Edgar Filing: WENDYS INTERNATIONAL INC

Wendy's International, Inc. 10-Q

FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2005

o 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 þ No o.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class				Outstanding at August 7, 2005


Common shares, $.10 stated value				115,524,000 shares
Exhibit index on page 32.

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX


		Pages
PART I: Financial Information

Item 1. Financial Statements (Unaudited):

Consolidated Condensed Statements of Income for the quarters and year-to-date periods ended July 3, 2005 and June 27, 2004		3 - 4

Consolidated Condensed Balance Sheets as of July 3, 2005 and January 2, 2005		5 - 6

Consolidated Condensed Statements of Cash Flows for the year-to-date periods ended July 3, 2005 and June 27, 2004		7

Notes to the Consolidated Condensed Financial Statements		8 - 13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14 - 28

Item 3. Quantitative and Qualitative Disclosures about Market Risk		28

Item 4. Controls and Procedures		29

PART II: Other Information

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30

Item 4. Submission of Matters to a Vote of Security Holders		30

Item 5. Other Information		30

Item 6. Exhibits		30

Signature		31

Index to Exhibits		32

Exhibit 31(a)		33

Exhibit 31(b)		34

Exhibit 32(a)		35

Exhibit 32(b)		36

Exhibit 99		37 - 39
EX-31(A)
EX-31(B)
EX-32(A)
EX-32(B)
EX-99

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)


	(In thousands, except per share data)
	Quarter Ended			Quarter Ended
	July 3, 2005			June 27, 2004
Revenues
Retail sales	$	770,508		$	740,577
Franchise revenues		180,514			168,325

		951,022			908,902

Costs and expenses
Cost of sales		510,076			475,480
Company restaurant operating costs		168,082			158,724
Operating costs		36,853			36,124
Depreciation of property and equipment		49,633			44,478
General and administrative expenses		73,221			71,789
Other income		(3,567	)		(1,153	)

Total costs and expenses		834,298			785,442


Operating income		116,724			123,460

Interest expense		(11,330	)		(11,677	)
Interest income		1,335			1,003

Income before income taxes		106,729			112,786
Income taxes		35,969			41,167

Net income	$	70,760		$	71,619


Basic earnings per common share	$	.62		$	.63


Diluted earnings per common share	$	.61		$	.62


Dividends per common share	$	.135		$	.12


Basic shares		114,555			113,769


Diluted shares		116,632			115,724

The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)


	(In thousands, except per share data)
	Year-to-Date Ended			Year-to-Date Ended
	July 3, 2005			June 27, 2004
Revenues
Retail sales	$	1,495,055		$	1,417,189
Franchise revenues		350,140			326,466

		1,845,195			1,743,655

Costs and expenses
Cost of sales		992,890			917,312
Company restaurant operating costs		332,853			309,995
Operating costs		73,035			71,698
Depreciation of property and equipment		98,351			89,302
General and administrative expenses		149,065			139,539
Other income		(7,535	)		(1,363	)

Total costs and expenses		1,638,659			1,526,483


Operating income		206,536			217,172

Interest expense		(22,864	)		(23,381	)
Interest income		2,524			2,073

Income before income taxes		186,196			195,864
Income taxes		64,180			71,490

Net income	$	122,016		$	124,374


Basic earnings per common share	$	1.07		$	1.09


Diluted earnings per common share	$	1.06		$	1.07


Dividends per common share	$	.27		$	.24


Basic shares		113,642			114,148


Diluted shares		115,612			116,280

The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)


	(Dollars in thousands)
	July 3, 2005			January 2, 2005
ASSETS

Current assets
Cash and cash equivalents	$	212,613		$	176,749
Accounts receivable, net		144,409			127,158
Notes receivable, net		11,190			11,626
Deferred income taxes		24,781			27,280
Inventories and other		60,248			56,010
Advertising fund restricted assets		64,195			60,021

		517,436			458,844


Property and equipment		3,441,635			3,362,158
Accumulated depreciation		(1,081,006	)		(1,012,338	)

		2,360,629			2,349,820


Notes receivable, net		13,053			12,652
Goodwill		160,851			166,998
Deferred income taxes		8,346			6,772
Intangible assets, net		43,608			41,787
Other assets		165,049			160,671

	$	3,268,972		$	3,197,544

The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)


	(Dollars in thousands)
	July 3, 2005			January 2, 2005
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	145,688		$	197,247
Accrued expenses:
Salaries and wages		43,530			46,971
Taxes		99,726			108,025
Insurance		57,784			53,160
Other		69,432			92,838
Advertising fund restricted liabilities		71,690			60,021
Current portion of long-term obligations		105,946			130,125

		593,796			688,387


Long-term obligations
Term debt		542,667			538,055
Capital leases		52,855			55,552

		595,522			593,607


Deferred income taxes		108,228			109,674
Other long-term liabilities		93,141			90,187

Commitments and contingencies

Shareholders’ equity
Preferred stock, Authorized: 250,000 shares
Common stock, $.10 stated value per share,
Authorized: 200,000,000 shares, Issued: 120,921,000 and 118,090,000 shares, respectively		12,092			11,809
Capital in excess of stated value		234,293			111,286
Retained earnings		1,792,172			1,700,813
Accumulated other comprehensive income (expense):
Cumulative translation adjustments and other		80,023			102,950
Pension liability		(913	)		(913	)

		2,117,667			1,925,945

Treasury stock at cost:
5,681,000 and 5,681,000 shares, respectively		(196,819	)		(195,124	)
Unearned compensation – restricted stock		(42,563	)		(15,132	)

		1,878,285			1,715,689

	$	3,268,972		$	3,197,544

The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)


	(In thousands)
	Year-to-Date			Year-to-Date
	Ended			Ended
	July 3, 2005			June 27, 2004
Net cash provided by operating activities	$	163,444		$	220,061

Cash flows from investing activities
Proceeds from property dispositions		16,193			44,513
Capital expenditures		(155,752	)		(130,944	)
Acquisition of Bess Eaton		0			(41,500	)
Acquisition of franchises		(2,851	)		(4,977	)
Principal payments on notes receivable		6,873			7,308
Short-term investments		0			24,655
Investments in joint venture and other investments		(784	)		(4,593	)
Other investing activities		(5,286	)		(448	)

Net cash used in investing activities		(141,607	)		(105,986	)

Cash flows from financing activities
Proceeds from employee stock options exercised		76,964			20,818
Repurchase of common stock		(1,695	)		(79,213	)
Principal payments on debt obligations		(27,048	)		(56,461	)
Dividends paid on common shares		(30,653	)		(27,449	)

Net cash provided by (used in) financing activities		17,568			(142,305	)


Effect of exchange rate changes on cash		(3,541	)		(2,212	)


Increase (decrease) in cash and cash equivalents		35,864			(30,442	)

Cash and cash equivalents at beginning of period		176,749			171,206


Cash and cash equivalents at end of period	$	212,613		$	140,764


Supplemental disclosures of cash flow information:
Interest paid	$	23,742		$	23,571
Income taxes paid		57,197			55,264
Capitalized lease obligations incurred		2,093			1,770

The accompanying Notes are an integral part of the Consolidated Condensed Financial Statements.

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 Consolidated Condensed Financial Statements contain all adjustments (all of which are normal and recurring in nature) necessary for a fair statement of the condensed financial position of Wendy’s International, Inc. and subsidiaries (the “Company”) as of July 3, 2005 and January 2, 2005, and the condensed results of operations and comprehensive income (see Note 4) for the quarters and year-to-date periods ended July 3, 2005 and June 27, 2004 and cash flows for the year-to-date periods ended July 3, 2005 and June 27, 2004. All of these financial statements are unaudited. The Notes to the audited Consolidated Financial Statements, which are contained in the Financial Statements and Other Information furnished with the Company’s 2005 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 are based on the treasury stock method and include assumed conversions of outstanding stock options and restricted stock, net of shares assumed to be repurchased from the proceeds, when dilutive. There were no options excluded from the computation of diluted earnings per common share for the second quarter 2005 as they were all dilutive. Options to purchase approximately 0.7 million shares of common stock were excluded from the computation of diluted earnings per common share for the year-to-date period ended July 3, 2005 and options to purchase approximately 1.5 million shares of common stock for the quarter and year-to-date periods ended June 27, 2004 were excluded from the computation of diluted earnings per share because the exercise price of these options was greater than the average market price of the common shares in the respective periods, and therefore, they are antidilutive.

The computations of basic and diluted earnings per common share are shown below (in thousands, except per share data):


	Quarter		Quarter		Year-to-Date		Year-to-Date
	Ended		Ended		Ended		Ended
	July 3, 2005		June 27, 2004		July 3, 2005		June 27, 2004
Income for computation of basic and diluted earnings per common share	$	70,760	$	71,619	$	122,016	$	124,374

Weighted average shares outstanding for computation of basic earnings per common share		114,555		113,769		113,642		114,148

Dilutive stock options and restricted stock		2,077		1,955		1,970		2,132

Weighted average shares outstanding for computation of diluted earnings per common share		116,632		115,724		115,612		116,280


Basic earnings per common share	$	.62	$	.63	$	1.07	$	1.09

Diluted earnings per common share	$	.61	$	.62	$	1.06	$	1.07

NOTE 3. STOCK OPTIONS AND RESTRICTED STOCK

The Company has various stock option plans that provide options for certain employees and outside directors to purchase common shares of the Company. The Company uses the intrinsic value method to account for stock-based employee compensation as defined in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. Beginning in 2004, the Company began granting restricted stock, in lieu of providing stock options to some of its employees and outside directors. The Company recorded $4.0 million and $5.9 million in compensation expense for restricted stock for the quarter and year-to-date periods ended July 3, 2005, respectively, and $1.3 million for the quarter and year-to-date periods ended June 27, 2004.

The pro-forma disclosures below are provided as if the Company had adopted the cost recognition requirements under Statement of Financial Accounting Standards (“SFAS”) No. 123 – “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148. Under SFAS No. 123, the fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model. This model requires the use of subjective assumptions that can materially affect fair value estimates, and therefore, this model does not necessarily provide a reliable single measure of the fair value of the Company’s stock options. Had compensation expense been recognized for stock-based compensation plans in accordance with provisions of SFAS No. 123, the Company would have recorded net income and earnings per share as follows (in thousands, except per share data):


	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	July 3, 2005			June 27, 2004			July 3, 2005			June 27, 2004
Net income, as reported	$	70,760		$	71,619		$	122,016		$	124,374
Add: Stock compensation cost recorded under APB Opinion No. 25, net of tax		2,571			802			3,797			802
Deduct: Stock compensation cost calculated under SFAS No. 123, net of tax		(6,634	)		(5,166	)		(14,371	)		(8,469	)

Pro-forma net income	$	66,697		$	67,255		$	111,442		$	116,707

Earnings per share:
Basic as reported	$	.62		$	.63		$	1.07		$	1.09
Basic pro-forma	$	.58		$	.59		$	.98		$	1.02

Diluted as reported	$	.61		$	.62		$	1.06		$	1.07
Diluted pro-forma	$	.57		$	.59		$	.97		$	1.01

The above stock compensation cost calculated under SFAS No. 123R, net of tax is based on costs generally computed over the vesting period of the award. SFAS No. 123R requires compensation cost for stock-based compensation awards to be recognized immediately for new awards granted to retirement eligible employees and over the period from the grant date to the date retirement eligibility is achieved, if that period is shorter than the normal vesting period. The table below shows the impact on the Company’s reported diluted earnings per share, which reflects only the impact of restricted stock which is currently expensed in the Company’s financial statements, and the impact on pro-forma diluted earnings per share, which reflects both stock options and restricted stock, as if the guidance on recognition of stock compensation expense for retirement eligible employees was applied to the periods reflected in the financial statements.


	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	July 3, 2005			June 27, 2004			July 3, 2005			June 27, 2004
Impact on:
Diluted as reported	$	(.04	)	$	(.02	)	$	(.04	)	$	(.02	)

Diluted pro-forma	$	(.03	)	$	(.03	)	$	(.02	)	$	(.02	)

The impact of applying SFAS No. 123 in this pro-forma disclosure is not necessarily indicative of future results.

NOTE 4. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

The components of other comprehensive income (expense) and total comprehensive income are shown below (in thousands):


	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	July 3, 2005			June 27, 2004			July 3, 2005			June 27, 2004
Net income	$	70,760		$	71,619		$	122,016		$	124,374
Other comprehensive expense:
Translation adjustments and other, net		(13,858	)		(14,242	)		(22,927	)		(18,886	)

Total comprehensive income	$	56,902		$	57,377		$	99,089		$	105,488

Other comprehensive expense is primarily comprised of translation adjustments related to fluctuations in the Canadian dollar. There was a slight weakening in the Canadian dollar during the second quarter and year-to-date periods of 2005 and 2004. At the end of the second quarter 2005, the Canadian exchange rate was $1.24 versus $1.22 at April 3, 2005 and $1.20 at January 2, 2005. At the end of the second quarter 2004, the Canadian exchange rate was $1.35 versus $1.32 at March 28, 2004 and $1.31 at December 28, 2003.

NOTE 5. 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 Wendy’s, Tim Hortons (“Hortons”) and Developing Brands. Developing Brands includes Baja Fresh and Cafe Express. Baja Fresh was acquired on June 19, 2002 and the Company acquired a controlling interest in Cafe Express on February 2, 2004. There were no material amounts of revenues or transfers among reportable segments. The following table presents information about reportable segments (in thousands):


	Quarter Ended												Year-to-Date Ended
	July 3,			% of			June 27,			% of			July 3,			% of			June 27,			% of
	2005			Total			2004			Total			2005			Total			2004			Total
Revenues
Wendy’s	$	615,137			64.7	%	$	619,894			68.2	%	$	1,204,003			65.2	%	$	1,199,750			68.8	%
Hortons		281,495			29.6	%		235,489			25.9	%		536,384			29.1	%		443,236			25.4	%
Developing Brands		54,390			5.7	%		53,519			5.9	%		104,808			5.7	%		100,669			5.8	%

	$	951,022			100.0	%	$	908,902			100.0	%	$	1,845,195			100.0	%	$	1,743,655			100.0	%


Segment Operating Income
Wendy’s	$	57,430			43.2	%	$	79,087			57.6	%	$	101,368			43.0	%	$	138,223			56.2	%
Hortons		76,587			57.6	%		61,821			45.0	%		139,131			59.0	%		114,493			46.5	%
Developing Brands		(1,160	)		(0.8	)%		(3,651	)		(2.6	)%		(4,615	)		(2.0	)%		(6,749	)		(2.7	)%

	$	132,857			100.0	%	$	137,257			100.0	%	$	235,884			100.0	%	$	245,967			100.0	%


Capital Expenditures
Wendy’s	$	33,776			49.3	%	$	34,027			58.8	%	$	85,740			55.0	%	$	80,640			61.6	%
Hortons		33,597			49.1	%		19,461			33.6	%		65,000			41.8	%		38,173			29.1	%
Developing Brands		1,075			1.6	%		4,408			7.6	%		5,012			3.2	%		12,131			9.3	%

	$	68,448			100.0	%	$	57,896			100.0	%	$	155,752			100.0	%	$	130,944			100.0	%

A reconciliation of reportable segment operating income to consolidated operating income follows (in thousands):


	Quarter Ended						Year-to-Date Ended
	July 3, 2005			June 27, 2004			July 3, 2005			June 27, 2004

Reportable segment operating income	$	132,857		$	137,257		$	235,884		$	245,967
Corporate charges (1)		(16,133	)		(13,797	)		(29,348	)		(28,795	)

Consolidated operating income	$	116,724		$	123,460		$	206,536		$	217,172


(1)		Corporate charges include certain overhead costs which are not allocated to individual segments.

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS

The table below presents amortizable and unamortizable intangible assets as of July 3, 2005 and January 2, 2005 (in thousands):


	July 3, 2005							January 2, 2005
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Amortizable intangible assets:
Patents and trademarks	$	45,385	$	(6,713	)	$	38,672	$	41,694	$	(5,525	)	$	36,169
Purchase options		7,500		(5,662	)		1,838		7,500		(5,323	)		2,177
Other		5,362		(2,264	)		3,098		5,443		(2,002	)		3,441

	$	58,247	$	(14,639	)	$	43,608	$	54,637	$	(12,850	)	$	41,787


Unamortizable intangible assets:
Goodwill						$	160,851						$	166,998

Total intangibles amortization expense was $.9 million and $1.9 million for the quarter and year-to-date ended July 3, 2005, respectively, and $.8 million and $1.6 million for the quarter and year-to-date ended June 27, 2004, respectively. The estimated annual intangibles amortization expense for 2006 and 2007 is approximately $3 million. For the years 2008 through 2010, the estimated annual intangibles amortization expense is approximately $2 million.

The $6.1 million decrease in goodwill and the $3.7 million increase in the gross carrying amount of patents and trademarks from January 2, 2005 primarily represents the final purchase price adjustment related to the Company’s February 2004 acquisition of a controlling interest in Cafe Express. The final purchase price adjustment was determined by the Company with the assistance of an independent third party. Recorded goodwill for Cafe Express as of January 2, 2005 was based on estimated values of assets and liabilities. The $7 million decrease in goodwill related to the Cafe Express purchase price adjustment was partially offset by Wendy’s acquisition of five stores in the second quarter of 2005. Goodwill is assigned to the Company’s reportable segments as follows (in thousands):


	July 3, 2005		January 2, 2005
Wendy’s	$	77,545	$	76,937
Hortons		25,674		25,450
Developing Brands		57,632		64,611

Total Goodwill	$	160,851	$	166,998

Under SFAS No. 142, goodwill and other indefinite-lived intangibles are tested for impairment in the fourth quarter of each year (or in interim periods if events indicate possible impairment). The calculations used to test for impairment depend upon a number of estimates and assumptions, including future business results and interest rates. If the Company’s estimates and assumptions used in 2004 change in the future, goodwill could potentially be subject to impairment.

NOTE 7. ACQUISITIONS AND INVESTMENTS

In the second quarter of 2005, the Company acquired five Wendy’s restaurants from a franchisee for $2.9 million. The Company is in the process of completing the purchase price allocation including the amount, if any, to be attributed to the reacquired right to use the Company’s trade name. There was no settlement gain or loss associated with this acquisition.

NOTE 8. GUARANTEES AND INDEMNIFICATIONS

The Company has guaranteed certain lease and debt payments primarily for franchisees, amounting to $178.5 million. In the event of default by a franchise owner, the Company generally retains the right to acquire possession of the related restaurants. The Company is contingently liable for leases amounting to an additional $21.6 million. These leases have been assigned to unrelated third parties, which have agreed to indemnify the Company against future liabilities arising under the leases. These leases expire on various dates through 2022. The Company is also the guarantor on $11.4

million in letters of credit with various parties; however, management does not expect any material loss to result from these instruments because it does not believe performance will be required. The length of the lease, loan and other arrangements guaranteed by the Company or for which the Company is contingently liable varies, but generally does not exceed 20 years.

The following table summarizes guarantees of the Company (in thousands):


	Balance at
	July 3, 2005
Franchisee and other lease and loan guarantees:
Wendy’s	$	168,945
Hortons		1,216
Developing Brands		8,296

Total	$	178,457

Contingently liable rent on leases:
Wendy’s	$	21,615

Letters of credit:
Wendy’s	$	6,946
Hortons		4,463

	$	11,409

Total guarantees and indemnifications	$	211,481

In addition to the above guarantees, the Company is party to many agreements executed in the ordinary course of business that provide for indemnification of third parties under specified circumstances, such as lessors of real property leased by the Company, distributors, service providers for various types of services (including commercial banking, investment banking, tax, actuarial and other services), software licensors, marketing and advertising firms, securities underwriters and others. Generally, these agreements obligate the Company to indemnify the third parties only if certain events occur or claims are made, as these contingent events or claims are defined in each of these agreements. The Company believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the earnings or financial condition of the Company. The liability recorded related to the above indemnity agreements is not material.

NOTE 9. RETIREMENT PLANS

The Company has two domestic defined benefit plans (the “Plans”) covering all eligible employees of the Company and certain subsidiaries that have adopted the Plans. The rate of return on employee account balances is guaranteed by the Plans and adjusted annually. One of the defined benefit plans provides a base benefit for all participants based on years of service. The second, and significantly smaller, defined benefit plan (“Crew Plan”) discontinued employee participation and accruing additional employee benefits in 2001. The Company makes contributions to the Plans in amounts sufficient, on an actuarial basis, to fund at a minimum, the Plans’ normal cost on a current basis, and to fund the actuarial liability for past service costs in accordance with Department of Treasury regulations.

Net periodic pension cost (credit) for the Plans for the quarters and year-to-date periods ended July 3, 2005 and June 27, 2004 consisted of the following (in thousands):


	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	July 3, 2005			June 27, 2004			July 3, 2005			June 27, 2004
Service cost	$	1,231		$	1,371		$	2,530		$	2,732
Interest cost		1,399			1,375			2,798			2,750
Expected return on plan assets		(1,818	)		(1,855	)		(3,636	)		(3,710	)
Amortization of prior service cost		(267	)		(267	)		(534	)		(533	)
Amortization of net (gain) loss		776			655			1,552			1,310

Net periodic pension cost	$	1,321		$	1,279		$	2,710		$	2,549

As of July 3, 2005, $10.5 million of contributions have been made to the Plans. No further contributions are expected in 2005.

NOTE 10. ADVERTISING COSTS

The Company participates in various advertising funds established to collect and administer funds contributed for use in advertising and promotional programs designed to increase sales and enhance the reputation of the Company and its franchise owners. Separate advertising funds are administered for Wendy’s U.S., Wendy’s of Canada, Hortons Canada, Hortons U.S. and Baja Fresh. In accordance with SFAS No. 45, “Accounting for Franchisee Fee Revenue”, the revenue and expenses of the advertising funds are not included in the Company’s Consolidated Statements of Income because the contributions to these advertising funds are designated for specific purposes, and the Company acts as an, in substance, agent with regard to these contributions. The assets held by these advertising funds are considered restricted. The current restricted assets and related restricted liabilities are identified on the Company’s balance sheets. In addition, certain long-term assets and liabilities of the advertising funds are classified as such on the balance sheet.

NOTE 11. RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 05-06, “Determining the Amortization Period for Leasehold Improvements”. The consensus requires that the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception should be based on the lesser of the useful life of the leasehold improvements or the period of the lease including all renewal periods that are reasonably assured of exercise at the time of the acquisition. The consensus is to be applied prospectively to leasehold improvements acquired subsequent to June 29, 2005. This consensus is consistent with the accounting policy followed by the Company and thus had no impact upon adoption.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment”, which requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option-pricing model. The cost of the awards, including the related tax effects, will be recognized in the Statement of Income. This statement eliminates the alternative to use the intrinsic value method for valuing stock based compensation, which typically resulted in recognition of no compensation cost. This statement was to become effective for interim or annual periods beginning after June 15, 2005, with early adoption encouraged. On April 15, 2005, the Securities and Exchange Commission issued Release No. 33-8568, which amended the date for compliance with SFAS No. 123R to the first interim or annual period of the first fiscal year beginning after June 15, 2005, with early adoption permitted. The Company has decided to adopt SFAS No. 123R in the first quarter of 2006. Under SFAS No. 123R, the classification of cash flows between operating and financing activities will be affected due to a change in treatment for tax benefits realized. The Company is currently in the process of evaluating the impact of adopting SFAS No. 123R.

SFAS No. 123R requires recognition of compensation cost under a non-substantive vesting period approach, which requires recognition of compensation expense when an employee is eligible to retire. The Company has historically recognized this cost under the nominal vesting approach, generally over the normal vesting period of the award. When the Company adopts SFAS No. 123R in the first quarter of 2006, it will change to the non-substantive approach. See Note 3, Stock Options and Restricted Stock, for a discussion of the impact of this change when the Company adopts SFAS No. 123R.

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Wendy’s International, Inc. and subsidiaries (the “Company”) produced second quarter revenues of $951.0 million, an increase of 4.6% over prior year second quarter, and year-to-date revenues of $1.8 billion, an increase of 5.8% over the prior year-to-date. Diluted earnings per common share (“EPS”) were $.01 less than both the prior year second quarter and year-to-date at $.61 and $1.06, respectively. Net income in 2005 declined slightly from $71.6 million to $70.8 million for the second quarter and from $124.4 million to $122.0 million year-to-date. Overall, Tim Hortons (“Hortons”) operating results improved due to strong average same-store sales and continued growth in system-wide restaurants, while Wendy’s operating results declined primarily due to lower average same-store sales and higher beef prices. As a result, Hortons’ operating income was substantially higher than Wendy’s operating income for both the quarter and year-to-date periods.

EPS benefited from changes in the Canadian dollar exchange rate by $.035 compared to the second quarter of 2004 and $.060 compared to year-to-date 2004. Also compared to the prior year, the Company’s 2005 EPS was reduced by approximately $.01 and $.02 in the quarter and year-to-date, respectively, due to compensation expense associated with the Company’s restricted stock award program implemented in 2004. The current quarter and year-to-date EPS also benefited from a lower effective tax rate by $.025 and $.030, respectively, as compared to 2004. Wendy’s income was adversely impacted by higher beef prices which reduced EPS $.035 in the quarter and $.045 year-to-date.

Average same-store sales results as a percentage change for the quarter and year-to-date versus prior year are listed in the table below. Franchisee sales are not included in the Company’s financial statements; however, franchisee sales result in royalties and some rental income that are included in the Company’s franchise revenues.


	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	July 3, 2005			June 27, 2004			July 3, 2005			June 27, 2004
Hortons — Canada⁽¹⁾		5.6	%		7.8	%		5.7	%		7.2	%
Hortons — U.S.⁽¹⁾		9.1	%		10.2	%		8.4	%		10.3	%
Wendy’s U.S. Company		(4.6	)%		5.9	%		(3.4	)%		7.5	%
Wendy’s U.S. Franchise		(3.9	)%		3.7	%		(2.5	)%		5.5	%
Baja Fresh U.S.⁽¹⁾		(1.7	)%		(6.2	)%		(3.8	)%		(5.6	)%


(1)		Amounts include both company operated and franchised restaurants .

The increase in the Company’s revenues includes continued growth in the number of franchisee and company operated restaurants. Total franchisee and company operated restaurants increased 3.7% from the end of the second quarter 2004. The increase in the number of restaurants primarily relates to Wendy’s U.S. and Hortons operations. A summary of systemwide restaurants by brand is included on page 27.

In July 2005, the Company announced a number of strategic initiatives impacting the Wendy’s and Hortons brands to improve performance of the Wendy’s business and to enhance value for shareholders of the Company. See Management’s Outlook section below for further discussion of these initiatives.

OPERATING INCOME

Total operating income (equal to income, before income taxes and interest — see chart on page 15) for the Company decreased $6.7 million, or 5.5%, compared to the second quarter of 2004 and decreased $10.6 million, or 4.9% compared to the prior year-to-date. Operating income, as a percent of revenues, from the Company’s reportable segments decreased from 15.1% in 2004 to 14.0% in 2005 for the quarter and from 14.1% in 2004 to 12.8% in 2005 for the year-to-date. The primary driver of the decrease in reportable segment operating income in dollars and as a percent

of sales was the decline in Wendy’s 2005 operating income. Lower average same-store sales significantly impacted Wendy’s operating income as many restaurant costs are fixed or semi-fixed. Wendy’s operating income was also significantly impacted by higher beef costs, which were up 24% for the quarter and 15% for the year-to-date. As a result, operating income for Wendy’s declined $21.7 million, or 27.4% for the quarter and $36.9 million, or 26.7% for the year-to-date. Hortons’ operating income increase of $14.8 million, or 23.9%, for the quarter and $24.6 million, or 21.5%, for year-to-date was primarily driven by continued growth in systemwide restaurants, a stronger Canadian dollar, and very strong same-store sales.

Corporate charges, included as part of total operating income, but not allocated to reportable segments, increased $2.3 million in the quarter and $.6 million year-to-date. The increase in the quarter and year-to-date both reflect higher compensation expense related to the Company’s restricted stock award program. The year-to-date increase was offset by the impact of lower severance and legal accruals in 2005.

OPERATING INCOME

(in thousands)


													Change From
	Quarter Ended												Prior Year
				% of						% of
	July 3, 2005			Revenues			June 27, 2004			Revenues			Dollars			Percentage
Wendy’s	$	57,430			9.3	%	$	79,087			12.8	%	$	(21,657	)		(27.4	)%
Hortons		76,587			27.2	%		61,821			26.3	%		14,766			23.9	%
Developing Brands*		(1,160	)		(2.1	)%		(3,651	)		(6.8	)%		2,491			68.2	%

		132,857			14.0	%		137,257			15.1	%		(4,400	)		(3.2	)%
Corporate**		(16,133	)					(13,797	)					(2,336	)

Total Operating Income	$	116,724			12.3	%	$	123,460			13.6	%	$	(6,736	)		(5.5	)%


													Change From
	Year-to-Date Ended												Prior Year
				% of						% of
	July 3, 2005			Revenues			June 27, 2004			Revenues			Dollars			Percentage
Wendy’s	$	101,368			8.4	%	$	138,223			11.5	%	$	(36,855	)		(26.7	)%
Hortons		139,131			25.9	%		114,493			25.8	%		24,638			21.5	%
Developing Brands*		(4,615	)		(4.4	)%		(6,749	)		(6.7	)%		2,134			31.6	%

		235,884			12.8	%		245,967			14.1	%		(10,083	)		(4.1	)%
Corporate**		(29,348	)					(28,795	)					(553	)

Total Operating Income	$	206,536			11.2	%	$	217,172			12.5	%	$	(10,636	)		(4.9	)%


*		Developing Brands includes Baja Fresh and Cafe Express.

**		Corporate charges include certain overhead costs which are not allocated to individual segments.

RESULTS OF OPERATIONS

Revenues for the current quarter and year-to-date as compared to the prior year were as follows:


											Change From
	Quarter Ended										Prior Year
REVENUES			% of					% of
(in thousands)	July 3, 2005		Total			June 27, 2004		Total			Dollars			Percentage
Retail sales
Wendy’s	$	537,825		69.8	%	$	542,044		73.2	%	$	(4,219	)		(0.8	)%
Hortons		180,493		23.4	%		147,375		19.9	%		33,118			22.5	%
Developing Brands*		52,190		6.8	%		51,158		6.9	%		1,032			2.0	%

	$	770,508		100.0	%	$	740,577		100.0	%	$	29,931			4.0	%


Franchise revenues
Wendy’s	$	77,312		42.8	%	$	77,850		46.3	%	$	(538	)		(0.7	)%
Hortons		101,002		56.0	%		88,114		52.3	%		12,888			14.6	%
Developing Brands*		2,200		1.2	%		2,361		1.4	%		(161	)		(6.8	)%

	$	180,514		100.0	%	$	168,325		100.0	%	$	12,189			7.2	%


Total revenues
Wendy’s	$	615,137		64.7	%	$	619,894		68.2	%	$	(4,757	)		(0.8	)%
Hortons		281,495		29.6	%		235,489		25.9	%		46,006			19.5	%
Developing Brands*		54,390		5.7	%		53,519		5.9	%		871			1.6	%

	$	951,022		100.0	%	$	908,902		100.0	%	$	42,120			4.6	%


											Change From
	Year-to-Date Ended										Prior Year
			% of					% of
	July 3, 2005		Total			June 27, 2004		Total			Dollars			Percentage
Retail sales
Wendy’s	$	1,051,859		70.4	%	$	1,049,497		74.0	%	$	2,362			0.2	%
Hortons		342,637		22.9	%		271,699		19.2	%		70,938			26.1	%
Developing Brands*		100,559		6.7	%		95,993		6.8	%		4,566			4.8	%

	$	1,495,055		100.0	%	$	1,417,189		100.0	%	$	77,866			5.5	%


Franchise revenues
Wendy’s	$	152,144		43.5	%	$	150,253		46.1	%	$	1,891			1.3	%
Hortons		193,747		55.3	%		171,537		52.5	%		22,210			12.9	%
Developing Brands*		4,249		1.2	%		4,676		1.4	%		(427	)		(9.1	)%

	$	350,140		100.0	%	$	326,466		100.0	%	$	23,674			7.3	%


Total revenues
Wendy’s	$	1,204,003		65.2	%	$	1,199,750		68.8	%	$	4,253			0.4	%
Hortons		536,384		29.1	%		443,236		25.4	%		93,148			21.0	%
Developing Brands*		104,808		5.7	%		100,669		5.8	%		4,139			4.1	%

	$	1,845,195		100.0	%	$	1,743,655		100.0	%	$	101,540			5.8	%


*		Developing Brands includes Baja Fresh and Cafe Express.

WENDY’S

Retail Sales

Of the total Wendy’s retail sales, domestic Wendy’s retail sales decreased $8.4 million, or 1.7%, to $471.9 million in the quarter and decreased $6.3 million, or 0.7%, to $927.1 million year-to-date. The domestic retail sales decrease is due to a decrease in average restaurant sales, partially offset by an increase in the number of company operated restaurants open. The following table summarizes the changes in average same-store sales, average number of transactions, average check, selling prices and total restaurants open for domestic company operated Wendy’s restaurants for second quarter and year-to-date 2005 and 2004:


	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	July 3, 2005			June 27, 2004			July 3, 2005			June 27, 2004
Average same-store sales increase (decrease)		(4.6	)%		5.9	%		(3.4	)%		7.5	%
Increase (decrease) in average number of transactions		(6.2	)%		2.1	%		(5.1	)%		3.8	%
Increase in average check		1.7	%		3.8	%		1.7	%		3.6	%
Increase in selling prices		2.6	%		0.6	%		2.0	%		0.6	%
Total domestic company operated restaurants		1,340			1,288			1,340			1,288

Of Wendy’s total retail sales, Canadian Wendy’s retail sales were $50.8 million in the quarter, an increase of $4.0 million, or 8.6%, and $94.9 million, an increase of $7.5 million, or 8.5%, year-to-date. Virtually all of the increase in the quarter and year-to-date compared to 2004 was due to strengthening of the Canadian dollar. The number of Canadian Wendy’s company operated stores increased 6.0% from 2004, offset by a 4.6% decline in the quarter and 3.7% decline year-to-date in average same-store sales for company operated restaurants, in local currency. As of July 3, 2005 and June 27, 2004, Canadian company operated restaurants totaled 158 and 149, respectively. Outside of North America, the Company only operates two restaurants.

Franchise Revenues

Of the total Wendy’s franchise revenues, domestic Wendy’s franchise revenues decreased $1.1 million, or 1.6%, to $69.9 million in the quarter and increased $.7 million, or 0.5%, to $138.1 million year-to-date. The franchise revenues results were primarily due to a 3.9% and 2.5% decline in franchisee average same-store sales for the quarter and year-to-date, partially offset by a 2.7% increase in the number of domestic franchised restaurants for the quarter and year-to-date. Canadian franchise revenues were higher due primarily to the stronger Canadian dollar.

HORTONS

The significant majority of Hortons operations are in Canada. The strengthening of the Canadian dollar in 2005 versus 2004 increased amounts reported in U.S. dollars from Hortons on average by approximately 9% in the second quarter and 8% year-to-date.

Retail Sales

A stronger Canadian dollar in 2005 accounted for approximately $14 million of the $33.1 million increase in retail sales for the quarter and approximately $25 million of the $70.9 million increase in retail sales year-to-date. The increases in retail sales for the quarter and year-to-date also include additional distribution sales at Hortons Canada of $16.6 million and $23.7 million, respectively, driven by an increase in franchise stores open and increases in average same-store sales. In addition, Hortons U.S. retail sales increased $.7 million for the quarter and $4.8 million year-to-date as a result of acquiring 42 restaurants formerly operated under the Bess Eaton name in the second quarter of 2004.

Hortons’ year-to-date retail sales also includes an additional $17.3 million due to the consolidation of approximately 80 franchisees in the Company’s Consolidated Condensed Statement of Income beginning in the second quarter of 2004, in accordance with Financial Accounting Standards Board (the “FASB”) Interpretation No. (“FIN”) 46R. Although the impact of FIN 46R resulted in the increase or elimination of certain amounts on the Company’s financial statements, there was no net operating income impact.

Franchise Revenues

The increase in Hortons’ franchise revenues over the prior year reflects the strengthening of the Canadian dollar which accounted for approximately $8 million of the $12.9 million increase for the quarter and approximately $14 million of the $22.2 million increase year-to-date. In addition, an increase in the number of franchise restaurants and an increase in Hortons Canada average same-store sales of 5.6% and 5.7% for the quarter and year-to-date, respectively, contributed to the increase in franchise revenues. Excluding the impact of the stronger Canadian dollar, Canadian rental income, generally charged as a percent of sales, from restaurants leased to franchisees and Canadian royalties increased a combined $9.0 million in the quarter and $18.4 million year-to-date. Partially offsetting these improvements, the timing of full-sized traditional franchises sold to franchisees resulted in a $6.0 million and $9.9 million decrease in franchise revenues compared to the prior year quarter and year-to-date, respectively. At July 3, 2005, total Hortons restaurants franchised were 2,656 versus 2,503 at June 27, 2004.

Hortons’ year-to-date 2005 franchise revenues were lower by $4.1 million due to the elimination of franchise revenues from approximately 80 franchisees consolidated into the Company’s Consolidated Condensed Statement of Income, which began in the second quarter of 2004 in accordance with FIN 46R. The elimination represents royalty and rent income which are considered “intercompany” when the franchisees are consolidated. Although the impact of FIN 46R resulted in the increase or elimination of certain amounts on the Company’s financial statements, there was no net operating income impact.

DEVELOPING BRANDS

Developing Brands includes Baja Fresh and Cafe Express. The full results of Cafe Express’ operations have been included in the Company’s Consolidated Financial Statements since February 2004, when a controlling interest in Cafe Express was acquired by the Company. Previously, the Company accounted for its investment in Cafe Express using the equity method. As of July 3, 2005, Cafe Express included 19 company operated restaurants and Baja Fresh included a total of 146 company operated and 157 franchised restaurants.

Retail Sales

The year-to-date increase in Developing Brands retail sales was primarily due to the first quarter 2005 including three months of Cafe Express activity while the prior year included activity for only two months. Also, a higher average number of Baja Fresh company restaurants were open year-to-date 2005 than 2004. Offsetting these increases were average same-store sales decreases in Baja Fresh company operated restaurants.

Franchise Revenues

Baja Fresh comprises all of the Developing Brands franchise revenues as Cafe Express does not have franchised restaurants. The decrease in franchise revenues for both the quarter and year-to-date was caused primarily by a decrease in average same-store sales at franchise restaurants. There were 157 Baja Fresh franchise restaurants at July 3, 2005 compared to 160 at June 27, 2004.

COST OF SALES, COMPANY RESTAURANT OPERATING COSTS, AND OPERATING COSTS


	Quarter Ended										Change From Prior Year
			% of					% of
(in thousands)	July 3, 2005		Total			June 27, 2004		Total			Dollars			Percentage
Cost of sales
Wendy’s	$	340,666		66.8	%	$	329,510		69.3	%	$	11,156			3.4	%
Hortons		137,913		27.0	%		113,387		23.8	%		24,526			21.6	%
Developing Brands*		31,497		6.2	%		32,583		6.9	%		(1,086	)		(3.3	)%

	$	510,076		100.0	%	$	475,480		100.0	%	$	34,596			7.3	%


Company restaurant operating costs
Wendy’s	$	143,230		85.2	%	$	135,876		85.6	%	$	7,354			5.4	%
Hortons		8,639		5.1	%		6,404		4.0	%		2,235			34.9	%
Developing Brands*		16,213		9.7	%		16,444		10.4	%		(231	)		(1.4	)%

	$	168,082		100.0	%	$	158,724		100.0	%	$	9,358			5.9	%


Operating costs
Wendy’s	$	4,927		13.4	%	$	4,847		13.4	%	$	80			1.7	%
Hortons		31,926		86.6	%		31,277		86.6	%		649			2.1	%
Developing Brands*		0		0.0	%		0		0.0	%		0			0.0	%

	$	36,853		100.0	%	$	36,124		100.0	%	$	729			2.0	%


			Year-to-Date Ended								Change From Prior Year
			% of					% of
	July 3, 2005		Total			June 27, 2004		Total			Dollars			Percentage
Cost of sales
Wendy’s	$	669,148		67.4	%	$	644,290		70.2	%	$	24,858			3.9	%
Hortons		262,737		26.5	%		211,976		23.1	%		50,761			23.9	%
Developing Brands*		61,005		6.1	%		61,046		6.7	%		(41	)		(0.1	)%

	$	992,890		100.0	%	$	917,312		100.0	%	$	75,578			82.4	%


Company restaurant operating costs
Wendy’s	$	282,920		85.0	%	$	269,248		86.9	%	$	13,672			5.1	%
Hortons		16,495		5.0	%		9,091		2.9	%		7,404			81.4	%
Developing Brands*		33,438		10.0	%		31,656		10.2	%		1,782			5.6	%

	$	332,853		100.0	%	$	309,995		100.0	%	$	22,858			7.4	%


Operating costs
Wendy’s	$	9,810		13.4	%	$	9,538		13.3	%	$	272			2.9	%
Hortons		63,225		86.6	%		62,160		86.7	%		1,065			1.7	%
Developing Brands*		0		0.0	%		0		0.0	%		0			0.0	%

	$	73,035		100.0	%	$	71,698		100.0	%	$	1,337			1.9	%


*		Developing Brands includes Baja Fresh and Cafe Express.

WENDY’S

Cost of Sales and Restaurant Operating Costs

Wendy’s cost of sales includes food, paper and labor costs for company operated restaurants and the cost of goods sold to franchisees from Wendy’s bun baking facilities. Of the total Wendy’s cost of sales, domestic Wendy’s company operated restaurant cost of sales increased $7.1 million, or 2.4%, to $297.3 million in the quarter and $16.5 million, or 2.9%, to $586.4 million year-to-date. The increases were driven primarily by an increase in the number of company operated restaurants and higher food costs, partially offset by a decrease in average same-store sales at company operated restaurants. Wendy’s domestic cost of sales as a percent of Wendy’s domestic retail sales increased 2.6% in the quarter and 2.2% year-to-date. Domestic food costs, as a percent of domestic retail sales, increased 1.3% in the quarter and 1.2% year-to-date, primarily reflecting an increase in beef prices. Partially offsetting the commodity cost increases was a 2.6% and 2.0% selling price increase for the quarter and year-to-date, respectively. Domestic Wendy’s labor costs, as a percent of sales, increased 1.0% in the quarter and 0.8% year-to-date, primarily reflecting the impact of lower average sales.

Wendy’s company restaurant operating costs include costs necessary to manage and operate restaurants, except cost of sales and depreciation. Of the total Wendy’s company restaurant operating costs, domestic Wendy’s company restaurant operating costs increased $5.4 million, or 4.4%, to $129.1 million in the quarter and $9.8 million, or 4.0%, to $255.3 million year-to-date. The domestic Wendy’s increase was a result of the increase in the number of company operated restaurants open and higher occupancy costs. Wendy’s domestic restaurant operating costs, as a percent of Wendy’s domestic retail sales, increased 1.7 % and 1.2% in the quarter and year-to-date, respectively. The percentage increase in the quarter and year-to-date reflected the decrease in average same-store sales as many costs are essentially fixed. The number of domestic Wendy’s company operated restaurants increased by 52 from prior year to a total of 1,340 at July 3, 2005.

Of Wendy’s total cost of sales, Canadian Wendy’s cost of sales were $33.7 million, an increase of $3.6 million, or 11.9%, in the quarter and $63.9 million, an increase of $6.8 million, or 11.9%, year-to-date. Canadian Wendy’s company restaurant operating costs increased $1.9 million in the quarter and $3.8 million year-to-date. The combined $5.5 million increase in the quarter and $10.6 million year-to-date increase for cost of sales and company restaurant operating costs was primarily due to an approximate $4 million and $7 million impact for the quarter and year-to-date, respectively, from a stronger Canadian dollar. In addition, the increases reflect additional Canadian Wendy’s company operated restaurants, partially offset by a decrease in average same-store sales. Higher beef costs also increased cost of sales. The number of Wendy’s Canada company operated restaurants increased by 9, or 6.0%, from 2004. Canadian Wendy’s average same-store sales for company operated restaurants, in local currency, decreased 4.6% for the quarter and 3.7% year-to-date.

Operating Costs

Wendy’s operating costs include rent expense and other costs related to properties subleased to franchisees and costs related to operating and maintaining Wendy’s bun baking facilities. Total Wendy’s operating costs were comparable to the prior year, with an increase of only $.1 million in the quarter and $.3 million year-to-date.

HORTONS

Cost of Sales

Hortons’ cost of sales includes food, paper and labor costs for company operated restaurants and the cost of dry goods sold to franchisees from Hortons’ distribution warehouses. The strengthening of the Canadian dollar accounted for approximately $11 million of the $24.5 million increase in the quarter and approximately $19 million of the $50.8 million increase year-to-date. Excluding the impact of the stronger Canadian dollar, the Hortons Canadian warehouse cost of sales increased $11.7 million to $120.0 million and $19.9 million to $229.2 million in the quarter and year-to-date, respectively. This increase primarily reflects additional sales to Canadian franchisees due to an increase of 115 franchised units and includes the impact of a change in mix of products sold to franchisees. Also, Hortons U.S. cost of sales were higher as a result of acquiring 42 restaurants formerly operated under the Bess Eaton name in the second quarter of 2004.

The year-to-date increase in cost of sales also includes an additional $9.0 million for costs related to approximately 80 franchisees consolidated in the Company’s Consolidated Condensed Statement of Income beginning in the second

quarter of 2004. Although the impact of FIN 46R resulted in the increase or elimination of certain amounts on the Company’s financial statements, there was no net operating income impact.

Restaurant Operating Costs

The increase in Hortons’ restaurant operating costs over second quarter and year-to-date 2004 was primarily due to increased costs associated with the acquisition of 42 restaurants formerly operated under the Bess Eaton name in the second quarter of 2004. In addition, $3.9 million of the year-to-date increase is related to approximately 80 franchisees consolidated into the Company’s Consolidated Condensed Statement of Income in accordance with FIN 46R beginning in the second quarter 2004.

Operating Costs

Hortons’ operating costs include rent expense related to properties subleased to franchisees, cost of equipment sold to Hortons’ franchisees as part of the initiation of the franchise business, costs to operate and maintain the distribution warehouses and coffee roasting facility, and training and other costs to ensure successful franchise openings. The increase over the prior year includes higher rent expense and the impact of the stronger Canadian dollar, substantially offset by a reduction in equipment sold to franchisees as a result of fewer full-sized traditional franchises sold to franchisees. The higher rent expense reflects growth in the number of properties leased and then subleased to Canadian franchisees as well as higher percentage rent paid due to higher sales. The strengthening of the Canadian dollar also increased operating costs by approximately $2 million and $5 million over prior quarter and year-to-date, respectively. Revenues from the sale of franchises and income from properties subleased to franchisees are included in franchise revenues.

DEVELOPING BRANDS

Cost of Sales and Restaurant Operating Costs

Baja Fresh comprises the significant majority of both the total Developing Brands cost of sales and company restaurant operating costs. The decrease in cost of sales for the quarter primarily relates to better control over food and labor costs at Baja Fresh. For the year-to-date, cost of sales for Developing Brands was even with the prior year and also reflects better control over food and labor costs at Baja Fresh. Company restaurant operating costs for the quarter were even with the prior year, while the year-to-date increase reflected the inclusion of six months of activity for Cafe Express in 2005 versus five months of activity in 2004. Prior to February 2004, Cafe Express was accounted for under the equity method.

CONSOLIDATED

General and Administrative Expenses

Consolidated general and administrative expenses increased $1.4 million, or 2.0%, to $73.2 million for the quarter and $9.5 million, or 6.8%, to $149.1 million year-to-date. The second quarter and year-to-date increases include $2.7 million and $4.6 million, respectively, of incremental compensation expense related to the Company’s restricted stock award program implemented in the second quarter of 2004. Prior to 2004, the Company’s equity based compensation program included only stock option grants which were accounted for under Accounting Principles Board Opinion No. 25 and not recognized as expense. The higher 2005 general and administrative expenses also includes approximately $1 million and $3 million for the quarter and year-to-date, respectively, due to a stronger Canadian dollar. The increases were partly offset by reduced performance-based bonus expense in the second quarter and year-to-date 2005. Wendy’s operating income fell short of targets and therefore, bonus expense was reduced $6.4 million and $8.1 million in the second quarter and year-to-date, respectively. As a percent of revenues, general and administrative expenses compared to prior year were 0.2% lower in the quarter and 0.1% higher year-to-date.

Depreciation of Property and Equipment

Consolidated depreciation of property and equipment increased $5.2 million in the quarter, and $9.0 million year-to-date primarily reflecting additional restaurant development and a stronger Canadian dollar.

Other Income

Consolidated other income, net of other expense, includes amounts that are not directly derived from the Company’s primary businesses. This includes income from equity investments in joint ventures and other minority investments and expenses related to store closures, other asset write-offs and dispositions, employee severance costs and reserves for

international and legal issues. Net consolidated other income increased $2.4 million and $6.2 million over the prior year quarter and year-to-date, respectively. The increases reflected an impairment of the Baja markets in the second quarter of 2004 and lower corporate severance and legal reserves compared to 2004.

Income Taxes

The Company’s effective income tax rate was 33.7% and 34.5% for the quarter and year-to-date compared to the effective rate in 2004 of 36.5%. The lower 2005 effective rate reflected new state tax legislation in the quarter, and in the year-to-date period also reflected Work Opportunity Tax Credit legislation and the geographic mix of the Company’s income. The reduced 2005 rate increased EPS $.025 during the quarter and $.030 year-to-date.

Foreign Currency

The primary currency exposure the Company has is to the Canadian dollar. The results of Wendy’s and Hortons’ Canadian operations are translated into U.S. dollars. In addition, various cross border transactions must be “marked to market” each quarter with the income impact included in other income. The positive impact on second quarter 2005 EPS due to the stronger Canadian dollar was approximately $.035 and $.060 year-to-date when compared to 2004.

COMPREHENSIVE INCOME

Comprehensive income decreased $0.5 million in the quarter and $6.4 million year-to-date. Net income decreased $0.9 million and $2.4 million in the quarter and year-to-date and the impact from translation and other adjustments increased comprehensive income in the current quarter $0.4 million and reduced year-to-date comprehensive income by an additional $4.0 million versus 2004. There was a slight weakening in the Canadian dollar during the second quarter and year-to-date periods of 2005 and 2004. At the end of the second quarter 2005, the Canadian exchange rate was $1.24 versus $1.22 at April 3, 2005 and $1.20 at January 2, 2005. At the end of the second quarter 2004, the Canadian exchange rate was $1.35 versus $1.32 at March 28, 2004 and $1.31 at December 28, 2003.

FINANCIAL POSITION

Overview

The Company generates considerable cash flow each year from net income excluding depreciation and amortization. The main recurring requirement for cash is capital expenditures. In the last five years the Company has generated cash from operating activities in excess of capital expenditure requirements. Acquisition and investment activity can be an important expenditure, but the Company may borrow money to fund major purchases, such as the Company did when it acquired Baja Fresh in 2002. Share repurchases are part of the ongoing financial strategy utilized by the Company, and normally these repurchases come from cash on hand and the cash provided by option exercises. While the Company generated significant cash from option exercises in the current year, longer term, cash provided from option exercises should decrease as the Company replaces stock options with restricted stock. The Company increased its annual dividend payment rate by 12.5% in the first quarter of 2005 and 100% in 2004. In July 2005, the Company announced several strategic initiatives which will impact the Company’s financial position, one of which was to increase the dividend payment rate by an additional 25%, beginning in November 2005. Over the next two to three years the Company anticipates generating significant cash from an initial public offering of 15-18% of Tim Hortons and from various other initiatives to sell real estate and franchise company operated restaurants. See the Management’s Outlook section below for further discussion of these initiatives.

Comparative Cash Flows

Cash flows from operations were $163.4 million year-to-date and $220.1 million for the prior year. The 2005 decrease was due to changes in working capital primarily related to the timing of receipts and disbursements. These timing differences primarily related to accounts payable, accounts receivable and accrued expenses.

Net cash used in investing activities totaled $141.6 million year-to-date 2005 compared to $106.0 million in 2004. The $35.6 million increase in net cash used in 2005 was primarily due to higher cash inflows in first quarter 2004 of $24.7 million due to the maturity of short term investments, $35.8 million due to the 2004 re-franchising of 35 Wendy’s Florida restaurants to franchisees, and an increase in 2005 capital expenditures of $24.8 million. These differences were partially offset by $41.5 million used for the acquisition of 42 Bess Eaton coffee and donut restaurants in 2004 which were converted to Tim Hortons restaurants.

Financing activities provided cash of $17.6 million year-to-date 2005 compared to a cash use of $142.3 million in 2004. The difference of $159.9 million primarily related to higher 2004 repurchases of common shares of $77.5 million compared to 2005, increased 2005 proceeds from employee stock options exercised of $56.2 million and a decrease in net debt payments of $29.4 million. In 2005 the Company repaid $25.0 million of commercial paper borrowings compared to $40.0 million in commercial paper repayments in 2004. The Company also repaid $13.8 million related to debt assumed in connection with the Cafe Express investment in first quarter 2004. Dividend payments increased $3.2 million in 2005. In February 2005, The Board of Directors approved a 12.5% increase in the annual dividend rate from $.48 per share to $.54 per share. Beginning with the November 2005 dividend, the Board of Directors has approved an additional 25% increase.

Liquidity and Capital Resources

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 short-term and long-term cash requirements, including cash for capital expenditures, potential share repurchases, dividends, repayment of debt (including the repayment of the 6.35% Notes due December 15, 2005), future acquisitions of restaurants from franchisees or other corporate purposes. Over the next two to three years the Company anticipates generating significant amounts of cash from the strategic initiatives as discussed in the Management’s Outlook section below.

As of July 3, 2005, the Company had approximately $225 million remaining under its share repurchase program. Generally, the Company’s objective in its share repurchase program is to offset the dilution impact of the Company’s equity compensation program. Since 1998 and through the end of 2004, the Company has repurchased 40.4 million common and other shares exchangeable into common shares for approximately $1 billion. There have been no share repurchases in 2005. On July 29, 2005, the Company announced several strategic initiatives, one of which was the Board of Directors’ authorization of an additional $1 billion for share repurchases. See the Management’s Outlook section below for further discussion of these initiatives.

The Company has filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”) to issue up to $500 million of securities. No securities under this filing have been issued. The Company also has a $200 million revolving credit facility. The revolving credit facility contains various covenants which, among other things, require the maintenance of certain ratios, including indebtedness to total capitalization and a fixed charge coverage ratio and limits on the amount of assets that can be sold and liens that can be placed on the Company’s assets. The Company’s Senior Notes and debentures also have limits on liens that can be placed on the Company’s assets and limits on sale leaseback transactions. At July 3, 2005, the Company was in compliance with its covenants under the revolving credit facility and the limits of its Senior Notes and debentures, and no amounts under the revolving credit facility were outstanding. The Company also has the ability to borrow cash under its commercial paper program and had approximately $25 million outstanding at January 2, 2005, all of which was repaid in the first quarter of 2005.

The Company’s $100 million 6.35% Notes are due December 15, 2005, after which there are no significant maturities until 2011. The Company intends to repay the 6.35% Notes due December 15, 2005 using existing cash and current year cash flows, and believes it will be able to pay or refinance future term debt obligations based on its strong financial condition and sources of cash described in the preceding paragraphs.

Standard & Poor’s rates the Company’s senior unsecured debt BBB+. In the second quarter of 2005, Moody’s reduced the Company’s debt rating to Baa2 from Baa1. It is possible that both Standard & Poor’s and Moody’s could further review the Company’s debt ratings due to the strategic initiatives as discussed in the Management’s Outlook section below. The Company is committed to a strong capital structure and financial profile, and intends to maintain an investment grade rating. If additional funds are needed for mergers, acquisitions or other strategic investments, the Company believes it could borrow additional cash and still maintain its investment grade rating. In the event the Company’s rating declines, the Company may incur an increase in borrowing costs. If the decline in the rating is significant, it is possible that the Company would not be able to borrow on acceptable terms. Factors that could be significant to the determination of the Company’s credit ratings include sales and cost trends, the Company’s cash position, cash flow, capital expenditures and stability of earnings.

MANAGEMENT’S OUTLOOK

New Strategic Initiatives

In July 2005, the Company announced comprehensive strategic initiatives intended to improve the performance of its Wendy’s business and to enhance value for its shareholders. These initiatives include the following:

Selling 15-18% of Hortons in an initial public offering (“IPO”)

In order to improve shareholder returns, the Company’s Board of Directors approved a plan to sell 15-18% of Hortons in a tax-free IPO projected to be completed by the end of the first quarter of 2006. The Company would retain the remaining 82-85% of the Hortons business. The planned IPO preserves the ability to complete a tax-free spin-off of Hortons to Wendy’s shareholders if the Board decides to pursue such an initiative in the future. Factors leading to the decision to pursue a Hortons IPO include significant unit growth and average same-store sales improvements of more than 7% per year since 2000, Hortons’ improved ability to internally fund its growth, Hortons’ success with several vertical integration initiatives including its par-baking initiative with its joint venture partner and improved performance of the Hortons U.S. operations. The Company plans to use the cash generated from the IPO primarily to repurchase common shares of its stock.

Actions focused on improving financial performance of Wendy’s

The Company completed a thorough review of its Wendy’s business and plans to maximize profits and returns with a number of initiatives to be implemented over the next several years, including:

	–		Rebalancing the mix of U.S. company operated and franchised stores by pursuing the sale of certain stores to franchisees that are primarily in areas where it is not efficient for the Company to operate. Through these sales, the Company plans to lower the mix of U.S. company operated stores over the next two to three years from 22% to a range of 15-18%.

	–		Closing 40 to 60 underperforming U.S. company operated restaurants that are currently negatively impacting profits and returns.

	–		Pursuing the sale of approximately 217 owned sites that are currently leased to franchisees.

	–		Slowing new company store development, which has averaged 71 units over the past four years, to a range of 30 to 40 beginning in 2006. The Company is adjusting its development plan due to rising real estate and building costs and margin pressure and to focus on improving restaurant level economics.

	–		Rebalancing the mix of stores in Canada by closing certain underperforming stores, re-franchising stores in certain provinces and limiting development to the most profitable areas.

Management expects the above facilities actions to be neutral to slightly positive to earnings, while improving returns on assets and invested capital. Slowing new company store development is expected to reduce annual capital expenditures $50 to $60 million.

Authorization of additional $1 billion for share repurchase and a 25% increase in the Company’s annual dividend rate

The amount of cash generated from the Hortons IPO and the other strategic initiatives described above will depend on market and business conditions. Based on the Company’s strategic initiatives and cash flow projections, the Board of Directors authorized an additional $1 billion for share repurchases. As of July 29, 2005, the total authorization for share repurchases was $1.225 billion. The Company has repurchased 40.4 million common shares for approximately $1 billion since 1998, although there have been no repurchases in 2005. The Board of Directors also authorized a 25% increase in the Company’s annual dividend payment rate per share from $.54 to $.68, beginning with the dividend payment date scheduled for November 21, 2005. This increase is in addition to a 12.5% increase authorized by the Board in the first quarter of 2005. Going forward, the Company intends to target a dividend payout ratio in the range of 23%-27% of earnings, which is an increase from the current range of 18% to 22%.

Company will repay $100 million of debt due December 15, 2005

The Company also announced its intention to pay off the $100 million 6.35% Notes that are due December 15, 2005, using existing cash and current year cash flows. The Company had previously discussed either repaying or refinancing these notes.

2005 EPS Guidance

As part of the strategic planning process, the Company reviewed its financial outlook and although the Company reduced its 2005 earnings per share growth goal to a range of $2.20 to $2.26 due to continued sales challenges and higher than expected beef costs in the near term, the Company reiterated its long-term annual growth rate of 11% to 13%.

Ongoing Initiatives

In addition to the strategic initiatives discussed above, the Company will continue to focus on 2005 initiatives previously discussed, including new store development and other capital expenditures. The Company currently estimates that because of the strategic initiatives it will open somewhat fewer than the previously announced 510-560 new restaurants in 2005. The total stores to be opened is also subject to the continued ability of the Company and its franchisees to complete permitting and meet other conditions and to comply with other regulatory requirements for the completion of stores and to obtain financing for new restaurant development. The growth rate is expected to be less than 5%, including store closures. The new unit openings will be concentrated in the Wendy’s North America and Hortons Canada markets. Second quarter and year-to-date development of company and franchise stores for 2005 and 2004 is summarized in the chart below:


	Second		Second		Year-to-Date		Year-to-Date
	Quarter 2005		Quarter 2004		2005		2004
Wendy’s		46		57		91		98
Hortons		23		63		46		88
Developing Brands		5		11		14		25

Totals		74		131		151		211

Likewise, because of the strategic initiatives, total capital expenditures for 2005 are expected to be somewhat lower than the previous range of $335 million to $380 million for new restaurant development, warehousing, remodeling, maintenance and technology initiatives. Capital spending in 2005 includes a new distribution and warehousing facility to be completed in 2006 to better serve Hortons Canada distribution needs. The expected investment in the new facility is in excess of $70 million in Canadian dollars, of which approximately 25% was spent in 2004, and it is currently estimated that approximately 60% will be spent in 2005 and 15% in 2006. The 2005 capital expenditures also reflects the installation of double-sided grills in Wendy’s North America restaurants.

The Company’s Developing Brands segment consists of Baja Fresh and Cafe Express. Baja Fresh is in the Mexican segment of fast-casual restaurants and currently represents about 5% of the Company’s revenues. In 2004 and in the first half of 2005, Baja Fresh was not profitable due to declining average same-store sales and cost increases. In 2004 the Company closed and impaired a number of underperforming restaurants and recorded a $190 million goodwill impairment, with a goal of improving performance. Second quarter and year-to-date 2005 operating income improved over 2004 primarily due to the 2004 store closures and a $1.8 million charge in the second quarter 2004 to impair three markets. The Company’s strategy includes strengthening the management team, improving unit-level economics, evolving the concept and positioning future growth. The Company believes the concept has the potential to contribute to earnings long-term. Nevertheless, as with all developing companies, there are challenges to gaining customer acceptance and the industry is extremely competitive. Similar to Baja Fresh, Cafe Express is an evolving concept targeting to improve its unit level economics and position itself for future growth. Currently, Cafe Express is not profitable.

The Hortons U.S. business has operated at a cumulative breakeven the past three years, and same-store sales have grown approximately 9% since 2000. The Company plans to reposition its Hortons U.S. business by accelerating the franchising of Company operated stores and continuing to open new restaurants with franchisees. The Company will also review the U.S. restaurants, including the New England locations acquired in 2004 and converted to Hortons. These units have produced lower than anticipated sales in their first year of operation, which has negatively affected profitability in the U.S. The Company will complete its annual goodwill impairment review in the fourth quarter.

Off-Balance Sheet Arrangements

The Company has no “off-balance sheet” arrangements as of July 3, 2005 as that term is described by the SEC.

MARKET RISK

The Company’s exposure to various market risks remains substantially the same as reported as of January 2, 2005. The Company’s disclosures about market risk are incorporated herein by reference from pages AA-16 through AA-18 of the Company’s 2005 Proxy Statement filed with the SEC on March 31, 2005.

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS


					Increase /					Increase /
	As of		As of		(Decrease)			As of		(Decrease)
	July 3, 2005		April 3, 2005		From Prior Quarter			June 27,2004		From Prior Year
Wendy’s
U.S.
Company		1,340		1,332		8			1,288		52
Franchise		4,652		4,628		24			4,530		122

		5,992		5,960		32			5,818		174


Canada
Company		158		154		4			149		9
Franchise		226		230		(4	)		221		5

		384		384		0			370		14


Other International
Company		5		5		0			5		0
Franchise		346		350		(4	)		342		4

		351		355		(4	)		347		4


Total Wendy’s
Company		1,503		1,491		12			1,442		61
Franchise		5,224		5,208		16			5,093		131

		6,727		6,699		28			6,535		192


Tim Hortons
U.S.
Company		67		67		0			69		(2	)
Franchise		197		193		4			159		38

		264		260		4			228		36


Canada
Company		32		33		(1	)		26		6
Franchise		2,459		2,445		14			2,344		115

		2,491		2,478		13			2,370		121


Total Tim Hortons
Company		99		100		(1	)		95		4
Franchise		2,656		2,638		18			2,503		153

		2,755		2,738		17			2,598		157


Baja Fresh
U.S.
Company		146		146		0			145		1
Franchise		157		154		3			160		(3	)

Total Baja Fresh		303		300		3			305		(2	)


Cafe Express
U.S.
Company		19		19		0			18		1

Total Cafe Express		19		19		0			18		1


Total System
Company		1,767		1,756		11			1,700		67
Franchise		8,037		8,000		37			7,756		281

		9,804		9,756		48			9,456		348

RECENTLY ISSUED ACCOUNTING STANDARDS

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; risk 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; changes in applicable accounting rules; the ability of the Company to successfully complete transactions designed to improve its return on investment; risks associated with the recent announcement to sell 15-18% of Tim Hortons in an initial public offering; or other factors set forth in Exhibit 99 attached hereto.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is incorporated by reference from the section titled “Market Risk” on page 26 of this Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

(a)		The Company, under the supervision, and with the participation, of its management, including its Chief Executive Officer and Chief Financial Officer, performed an evaluation of the Company’s disclosure controls and procedures, as contemplated by Securities Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this report, that such disclosure controls and procedures were effective.

(b)		No change was made in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no repurchases of the Company’s common stock during the quarter ended July 3, 2005. As of July 3, 2005, approximately $225 million remained available under the then-current share repurchase authorization. On July 29, 2005, the Company announced that the Board of Directors had authorized an additional $1 billion for share repurchases. As of July 29, 2005, the total authorization for share repurchases was $1.225 billion.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The information required to be reported for the Company’s Annual Meeting of Shareholders held April 28, 2005 was previously reported by the Company in its quarterly report on Form 10-Q, for the quarter ended April 3, 2005 and is incorporated by reference herein.

ITEM 5. OTHER INFORMATION

In July 2005, the Company revised its insider trading policy to permit directors, officers and other employees (“Insiders”) to establish systematic purchase and sale programs pursuant to Rule 10b5-1 under the Securities and Exchange Act of 1934. The rule permits Insiders to adopt written plans at a time when they are not in possession of material, non-public information that dictate purchase or sale activities in the Company’s stock, including common shares issued in connection with the exercise of employee stock options, at pre-arranged times (e.g., weekly, monthly or quarterly), at pre-arranged prices or pursuant to other pre-arranged criteria, regardless of any subsequent material, non-public information they may possess. Rule 10b5-1 trading plans allow Insiders to change their investment portfolios gradually, to minimize the market effect of stock transactions by spreading them over time, and to avoid concerns about initiating transactions while in possession of material, non-public information. Insiders may have varied reasons in determining to effect transactions in the Company’s common stock, including diversification, liquidity, the purchase of a home, tax and estate planning, payment of college tuition, establishment of a trust or other personal reasons. Rule 10b5-1 trading plans are viewed as being beneficial because they inform the marketplace about the nature of the trading activities by directors and reporting officers, which in the absence of such information, could be mistakenly perceived as reflecting a lack of confidence in the Company or an indication of an impending event involving the Company.

An Insider adopting a trading plan must comply with all of the requirements of Rule 10b5-1, including the requirement that the Insider not possess any material, non-public information regarding the Company at the time of the establishment of the plan. In addition, purchases or sales under a Rule 10b5-1 trading plan may be made no earlier than 30 days after the plan establishment date. No Insiders currently maintain Rule 10b5-1 trading plans. The Company anticipates that one or more of the Insiders may establish Rule 10b5-1 plans at a future date. The Company may, but does not undertake to, report the establishment, modification, termination or other activities under these plans by Insiders. The Company expects, however, that transactions effected pursuant to Rule 10b5-1 trading plans will be publicly disclosed by directors and reporting officers as required by the rules of the Securities and Exchange Commission.

ITEM 6. EXHIBITS

(a)

Index to Exhibits on Page 32.

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: August 11, 2005	/s/ Kerrii B. Anderson
	Kerrii B. Anderson
	Executive Vice President and Chief Financial Officer

WENDY’S INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX TO EXHIBITS


Exhibit
Number	Description	Page No.
10	Sample Indemnification Agreement for officers and employees of Wendy’s International, Inc. and its subsidiaries	Incorporated herein by reference from Exhibit 10 of Form 8-K filed July 12, 2005

31(a)	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	33

31(b)	Rule 13a-14(a)/15d-14(a)	34
	Certification of Chief Financial Officer

32(a)	Section 1350 Certification of Chief Executive Officer	35

32(b)	Section 1350 Certification of Chief Financial Officer	36

99	Safe Harbor Under the Private Securities Litigation Reform Act of 1995	37 — 39

The Company and its subsidiaries are parties to instruments with respect to long-term debt for which securities authorized under each such instrument do not exceed ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. Copies of these instruments will be furnished to the Commission upon request.

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