<PAGE> 1
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 31, 1996 or
--------------
___ Transition report pursuant to Section 13 or 15 (d) of the Securities and
Exchange Act of 1934
For the transition period from _____ to _____.
Commission File Number: 33-8586-C
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Michigan 38-2688085
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
The Ledyard Building
Suite 235
125 Ottawa NW
Grand Rapids, Michigan 49503
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(616) 235-9670
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 _____
DOCUMENTS INCORPORATED BY REFERENCE
On November 7, 1986, a registration statement on Form S-18
(Registration No. 33-8586-C) for 1,500 units of limited partnership interest in
the Registrant became effective. Portions of the exhibits that were filed in
conjunction with such registration statement and that were filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
well as certain documents that were filed with the SEC as part of the
Registrant's Form 10-K covering the Registrant's fiscal year ended December 31,
1986 and as part of the Registrant's Form 10-Q covering the quarter ended March
31, 1987, all pursuant to the Securities Exchange Act of 1934 are incorporated
by reference in Part II, Item 6 of this report.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
The financial statements required by Item 1 are attached to this report
as Exhibit A, and are incorporated herein by this reference.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(a) Results of Operations
The following statement reflects the Partnership's results of
operations for the three months' periods ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Statement of Operations
-----------------------
$ in Thousands % of Net Sales
------------------ ------------------
Three months ended Three months ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 5,718 5,969 100.0% 100.0%
Cost of Sales 1,645 1,747 28.8 29.3
------- ------- ------ ------
Gross Profit 4,073 4,222 71.2 70.7
Expenses (income):
Restaurant Operating
Expenses 3,513 3,480 61.4 58.3
General and
Administrative 305 323 5.3 5.4
Depreciation and
Amortization 203 203 3.5 3.4
Interest Expense 114 143 2.0 2.4
Other Income (46) (41) (0.8) (0.7)
Insurance in Excess
of Net Book Value of
Fire Damaged Assets -0- (33) 0.0 (0.5)
------- ------- ------ ------
4,089 4,076 71.5 68.3
------- ------- ------ ------
Income (Loss) before
extraordinary item (16) 146 (0.3%) 2.4%
Extraordinary item -
loss on extinguishment
of debt -0- 21 0.0 0.3
------- ------- ------ ------
Net Income (Loss) (16) 126 (0.3%) 2.1%
======= ======= ====== ======
</TABLE>
2
<PAGE> 3
(b) Sales
Sales decreased $252,000 or 4.2% for the three months ended March 31,
1996 compared to the same period of 1995. This sales comparison includes sales
in the first quarter of 1996 from an additional restaurant opened in April
1995. Excluding sales from this restaurant, sales decreased 7.5% at restaurants
in operation during the first quarter of 1996 and 1995. This decrease in sales
is largely attributable to prolonged and harsh winter weather conditions in the
first quarter of 1996. The adverse weather conditions had a negative effect on
retail sales in general in the Partnership's market during the first quarter of
1996 and the fourth quarter of 1995. The relatively severe weather conditions
in the first quarter of 1996, when compared to relatively mild conditions
during the first quarter of 1995, make year-to-year sales comparisions
difficult. The mild winter experienced during the first quarter of 1995 helped
contribute to the 11.2% sales increase for that period and were the highest
first quarter sales recorded since the inception of the Partnership.
Sales on a per restaurant basis for restaurants in operation during the
same periods of both years for the last five quarters are set forth in the
following table.
Average Net Sales Per Restaurant Unit
<TABLE>
<CAPTION>
1996 1995 Decrease % Decrease
---- ---- -------- ----------
<S> <C> <C> <C> <C>
Three months ended March 31 235,851 255,107 (19,256) (7.5%)
<CAPTION>
Increase % Increase
1995 1994 (Decrease) (Decrease)
---- ---- -------- ----------
<S> <C> <C> <C> <C>
Three months ended Dec. 31 254,357 275,842 (21,485) (7.8%)
Three months ended Sept. 30 279,643 286,830 (7,187) (2.5%)
Three months ended June 30 273,240 272,810 430 0.2%
Three months ended March 31 255,107 229,358 25,749 11.2%
</TABLE>
Sales for the first quarter of 1996 include the effects of a 1.4%
increase in selling prices for the first quarter of 1996 over the first quarter
of 1995. Price increases for 1994 and 1995 were less than 1% each year. These
minimal price increases are the result of intense price competition in the
Partnership's market including product discounting and competitive intrusion
from the Partnership's competition. The Partnership has limited the amount of
product discounting it has engaged in due to the negative effect on profit
margins. These factors, combined with the difficult winter, contributed to the
sales decline during the first quarter.
The above sales trend has improved during the first four weeks of the
second quarter of 1996 despite continued unseasonable cold weather. Average
sales per restaurant unit for this four week period are down less than 1% over
the same four week period of 1995.
-3-
<PAGE> 4
(c) Gross Profit
Gross profit decreased $149,000 during the first quarter of 1996
compared to the first quarter of 1995. This decrease in gross profit resulted
from the decrease in sales during the first quarter of 1996. As a percentage of
sales, gross profit increased .5 percentage points, from 70.7% in 1995 to 71.2%
in 1996. The increase in gross profit percentage was due to the slight increase
in selling prices discussed on the previous page, lower than normal meat costs
and reduced product waste as a result of continued effective food cost controls
at the store operation level.
(d) Expenses
Restaurant Operating Expenses
Restaurant operating expenses increased 3.1 percentage points during
the first quarter of 1996 compared to the same period of 1995 (from 58.3% of
sales in 1995 to 61.4% of sales in 1996). This increase was largely due to the
decrease in sales during the first quarter combined with a 1.5 percentage point
increase in payroll costs. The increase in payroll costs was caused primarily
by increased hourly wage rates which were approximately 10% higher during the
first quarter of 1996 compared to the first quarter of 1995. This increase in
hourly wage rates was due to the continued labor shortage in the Partnership's
market. Also contributing to the increase in restaurant operating expenses (as
a percentage of sales) were increases in utilities, repairs and maintenance,
and property taxes. On a per restaurant basis, restaurant operating expenses
decreased from an average of $145,000 per restaurant in 1995 to an average of
$140,000 per restaurant in 1996, a decrease of 3.5% compared to the 7.5%
decrease in sales during the first quarter of 1996.
General and Administrative Expenses
General and administrative expenses decreased $18,000 in the first
quarter of 1996 compared to the first quarter of 1995 (from $323,000 in 1995 to
$305,000 in 1996). This decrease was the result of reductions in Michigan
single business tax and administrative salaries. As a percentage of sales,
general and administrative expenses decreased from 5.4% of sales in 1995 to
5.3% of sales in 1996.
Interest Expense
Interest expense decreased $29,000 for the three months ended March 31,
1996 compared to the same period of 1995. In March 1995 the Partnership
refinanced its long-term debt reducing the interest rate on the Partnership's
debt. The new loan agreement allows the Partnership to apply its excess cash
against the loan balance which when combined with the reduction in the interest
rate caused the decrease in interest expense. See item (f) "Liquidity and
Capital Resources" of this item of this report for additional information
regarding the Partnership's debt restructuring.
-4-
<PAGE> 5
(e) Liquidity and Capital Resources
On March 21, 1995 the Partnership refinanced its existing bank debt and
received additional loan proceeds which were used to retire the
Partnership's subordinated debt. The new loan requires monthly payments of
$43,313 based on a ten year amortization including interest at 1% over prime.
The Partnership's previous long-term debt required interest at 2% over prime.
The revolving loan agreement allows the Partnership to apply its excess cash
against the loan balance to reduce the interest charged on the loan. As of
March 31, 1996 the loan was paid down to a balance of $2,525,000 while the
permitted (amortized) balance was $3,135,000.
At March 31, 1996 the Partnership had $299,000 on hand in unrestricted
cash and approximately $610,000 borrowing availability on its revolving term
loan (discussed in the previous paragraph) for a total of $909,000 of cash and
cash availability. This is a decrease of $112,000 from December 31, 1995.
Working capital (excluding the current portions of capital lease obligations,
but including the $610,000 in borrowing availability) decreased $284,000 from
December 31, 1995 to March 31, 1996. The uses of cash and working capital
during the first quarter included the acquisition of approximately $254,000 of
property and equipment. This includes the cost of equipment for the
Partnership's newest restaurant which opened in late March 1996. The land and
building for this restaurant are being leased. The uses of cash and working
capital also included a net reduction in the Partnership's long-term debt and
obligations under capital leases of $13,000 and cash distributions to partners
of $127,000.
The Partnership expects property and equipment additions over the next
twelve months at existing restaurants to be approximately $500,000. The
Partnership has no current plans to open any additional restaurants during the
remainder of 1996. Preliminary plans are being made to open a new restaurant in
the first half of 1997. These plans provide for the Partnership to pay for the
restaurant equipment and franchise fee out of operating cash flow totaling
approximately $250,000. The land and building would be leased under similar
terms as the Partnership's two newest restaurants.
Based on current operations, The Partnership expects that cash provided
from operations will enable the Partnership to meet its financial requirements
for the foreseeable future.
(f) Inflation, Changing Prices
As discussed under item (d) "Expenses - Restaurant Operating Expenses"
of this item of this report, rising hourly wage rates had a negative impact on
the Partnership's operating results for the first quarter of 1996. Increases in
labor costs along with periodic increases in food and other operating expenses
are normally passed on to customers in the form of price increases. However,
highly competitive market conditions have minimized the Partnership's ability
to offset these cost increases through increased prices to its customers.
-5-
<PAGE> 6
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
There are no material legal proceedings pending to which the
Partnership is a party or to which any of its property is subject.
ITEM 2. Changes in Securities.
No information to report this quarter.
ITEM 3. Defaults Upon Senior Securities.
No information to report this quarter.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No information to report this quarter.
ITEM 5. Other Information.
No information to report this quarter.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed with this report are listed on the "Exhibit
Index" on page E-1.
(b) No reports on Form 8-K have been filed by the Registrant during
this quarter.
(c) The financial statements filed with this report are listed on the
"Index to Financial Statements" on page A-1.
-6-
<PAGE> 7
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.
WENDY'S OF WEST MICHIGAN LIMITED
PARTNERSHIP, a Michigan limited
partnership.
By: Wendy's West Michigan, Inc.,
a Michigan corporation,
General Partner
Date: May 10, 1996 By: /s/ John G. Dodgson
----------------------
John G. Dodgson,
President
Date: May 10, 1996 By: /s/ Ray E. Quada
----------------------
Ray E. Quada,
Treasurer
-7-
<PAGE> 8
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
PAGE NUMBER
FINANCIAL STATEMENTS:
BALANCE SHEET - MARCH 31, 1996
(UNAUDITED) AND DECEMBER 31, 1995 A-2 - A-3
STATEMENT OF OPERATIONS (UNAUDITED) -
THREE MONTHS' PERIODS ENDED MARCH 31,
1996 AND 1995 A-4
STATEMENT OF CASH FLOWS (UNAUDITED) -
THREE MONTHS' PERIODS ENDED MARCH 31,
1996 AND 1995 A-5
NOTE TO UNAUDITED FINANCIAL STATEMENTS A-6
A-1
<PAGE> 9
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
BALANCE SHEET
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(unaudited) 1995
----------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 298,936 $ 411,198
Non-trade receivables 39,184 53,887
Inventories - restaurant food and
paper supplies 147,305 145,807
Prepaid expenses 177,536 139,202
----------- -----------
TOTAL CURRENT ASSETS 662,961 750,094
OTHER ASSETS
Cash value of life insurance 31,000 -0-
Loan costs 61,800 63,534
Goodwill 2,113,167 2,162,697
Franchise fees 176,416 184,357
----------- -----------
TOTAL OTHER ASSETS 2,382,383 2,410,588
PROPERTY AND EQUIPMENT
Land 749,000 749,000
Leasehold improvements 2,156,926 2,156,926
Buildings and improvements 2,398,127 2,398,127
Restaurant equipment 3,673,869 3,420,269
Office equipment 175,644 175,644
Vehicles 83,826 83,826
Leased property under capital leases 2,825,338 2,825,338
----------- -----------
12,062,730 11,809,130
Less accumulated depreciation
and amortization 6,281,118 6,137,807
----------- -----------
PROPERTY AND EQUIPMENT - NET 5,781,612 5,671,323
----------- -----------
$ 8,826,956 $ 8,832,005
=========== ===========
</TABLE>
See note to financial statements
A-2
<PAGE> 10
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
BALANCE SHEET
(continued)
March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(unaudited) 1995
----------- ------------
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 1,011,080 $ 785,355
Salaries and wages 225,050 305,044
Accrued taxes 249,614 293,705
Accrued percentage rent 34,766 79,816
Other current liabilities 102,035 38,963
Current portion of long-term debt -0- -0-
Current portion of lease obligations 164,030 159,572
----------- -----------
TOTAL CURRENT LIABILITIES 1,786,575 1,662,455
LONG-TERM DEBT - exclusive of current
portion 2,556,447 2,500,340
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES -
exclusive of current portion 1,766,110 1,808,828
COMMITMENTS AND CONTINGENCIES - Note A - -
PARTNERS' EQUITY 2,717,824 2,860,382
----------- -----------
$ 8,826,956 $ 8,832,005
=========== ===========
</TABLE>
See note to financial statements
A-3
<PAGE> 11
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS (UNAUDITED)
Three months' periods ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 5,717,547 $ 5,969,074
Cost of sales 1,644,452 1,747,235
----------- -----------
4,073,095 4,221,839
Expenses (income):
Restaurant operating costs 3,513,069 3,479,844
General and administrative expenses 304,812 323,145
Depreciation and amortization 202,516 203,461
Interest expense 114,084 142,710
Interest and other income (45,777) (40,889)
Insurance proceeds in excess of net
book value of fire damaged assets -0- (32,660)
----------- -----------
4,088,704 4,075,611
----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (15,609) 146,228
Extraordinary item - loss on
extinguishment of debt -0- 20,536
------------ -----------
NET INCOME (LOSS) $ (15,609) $ 125,692
============ ===========
Net income (loss) attributed to:
Limited Partners $ (15,453) $ 124,435
General Partner (156) 1,257
----------- -----------
$ (15,609) $ 125,692
============ ============
Income (loss) before extraordinary item,
per unit of Limited Partnership interest
(1256.8 units outstanding) $ (12.30) $ 115.19
============ ============
Extraordinary item - loss on extinguishment
of debt, per unit of Limited Partnership
interest (1256.8 units outstanding) $ -0- $ (16.18)
============ ============
Net income (loss), per unit of Limited
Partnership interest (1256.8 units outstanding) $ (12.30) $ 99.01
============ ============
</TABLE>
See note to financial statements
A-4
<PAGE> 12
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS (UNAUDITED)
Three months' periods ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (15,609) $ 125,692
Noncash items included in net loss:
Loss on extinguishment of debt -0- 20,536
Depreciation and amortization 202,516 203,461
(Increase) decrease in current
assets other than cash (25,129) 32,886
Increase (decrease) in accounts payable
and other accrued liabilities 119,662 (178,884)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 281,440 203,691
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash - for
repayment of short-term borrowings -0- (1,648,331)
Payment of franchise fees -0- (25,000)
Proceeds from sale of land -0- 121,000
Purchase of property and equipment (253,600) (144,035)
----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (253,600) (1,696,366)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt (net
of debt issue costs) -0- 1,991,022
Payments made on short-term borrowings -0- (102,724)
Net increase (decrease) in long-term
debt (revolving term loan) 25,107 (64,159)
Payments made on obligations under
capital leases (38,260) (34,267)
Distributions to partners (126,949) (253,899)
----------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (140,102) 1,535,973
----------- -----------
NET INCREASE (DECREASE) IN CASH (112,262) 43,298
Cash:
At beginning of period 411,198 776,042
----------- -----------
At end of period $ 298,936 $ 819,340
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 114,599 $ 127,260
</TABLE>
See note to financial statements
A-5
<PAGE> 13
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Three months' periods ended March 31, 1996 and 1995
NOTE A - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at March 31, 1996
and the results of operations and cash flows for the three months' periods
ended March 31, 1996 and 1995.
The accompanying financial statements do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles and therefore, should be read in conjunction with the
audited financial statements included in the Partnership's Form 10-K for the
period ended December 31, 1995 as filed with the Securities and Exchange
Commission. The results of operations for the three months' period ended March
31, 1996 are not necessarily indicative of the results to be expected for the
full year.
A-6
<PAGE> 14
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Reference/
Exhibit No. Page
- ----------- ----------
<S> <C>
4(a) Amended and Restated Agreement of Limited
Partnership of Wendy's of West Michigan
Limited Partnership dated as of July 31, 1986.............. A
4(b) First Amendment to Amended and Restated
Agreement of Limited Partnership of Wendy's
of West Michigan Limited Partnership dated
as of December 13, 1986..................................... A
4(c) Amendments to Amended and Restated Agreement of
Limited Partnership, effective as of April 12,
1987........................................................ B
4(d) Restated Certificate of Limited Partnership
of Wendy's of West Michigan Limited Partnership,
as filed with the Michigan Department of Commerce
on November 3, 1986......................................... A
4(e) Certificate of Amendment to Restated Certificate
of Limited Partnership of Wendy's of West Michigan
Limited Partnership, as filed with the Michigan
Department of Commerce on December 30, 1986................. A
27) Financial Data Schedule
</TABLE>
A Filed as an Exhibit to Registration Statement No. 33-8586-C or
Report on Form 10-K for the fiscal year ended December 31,
1986, and incorporated herein by reference.
B Filed as an Exhibit to Registrant's Form 10-Q for the period
ended March 31, 1987, and incorporated herein by reference.
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 298,936
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 147,305
<CURRENT-ASSETS> 662,961
<PP&E> 12,062,730
<DEPRECIATION> 6,281,118
<TOTAL-ASSETS> 8,826,956
<CURRENT-LIABILITIES> 1,786,575
<BONDS> 4,322,557
0
0
<COMMON> 0
<OTHER-SE> 2,717,824
<TOTAL-LIABILITY-AND-EQUITY> 8,826,956
<SALES> 5,717,547
<TOTAL-REVENUES> 5,717,547
<CGS> 1,644,452
<TOTAL-COSTS> 1,644,452
<OTHER-EXPENSES> 3,974,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,084
<INCOME-PRETAX> (15,609)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,609)
<EPS-PRIMARY> (12.30)
<EPS-DILUTED> (12.30)
</TABLE>
