report on Form 8-K during the second quarter 2000.
The Form 8-K filed April 20, 2000 announced that Thomas J. Mueller had been
promoted to President and Chief Operating Officer of Wendy's North America
and that Edward K. Choe had been promoted to Senior Vice President of
Wendy's Northeast Region. The Form 8-K also announced that the Company had
begun a search for a new Chief Financial Officer. A copy of the press
release issued April 20, 2000 was attached.
15
<PAGE> 16
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WENDY'S INTERNATIONAL, INC.
---------------------------
(Registrant)
Date: 8/15/00 /s/ Ronald E. Musick
---------------- ----------------------------------
Ronald E. Musick
Executive Vice President
(As authorized signatory
and principal financial officer)
16
<PAGE> 17
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
------ ----------- --------
<S> <C> <C>
3 New Regulations, as amended 17 - 39
99 Safe Harbor Under 40 - 41
the Private Securities
Litigation Reform Act of 1995
</TABLE>
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