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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 4, 1995
--------------------
WENDY'S INTERNATIONAL, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 1-8116 31-0785108
- ---------------------------------------------------------------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
4288 West Dublin-Granville Road, Dublin, Ohio 43017
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 764-3100
------------------------
Not Applicable
- ---------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Page 1 of 33. Exhibit index appears on page 7.
<PAGE> 2
Item 1. Changes in Control of Registrant.
- ------ --------------------------------
Not applicable.
Item 2. Acquisition or Disposition of Assets.
- ------ ------------------------------------
Not applicable.
Item 3. Bankruptcy or Receivership.
- ------ --------------------------
Not applicable.
Item 4. Changes in Registrant's Certifying Accounts.
- ------ -------------------------------------------
Not applicable.
Item 5. Other Events.
- ------ ------------
On October 31, 1995, the Company entered into a Share Purchase
Agreement with 632687 Alberta Ltd. ("Alberta") and Ronald V.
Joyce to acquire all of the outstanding shares of Alberta for
16.45 million shares of a Canadian subsidiary of the Company
exchangeable for 16.45 million common shares of the Company.
The Company also agreed to repay up to Cdn. $125 million of
indebtedness of Alberta and its subsidiaries at or shortly after
the consummation of the transaction. Alberta is the parent
company of the Tim Hortons restaurant chain. The completion of
the transaction is subject to confirmation that the transaction
will be treated as a "pooling of interests" and to the
satisfaction of various other conditions. The transaction is
expected to be completed in late 1995.
Tim Hortons is the second largest restaurant chain in Canada,
and the largest chain that offers coffee and fresh baked goods
such as donuts, muffins, croissants, cookies and fancy
desserts. Other products offered include sandwiches and soup.
Systemwide sales were Cdn. $603.2 million in 1994. As of
October 31, 1995, there were more than 1,100 Tim Hortons
restaurants in Canada, all but approximately 38 of which were
franchisee operated. There are several versions of Tim Hortons
restaurants, including stand-alone units
- 2 -
<PAGE> 3
Item 5. Other Events. (Continued)
- ------ ------------
with and without drive-throughs, double drive-throughs,
satellite units, kiosks and carts. Tim Hortons controls a
majority of the locations and leases them to franchisees. Tim
Hortons also operates six warehouses that sell and distribute
dry goods to all Tim Hortons restaurants. Royalties, rent and
warehouse operations comprise the three principal sources of
income.
Management believes that Tim Hortons is an excellent complement
to Wendy's because consumers perceive Tim Hortons as delivering
outstanding quality. This perception is similar to
consumers' perception of Wendy's quality. In addition, the
majority of Tim Hortons' sales occur at breakfast and afternoon
snack time. In contrast, the majority of Wendy's sales
normally occur at lunch and dinner.
As of December 4, 1995, Wendy's and Tim Hortons had co-developed
32 combination restaurants in Canada and one in the United
States. These restaurants contain separate kitchens for the
Wendy's and the Tim Hortons operations, with a shared dining
room. In the opinion of management, sales results of the
combination restaurants have been excellent.
After the transaction is completed Tim Hortons will operate as
a subsidiary of the Company and will execute its existing
strategies. There are numerous additional opportunities which
will be tested and explored in depth before any decision is
made with respect to the future strategic direction of Tim
Hortons, such as expansion into the U.S. or into other
countries.
Item 6. Resignations of Registrant's Directors.
- ------ --------------------------------------
Not applicable.
- 3 -
<PAGE> 4
Item 7. Financial Statements and Exhibits.
- ------ ---------------------------------
(a) Financial statements of businesses acquired.
Audited Consolidated Financial Statements of
632687 Alberta Ltd.:
Auditors' Report dated October 10, 1995.
Consolidated Balance Sheet as at December 31, 1994.
Consolidated Statement of Income and Retained Earnings
for Year Ended December 31, 1994.
Consolidated Statement of Changes in Financial Position
for Year Ended December 31, 1994.
Notes to Consolidated Financial Statements, December 31,
1994.
Unaudited Consolidated Financial Statements of 632687
Alberta Ltd.:
Consolidated Balance Sheet as at September 30, 1995.
Consolidated Statement of Income and Retained Earnings
Nine Months Ended September 30, 1995.
Consolidated Statement of Changes in Financial Position
Nine Months Ended September 30, 1995.
Notes to Consolidated Financial Statements as at, and for
the Nine Months Ended, September 30, 1995.
(b) Pro forma financial information.
Pro Forma Consolidated Statement of Income for the Year
Ended January 1, 1995 (unaudited).
- 4 -
<PAGE> 5
Item 7. Financial Statements and Exhibits. (Continued)
- ------ ----------------------------------
Pro Forma Consolidated Statement of Income
for the Year to Date Period Ended October 1,
1995 (unaudited).
Pro Forma Consolidated Balance Sheet as of
October 1, 1995 (unaudited).
Notes to the Pro Forma Consolidated Financial
Statements (unaudited).
(c) Exhibits.
23 - Consent of Price Waterhouse
Item 8. Change in Fiscal Year.
- ------- ----------------------
Not applicable.
- 5 -
<PAGE> 6
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 hereunto duly authorized.
WENDY'S INTERNATIONAL, INC.
By:/s/ Gordon F. Teter
-------------------------
Gordon F. Teter
President, Chief Executive Officer
& Chief Operating Officer
Date: December 4, 1995
--------------------------
- 6 -
<PAGE> 7
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO.
---------- ----------- -------
23 Consent of Price Waterhouse 33
- 7 -
<PAGE> 8
October 10, 1995
AUDITORS' REPORT
To the Director of
632687 Alberta Ltd.
We have audited the consolidated balance sheet of 632687 Alberta Ltd. as at
December 31, 1994 and the consolidated statements of income and retained
earnings and changes in financial position for the year then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31,
1994 and the results of its operations and the changes in its financial
position for the year then ended in accordance with generally accepted
accounting principles in Canada.
/s/ Price Waterhouse
Chartered Accountants
8
<PAGE> 9
632687 ALBERTA LTD.
(formerly 1052106 Ontario Limited)
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1994
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Marketable securities (market value - $13,133) $ 13,133
Accounts receivable 22,788
Due from affiliated companies (Note 2) 2,030
Inventories 9,413
Other assets 722
Deferred income taxes 1,187
----------
49,273
Investments (Note 3) 3,567
Capital assets (Note 4) 135,351
---------
$188,191
========
LIABILITIES
Current liabilities
Bank indebtedness (Note 5) $ 28,967
Accounts payable and accrued liabilities 28,957
Notes payable (Note 6) 2,280
Due to affiliated companies (Note 2) 293
Due to director (Note 7) 55,989
---------
116,486
Notes payable (Note 6) 1,492
Due to director (Note 7) 39,600
---------
157,578
---------
SHAREHOLDER'S EQUITY
Share capital (Note 8) 1,249
Retained earnings 29,364
---------
30,613
--------
$188,191
========
</TABLE>
Contingent liabilities and commitments (Notes 9, 10 and 13)
9
<PAGE> 10
632687 ALBERTA LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(in thousands of Canadian dollars)
---------------------------------
<S> <C>
Revenue (Note 12) $257,790
Expenses
Operating expenses (Note 12) 205,242
Management profit sharing 39,600
Amortization 8,861
Interest expense 4,492
Write-down of marketable securities 1,609
Investment income (1,564)
-----------
Loss before income taxes (450)
Provision for (recovery of) income taxes
Current 999
Deferred (767)
------------
Loss for the year (682)
Retained earnings, beginning of year 31,122
Dividends (1,076)
-----------
Retained earnings, end of year $ 29,364
=========
</TABLE>
10
<PAGE> 11
632687 ALBERTA LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED DECEMBER 31, 1994
(in thousands of Canadian dollars)
================================
<S> <C>
Cash provided by (used in)
Operating activities
Loss for the year $ (682)
Items not involving cash
Amortization 8,861
Write-down of marketable securities 1,609
Gain on disposal of capital assets (3,001)
Gain on disposition of marketable securities,
included in investment income (471)
Recovery of deferred income taxes (767)
Income from equity investees, included in
investment income (1,093)
Change in noncash operating working capital (Note 12) (7,679)
-------
(3,223)
-----------
Financing activities
Dividends (1,076)
Notes payable (353)
Due to/from affiliated companies (2,776)
Due to director 30,148
----------
25,943
------
Investing activities
Proceeds on disposal of capital assets 5,917
Purchase of capital assets (42,361)
Investments, net (644)
----------
(37,088)
-------
Decrease in cash resources during the year (14,368)
Bank indebtedness, beginning of year (14,599)
-------
Bank indebtedness, end of year $(28,967)
========
</TABLE>
Cash used in operating activities includes a charge in the amount of $39,600
pre tax for management profit sharing due to director (Note 7).
11
<PAGE> 12
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
________________________________________________________________________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in connection
with certain regulatory filings with the Securities and Exchange Commission
(SEC) of the U.S.A. In compliance with the requirements of the SEC, these
statements do not contain comparative amounts. These statements have been
prepared in accordance with generally accepted accounting principles in
Canada which conform in all material respects with generally accepted
accounting principles in the U.S.A. except for the matters referred to in
Note 14.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiary companies.
INVENTORIES
Inventories are stated at the lower of cost and net realizable value, cost
being determined on a first-in, first-out basis.
MARKETABLE SECURITIES
Marketable securities are recorded at the lower of cost and market in the
aggregate.
INVESTMENTS
The company's investments in joint ventures and partnerships, and
noncontrolled corporations included in other investments, are accounted for
on the equity basis.
CAPITAL ASSETS
Capital assets are recorded at cost less related investment tax credits
("ITCs").
Amortization is provided primarily on the diminishing-balance basis at the
following annual rates:
Buildings 5%
Automotive equipment 30%
Office, warehouse, computer and store equipment 20% to 30%
Aircraft 15%
Leasehold improvements 10 years straight line
REVENUE RECOGNITION
Equipment sales revenue and related expenses are recognized upon the
opening of the franchise locations. Product sales are recognized upon
shipment of goods.
2. DUE TO/FROM AFFILIATED COMPANIES
Amounts due to/from affiliated companies are supported by promissory notes
receivable (payable). These amounts are due on demand and bear interest at
rates varying from Nil to prime plus 1%, payable monthly. During the year,
the company incurred interest charges on these loans of approximately
$51,800 and earned interest income of approximately $52,000.
12
<PAGE> 13
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
==================================================
3. INVESTMENTS
<TABLE>
<CAPTION>
OWNERSHIP
INTEREST
<S> <C> <C>
Timwen Partnership 50.0% $1,349
Mainway Developments Joint Venture 70.0 1,027
Meadowlands of Ancaster Partnership 7.5 75
Beamsville Property Joint Venture 66.7 495
Other investments 621
------
$3,567
======
</TABLE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED
COST AMORTIZATION NET
<S> <C> <C> <C>
Corporate assets
Land $ 3,840 $ - $ 3,840
Buildings 11,080 2,407 8,673
Automotive equipment 5,246 3,518 1,728
Office, warehouse and
computer equipment 5,293 3,057 2,236
Aircraft 5,790 4,291 1,499
-------- ------ -------
31,249 13,273 17,976
-------- ------ -------
Rental properties
Land 36,541 - 36,541
Buildings 51,278 10,854 40,424
Store equipment 19,210 6,288 12,922
Leasehold improvements 36,024 10,229 25,795
Stores under construction 1,693 - 1,693
--------- -------- ----------
144,746 27,371 117,375
--------- -------- ----------
$175,995 $40,644 $135,351
========= ======== ==========
</TABLE>
During the year, the company earned $1,076,000 in ITCs related to qualified
expenditures on rental properties.
13
<PAGE> 14
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
5. BANK INDEBTEDNESS
Bank indebtedness, consisting of available demand bank facilities up to a
maximum of $50,000,000, is unsecured and bears interest at rates varying
from prime to prime less 1/8% or bankers' acceptance rate plus 3/4%.
6. NOTES PAYABLE
The notes payable bear interest at prime and mature annually on January
1, with extensions upon mutual agreement. These notes are payable to a
trust of which the company's director is a trustee. During the year, the
company incurred approximately $208,500 in interest charges on these
notes.
7. DUE TO DIRECTOR
Due to director consists of the following:
Notes payable to a trust of which the company's
director is a beneficiary $29,744
Demand loan payable 22,767
Accrued profit sharing payable 39,600
Interest 3,478
-------
Due to director 95,589
Due January 1, 1996 39,600
-------
Current portion $55,989
=======
The demand loan, and notes payable which mature on January 1, 1995, bear
interest at rates varying from Nil to prime annually. The accrued profit
sharing payable will be converted on April 30, 1995 to a note payable bearing
interest at prime and due on January 1, 1996. During the year, the company paid
$1,854,600 and incurred $3,501,738 in interest charges on these amounts of which
$1,494,000 relates to long-term amounts due.
8. SHARE CAPITAL
Authorized
Unlimited number of common shares
Issued $1,249
1,000,707 common shares =======
14
<PAGE> 15
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
==================================================
9. CONTINGENT LIABILITIES
The company has provided letters of credit and guaranteed bank loans and
mortgages totalling $26,400,000 for which it is contingently liable,
$12,000,000 of which relates to the director of the company. In
addition, the company is contingently, jointly and severally liable with
its Meadowlands partners (Note 3) in respect of certain partnership
guarantees in the amount of $1,700,000. The company is also severally
liable with its Beamsville joint venturer (Note 3) in the amount of
$870,000.
10. COMMITMENTS
The company is committed as lessee of franchise locations under
long-term operating leases. Lease terms are generally for 20 years and
future minimum lease rentals aggregate approximately $22,000,000
annually. Substantially all of these locations are sublet to
franchisees.
11. INCOME TAXES
At November 30, 1994, the company had paid approximately $2,000,000 in
refundable dividend taxes. These amounts are refundable to private
corporations upon payment of taxable dividends at the rate of $1 for
every $3 of taxable dividends paid.
12. SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
REVENUE
<S> <C>
Included in revenue are the following amounts:
Product and equipment sales $ 175,942
Retail sales 12,086
Rental income 49,462
Royalty fees 20,300
----------
$ 257,790
==========
OPERATING EXPENSES
Included in operating expenses are the following amounts:
Product and equipment cost of sales $ 162,638
Retail cost of sales 7,572
Rental expense 19,717
General and administrative 15,315
----------
$ 205,242
==========
</TABLE>
15
<PAGE> 16
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
==================================================
<TABLE>
<CAPTION>
OUTLET SUMMARY
FRANCHISOR-OPERATED FRANCHISEE-OPERATED
OUTLETS OUTLETS
<S> <C> <C>
Beginning of year 24 697
Transfers during the year (8) 8
New stores added during the year 6 216
---- ----
End of year 22 921
==== ====
</TABLE>
INCOME TAX RATE RECONCILIATION
A reconciliation of the statutory Canadian federal income tax rate of 44%
to the company's effective tax rate for the year is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income tax recovery at statutory rate $(198)
Nontaxable receipts (80)
Losses on U.S. operations 107
Nondeductible expenses and other 278
Nondeductible portion of capital loss 125
------
Income tax expense at effective rate $ 232
======
</TABLE>
CHANGE IN NONCASH OPERATING WORKING CAPITAL
<TABLE>
<CAPTION>
<S> <C>
Included in noncash operating working capital are the following amounts:
Accounts receivable $(6,400)
Inventory (3,101)
Other assets (21)
Accounts payable 8,228
Marketable securities (6,385)
--------
$(7,679)
========
</TABLE>
13. SUBSEQUENT EVENTS
On August 8, 1995, the shareholder of the company signed a letter of
intent to dispose of his shares of the company to Wendy's International
Inc., a United States based company. In connection with this sale, the
company has undertaken to complete environmental assessments of its
properties. Although the ultimate amount of reclamation obligations to
be incurred is uncertain, the company estimates such amount, representing
assessment, cleanup and remediation costs, at $16 million, which amount
has been charged to operations in the nine-month period ended September
30, 1995.
On September 14, 1995, a guarantee for $12,000,000 was released (Note 9).
16
<PAGE> 17
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
==================================================
14. DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP
As indicated in Note 1, these consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles (GAAP) in Canada. Differences between Canadian and U.S. GAAP
are described below:
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
<S> <C>
Loss for the year as reported, Canadian GAAP basis $ (682)
Difference
Accounting for marketable securities, net of deferred
income taxes of $531,000 1,078
-----
Net income for the year, U.S. GAAP basis
$ 396
========
</TABLE>
In Canada, marketable securities are recorded at the lower of cost or
market with any unrealized losses being recorded as a charge to income
whereas under U.S. GAAP, in accordance with FAS 115, changes in the
values of marketable securities that are available for sale are recorded
in a separate component of shareholder's equity, as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized gain or loss on securities available for sale
Opening unrealized gain, net of deferred income taxes of $300,000 $ 607
Unrealized loss during the year, net of
recovery of deferred income taxes of $831,000 (1,685)
--------
Unrealized loss on securities available for sale, net of
deferred income taxes of $531,000 $ (1,078)
========
</TABLE>
ADDITIONAL DISCLOSURES
In Canada, the deferred method of accounting for income taxes is required
whereas, in accordance with the U.S. Financial Accounting Standards Board (FAS)
statement 109, the liability method of accounting for income taxes is required
in the U.S.A. Under the liability method, deferred tax assets and liabilities
are recognized for temporary differences between financial statement carrying
amounts and the related tax amounts. At December 31, 1994, there were no
material differences between Canadian and U.S. GAAP in relation to accounting
for income taxes.
17
<PAGE> 18
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
==================================================
As at December 31, 1994, the company's deferred tax assets and
liabilities are summarized as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
<S> <C> <C>
Marketable securities $ 531 $ -
Accounts receivable - 44
Capital assets 751 -
Accounts payable and accrued liabilities 233 -
Losses carried forward 281 -
Investments - 305
Valuation allowance (260) -
------- -------
Deferred tax assets 1,536
Deferred tax liabilities 349 $ 349
------- =======
Net deferred tax assets $ 1,187
=======
</TABLE>
The total provision for current income tax expense of $999,000 is
allocated to continuing operations. The recovery of deferred taxes
of $1,067,000 ($767,000 Canadian GAAP plus $300,000 in respect of
opening unrealized gain on securities available for sale) is
allocated as follows: $831,000 to the unrealized loss on securities
available for sale component of shareholder's equity and $236,000
to continuing operations.
<TABLE>
<CAPTION>
Rental expense includes:
<S> <C>
Base rental $17,588
Contingent rental 2,129
-------
$19,717
=======
</TABLE>
18
<PAGE> 19
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
==================================================
<TABLE>
<CAPTION>
Net interest expense consists of:
<S> <C>
Total interest charges $ 4,735
Interest income (243)
--------
$ 4,492
=======
The weighted average interest rate on bank indebtedness during the
year amounted to 6.23%.
Shareholder's equity (per U.S. GAAP) is summarized as follows:
Share capital $ 1,249
Unrealized loss on securities held for sale (1,078)
Retained earnings 30,442
-------
$ 30,613
=======
Included in accounts receivable are the following amounts:
Trade accounts receivable $ 20,603
Notes receivable 2,185
-------
$ 22,788
=======
Included in accounts receivable are allowances for doubtful
accounts of $4,377,000.
The total unused bank line of credit at December 31, 1994 amounted
to $26,465,000.
Included in accounts payable are the following amounts:
Trade accounts payable $ 26,834
Accrued liabilities 2,123
-------
$ 28,957
=======
</TABLE>
19
<PAGE> 20
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
==================================================
Under U.S. GAAP, net purchases of marketable securities are
considered an investing activity whereas in Canada they are
considered an operating activity. Under U.S. GAAP, increases in
bank indebtedness are considered a financing activity. The impact
on the consolidated statement of changes in financial position is
as follows:
<TABLE>
<S> <C>
Operating activities (per Canadian GAAP) $ (3,223)
Net purchases of marketable securities 6,385
--------
Operating activities (per U.S. GAAP) $ 3,162
========
Financing activities (per Canadian GAAP) $ 25,943
Increase in bank indebtedness 14,368
--------
Financing activities (per U.S. GAAP) $ 40,311
========
Investing activities (per Canadian GAAP) $ (37,088)
Net purchases of marketable securities (6,385)
--------
Investing activities (per U.S. GAAP) $ (43,473)
========
Other information required for U.S. GAAP includes:
Income taxes paid $ 3,667
Interest paid $ 3,072
Interest received $ 243
</TABLE>
Trade accounts receivable subject the company to a concentration of
credit risk with franchisees in the retail franchising sector. This
risk is mitigated by the large number of franchisees comprising the
company's customer base and their geographic dispersion. At
December 31, 1994, no single franchisee accounted for more than 2%
of the company's trade accounts receivable balance.
20
<PAGE> 21
632687 ALBERTA LTD.
(formerly 1052106 Ontario Limited)
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 1995
(in thousands of Canadian dollars)
(unaudited)
==========
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Accounts receivable $ 28,680
Inventories 9,844
Other assets 992
Marketable securities (market value - $12,074) 12,074
Due from affiliated companies 2,370
Deferred income taxes 9,014
----------
62,974
Investments 7,194
Capital assets 158,146
---------
$228,314
========
LIABILITIES
Current liabilities
Bank indebtedness $ 44,601
Accounts payable and accrued liabilities 48,440
Income taxes payable 5,833
Note payable 2,818
Due to affiliated companies 1,018
Due to director 74,970
---------
177,680
Due to director 21,350
---------
199,030
-------
SHAREHOLDER'S EQUITY
Share capital 1,249
Retained earnings 28,035
---------
29,284
----------
$228,314
========
</TABLE>
21
<PAGE> 22
632687 ALBERTA LTD.
(formerly 1052106 Ontario Limited)
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(in thousands of Canadian dollars)
(unaudited)
==========
<TABLE>
<S> <C>
Revenue $233,117
Operating expenses 183,568
Management profit sharing 21,350
Environmental reserve 16,000
Amortization 7,580
Interest expense 6,845
Write-down of marketable securities 1,829
Investment income (2,400)
---------
Loss before income taxes (1,655)
Provision for (recovery of) income taxes
Current 7,501
Deferred (7,827)
---------
Loss for the period (1,329)
Retained earnings, beginning of period 29,364
Dividends -
---------
Retained earnings, end of period $28,035
=========
</TABLE>
22
<PAGE> 23
632687 ALBERTA LTD.
(formerly 1052106 Ontario Limited)
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
NINE MONTHS ENDED SEPTEMBER 30, 1995
(in thousands of Canadian dollars)
(unaudited)
- -----------
<TABLE>
<S> <C>
Cash provided by (used in)
Operating activities
Loss for the period $(1,329)
Items not involving cash
Amortization 7,580
Write-down of marketable securities 1,829
Gain on disposal of capital assets (1,816)
Gain on disposition of marketable securities
included in investment income (934)
Recovery of deferred income taxes (7,827)
Income from equity investees, included in investment income (1,427)
Change in noncash operating working capital 18,887
---------
14,963
---------
Financing activities
Note payable (954)
Due to/from affiliated companies 385
Due to director 731
---
162
---
Investing activities
Proceeds on disposal of capital assets 4,713
Purchase of capital assets (33,272)
Investments, net (2,200)
------
(30,759)
------
Decrease in cash resources during the period (15,634)
Bank indebtedness, beginning of period (28,967)
-------
Bank indebtedness, end of period $(44,601)
========
</TABLE>
Cash provided by operating activities includes a charge in the amount of
$21,350 pretax for management profit sharing to a director.
23
<PAGE> 24
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT, AND FOR THE NINE MONTHS ENDED, SEPTEMBER 30, 1995
(unaudited)
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------
1. MANAGEMENT STATEMENT
In the opinion of management the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring
in nature except for the environmental reserve as discussed in note 2)
necessary to present fairly the financial position of 632687 Alberta Ltd.
(the company) at September 30, 1995 and the results of operations and
cash flows for the year-to-date periods ended September 30, 1995. The
Notes to the Consolidated Financial Statements which are contained in the
Consolidated Financial Statements for the year ended December 31, 1994
should be read in conjunction with these Consolidated Financial
Statements.
2. COMMITMENTS AND CONTINGENCIES
On August 8, 1995, the shareholder of the company signed a letter of
intent to dispose of his shares of the company to Wendy's International
Inc., a United States based company. In connection with this sale, the
company has undertaken to complete environmental assessments of its
properties. Although the ultimate amount of reclamation obligations to
be incurred is uncertain, the company estimates such amount representing
assessment, cleanup and remediation costs, at $16 million, which amount
has been charged to operations in the nine-month period ended September
30, 1995.
On September 14, 1995, a guarantee for $12,000,000 was released.
3. DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP
Differences between Canadian and U.S. GAAP are described below:
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
<S> <C>
Loss for the period as reported, Canadian GAAP basis $(1,329)
Difference
Accounting for marketable securities, net of income taxes of $604,000 1,225
-----
Loss for the period, U.S. GAAP basis $ (104)
========
</TABLE>
In Canada, marketable securities are recorded at the lower of cost or market
with any unrealized losses being recorded as a charge to income whereas
under U.S. GAAP, in accordance with FAS 115, changes in the values of
marketable securities that are available for sale are recorded in a separate
component of shareholder's equity, as follows:
<TABLE>
<S> <C>
Unrealized loss on securities available for sale
Opening unrealized loss, net of deferred income taxes of $531,000 $(1,078)
Unrealized loss during the year, net of
recovery of deferred income taxes of $604,000 (1,225)
-------
Unrealized loss on securities available for sale, net of
deferred income taxes of $1,135,000 $(2,303)
=======
</TABLE>
24
<PAGE> 25
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT, AND FOR THE NINE MONTHS ENDED, SEPTEMBER 30, 1995
(unaudited)
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------
ADDITIONAL DISCLOSURES
In Canada, the deferred method of accounting for income taxes is required
whereas, in accordance with the U.S. Financial Accounting Standards Board (FAS)
statement 109, the liability method of accounting for income taxes is required
in the U.S.A. Under the liability method, deferred tax assets and liabilities
are recognized for temporary differences between financial statement carrying
amounts and the related tax amounts. At September 30, 1995, there were no
material differences between Canadian and U.S. GAAP in relation to accounting
for income taxes.
As at September 30, 1995, the company's deferred tax assets and
liabilities are summarized as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
<S> <C> <C>
Marketable securities $ 1,135 $ -
Accounts receivable - 44
Capital assets 751 -
Accounts payable and accrued liabilities 7,459 -
Losses carried forward 470 -
Investments - 308
Valuation allowance (449) -
------- ------
Deferred tax assets 9,366
Deferred tax liabilities 352 $ 352
------- ======
Net deferred tax assets $9,014
======
</TABLE>
The total provision for current income tax expense of $7,501,000 is
allocated to continuing operations. The recovery of deferred taxes
of $7,827,000 is allocated as follows: $604,000 to the unrealized
loss on securities available for sale component of shareholder's
equity and $7,223,000 to continuing operations.
Rental expense includes:
<TABLE>
<S> <C>
Base rental $15,508
Contingent rental 2,188
-------
$17,696
=======
</TABLE>
25
<PAGE> 26
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT, AND FOR THE NINE MONTHS ENDED, SEPTEMBER 30, 1995
(unaudited)
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
- -------------------------------------------------
<TABLE>
<CAPTION>
Net interest expense consists of:
<S> <C>
Total interest charges $ 7,043
Interest income (199)
-------
$ 6,844
=======
</TABLE>
<TABLE>
<CAPTION>
The weighted average interest rate on bank indebtedness during the year amounted to 8.12%.
<S> <C>
Shareholder's equity (per U.S. GAAP) is summarized as follows:
Share capital $ 1,249
Unrealized loss on securities held for sale (2,303)
Retained earnings 30,338
-------
$29,284
=======
Included in accounts receivable are the following amounts:
Trade accounts receivable $26,026
Notes receivable 2,654
-------
$28,680
=======
</TABLE>
<TABLE>
Included in accounts receivable are allowances for doubtful accounts of $4,409,000.
The total unused bank line of credit at September 30, 1995 amounted to $38,133,000.
<CAPTION>
Included in accounts payable are the following amounts:
<S> <C>
Trade accounts payable $28,375
Accrued liabilities 4,065
Environmental reserve 16,000
-------
$48,440
=======
</TABLE>
26
<PAGE> 27
632687 ALBERTA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT, AND FOR THE NINE MONTHS ENDED, SEPTEMBER 30, 1995
(unaudited)
(in Canadian dollars)
(tabular amounts in thousands of Canadian dollars)
- --------------------------------------------------
Under U.S. GAAP, net purchases of marketable securities are
considered an investing activity whereas in Canada they are
considered an operating activity. Under U.S. GAAP, increases in
bank indebtedness are considered a financing activity. The impact
on the consolidated statement of changes in financial position is
as follows:
<TABLE>
<S> <C>
Operating activities (per Canadian GAAP) $ 14,963
Net purchases of marketable securities (164)
--------
Operating activities (per U.S. GAAP) $ 14,799
========
Financing activities (per Canadian GAAP) $ 162
Increase in bank indebtedness 15,634
--------
Financing activities (per U.S. GAAP) $ 15,796
========
Investing activities (per Canadian GAAP) $(30,759)
Net purchases of marketable securities 164
--------
Investing activities (per U.S. GAAP) $(30,595)
========
Other information required for U.S. GAAP includes:
Income taxes paid $ 380
Interest paid $ 5,276
Interest received $ 199
</TABLE>
Trade accounts receivable subject the company to a concentration of
credit risk with franchisees in the retail franchising sector. This
risk is mitigated by the large number of franchisees comprising the
company's customer base and their geographic dispersion. At
September 30, 1995, no single franchisee accounted for more than 2%
of the company's trade accounts receivable balance.
27
<PAGE> 28
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands except per share data)
YEAR ENDED
JANUARY 1
1995
--------
Wendy's International, Alberta * Pro Forma Combined
Inc. --------- ------------------
----------------------
REVENUES
<S> <C> <C> <C>
Retail sales $1,256,192 $109,532 $1,365,724
Royalties 113,558 13,475 127,033
Other 28,107 66,303 94,410
---------- -------- ----------
1,397,857 189,310 1,587,167
---------- -------- ----------
COSTS AND EXPENSES
Cost of sales 731,691 85,809 817,500
Company restaurant operating
costs 330,480 2,400 332,880
General and administrative
expenses 108,254 90,508(4) 198,762
Depreciation and amortization
of property and equipment 68,070 6,468 74,538
Interest, net 9,891 3,279 13,170
---------- -------- ----------
1,248,386 188,464 1,436,850
---------- -------- ----------
INCOME BEFORE INCOME TAXES 149,471 846 150,317
INCOME TAXES 52,315 557(4) 52,872
---------- -------- ----------
NET INCOME $ 97,156 $ 289 97,445
=========== ========
SUPPLEMENTAL PRO FORMA ADJUSTMENT TO
COMPENSATION EXPENSE (4):
Reduction in general and administrative expense 28,905
Related income taxes (12,718)
----------
16,187
----------
SUPPLEMENTAL PRO FORMA NET INCOME AFTER REDUCTION
IN COMPENSATION EXPENSE $ 113,632
==========
EARNINGS PER SHARE:
PRIMARY $.93 $.81
==== ====
SUPPLEMENTAL PRO FORMA PRIMARY $.94
====
FULLY DILUTED $.91 $.79
==== ====
SUPPLEMENTAL PRO FORMA FULLY DILUTED $.92
====
PRIMARY SHARES 104,238 120,588
=========== ==========
FULLY DILUTED SHARES 112,368 128,718
=========== ==========
<FN>
* Converted to U.S. dollars at 1.37.
See notes to Pro Forma Consolidated Financial Statements.
</TABLE>
28
<PAGE> 29
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands except per share data)
YEAR-TO-DATE ENDED
OCTOBER 1
1995
--------
Wendy's International, Alberta * Pro Forma Combined
Inc.
---------------------- ------- ------------------
<S> <C> <C> <C>
REVENUES
Retail sales $ 992,129 $99,986 $1,092,115
Royalties 91,085 12,154 103,239
Other 31,533 58,525 90,058
--------- ------- ----------
1,114,747 170,665 1,285,412
--------- ------- ----------
COSTS AND EXPENSES
Cost of sales 582,880 80,166 663,046
Company restaurant operating
costs 258,001 1,862 259,863
General and administrative
expenses 84,917 66,465(4) 151,382
Depreciation and amortization
of property and equipment 53,849 5,493 59,342
Interest, net 3,171 4,959 8,130
Environmental reserves - 11,594 11,594
--------- ------- ----------
982,818 170,539 1,153,357
--------- ------- ----------
INCOME BEFORE INCOME TAXES 131,929 126 132,055
INCOME TAXES 39,932 201(4) 40,133
--------- ------- ----------
NET INCOME $ 91,997 $ (75) 91,922
========= =======
SUPPLEMENTAL PRO FORMA ADJUSTMENT TO
COMPENSATION EXPENSE (4):
Reduction in general and
administrative expense 15,471
Related income taxes (6,807)
------
8,664
------
SUPPLEMENTAL PRO FORMA NET INCOME AFTER REDUCTION IN
COMPENSATION EXPENSE $100,586
========
EARNINGS PER SHARE:
PRIMARY $.87 $.76
==== ====
SUPPLEMENTAL PRO FORMA PRIMARY $.83
====
FULLY DILUTED $.84 $.74
==== ====
SUPPLEMENTAL PRO FORMA FULLY DILUTED $.80
====
PRIMARY SHARES 105,254 121,604
========= ==========
FULLY DILUTED SHARES 113,443 129,793
========= ==========
</TABLE>
* Converted to U.S. dollars at 1.38.
See notes to Pro Forma Consolidated Financial Statements.
29
<PAGE> 30
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
OCTOBER 1
1995
---------
Wendy's International, Alberta* Pro Forma Pro Forma
Inc. -------- Adjustments ---------
---------------------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 66,259 $ - $ 66,259
Short-term investments, at market - 9,010 $ (2,113) (1) 6,897
Accounts receivable, net 29,873 19,422 (3,104) (2) 46,191
Notes receivable, net 9,484 3,750 13,234
Deferred income taxes 10,871 6,727 17,598
Inventories and other 21,824 8,087 29,911
---------- -------- ------- ----------
138,311 46,996 (5,217) 180,090
---------- -------- ------- ----------
PROPERTY AND EQUIPMENT, AT COST
Land 242,860 35,117 473 (2) 278,450
Buildings 393,603 56,664 8,930 (2) 459,197
Leasehold improvements 199,671 30,641 230,312
Restaurant equipment 356,051 16,523 372,574
Other equipment 55,936 13,060 68,996
Capital leases 60,543 - 60,543
---------- -------- ------- ----------
1,308,664 152,005 9,403 1,470,072
Accumulated depreciation
and amortization (483,153) (33,986) (517,139)
---------- -------- ------- ----------
825,511 118,019 9,403 952,933
---------- -------- ------- ----------
COST IN EXCESS OF NET ASSETS
ACQUIRED, NET 40,239 - 40,239
DEFERRED INCOME TAXES 21,996 - 21,996
OTHER ASSETS 89,714 5,369 (9,403) (2) 85,680
---------- -------- ------- ----------
$1,115,771 $170,384 $(5,217) $1,280,938
========== ======== ======= ==========
<FN>
* Converted to U.S. dollars at 1.34.
See notes to Pro Forma Consolidated Financial Statements.
</TABLE>
30
<PAGE> 31
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
OCTOBER 1
1995
---------
Wendy's International, Alberta* Pro Forma Pro Forma
Inc. -------- Adjustments ---------
---------------------- -----------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts and drafts payable $ 54,238 $ 33,115 $(3,104) (2) $ 84,249
Accrued expenses:
Salaries and wages 18,025 - 18,025
Taxes 17,145 - 17,145
Insurance 28,620 - 28,620
Other 10,661 6,446 17,107
Income taxes 9,412 4,353 13,765
Current portion of long-term
obligations 7,938 88,683 96,621
---------- ---------- ------- ----------
146,039 132,597 (3,104) 275,532
---------- ---------- ------- ----------
LONG-TERM OBLIGATIONS
Term debt 104,504 15,933 120,437
Capital leases 34,586 - 34,586
---------- ---------- ----------
139,090 15,933 155,023
---------- ---------- ----------
DEFERRED INCOME TAXES 38,754 - 38,754
OTHER LONG-TERM LIABILITIES 15,292 - 15,292
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock,
Authorized: 250,000 shares
Common stock, $.10 stated value
Authorized 200,000,000 shares
Issued: 119,832,000 10,338 1,077 568 (3) 11,983
Capital in excess of stated value 190,638 - (713) (3) 189,925
Retained earnings 577,333 26,081 603,414
Unrealized loss on investments (1,647) (544) (1) (2,191)
Translation adjustments 1,732 (3,657) 145 (3) (1,780)
Pension liability adjustment (3,279) - (3,279)
---------- ---------- ------- ----------
776,762 21,854 (544) 798,072
---------- ---------- ------- ----------
Treasury stock at cost: 129,000
shares (166) - (1,569) (1) (1,735)
---------- ---------- ------- ----------
776,596 21,854 (2,113) 796,337
---------- ---------- ------- ----------
$1,115,771 $ 170,384 $(5,217) $1,280,938
========== ========== ======= ==========
<FN>
* Converted to U.S. dollars at 1.34.
See notes to Pro Forma Consolidated Financial Statements.
</TABLE>
31
<PAGE> 32
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. INTRODUCTION
- ---------------
On October 31, 1995, Wendy's International, Inc. entered into a Share
Purchase Agreement with 632687 Alberta Ltd. (Alberta) and Ronald V.
Joyce to acquire all of the stock of Alberta for 16.45 million shares of
a Canadian subsidiary of the company exchangeable for 16.45 million
common shares of the company. Alberta is the parent company of the Tim
Hortons restaurant chain. The completion of the transaction is subject
to confirmation that the transaction will be treated as a "pooling of
interests" and to the satisfaction of various other conditions. The
transaction is expected to be completed in late 1995.
B. PRO FORMA ADJUSTMENTS
- ------------------------
The following pro forma adjustments are made to reflect the
combination of the companies and the application of
pooling-of-interests accounting.
(1) To reclass 100,000 shares of Wendy's International, Inc. common stock
held by Alberta to treasury stock.
(2) To reflect as a consolidated subsidiary a joint venture of Wendy's
International, Inc. and Alberta accounted for under the equity method
in the separate financial statements of the individual companies.
(3) To record the exchange of 16.45 million shares of Wendy's
International, Inc. for all of the outstanding shares of Alberta.
(4) The reduction in compensation expense is to reflect a contractual
reduction in compensation related to an officer of Alberta. The
duties and responsibilities of the officer will remain largely
unchanged as a result of the transaction, and, accordingly, other
costs will not be incurred to offset this reduction. This
supplemental pro forma adjustment is necessary to provide investors
with information to realistically assess the impact of the
combination.
32
<PAGE> 1
Exhibit 23
PRICE WATERHOUSE
DECEMBER 4, 1995
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (File No. 33-57101) of Wendy's International, Inc. of
our report dated October 10, 1995 relating to the consolidated financial
statements of 632687 Alberta Ltd., which appear in the Current Report on Form
8-K of Wendy's International, Inc. dated December 4, 1995. We also consent to
the reference to our firm as experts in auditing and accounting in such Form
S-3.
Yours Very Truly,
/s/ Price Waterhouse
Chartered Accountants
TORONTO, CANADA
-33-
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