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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1995
( ) TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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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 office) (Zip Code)
Registrant's telephone number, including area code 614-764-3100
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
Common Shares, $.10 stated value New York, Boston, Cincinnati, Midwest,
(120,425,000 shares outstanding Pacific, and Philadelphia
at March 4, 1996) Stock Exchanges
7% Convertible Subordinated
Debentures, due 2006 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 4, 1996 was $1,749,922,560.
Documents incorporated by reference:
Portions of the Definitive Proxy Statement dated March 6, 1996 are
incorporated by reference into Part III.
Exhibit index on pages 33-35.
1 of 68
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PART I
ITEM 1. BUSINESS
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THE COMPANY
Wendy's International, Inc. was incorporated in 1969 under
the laws of the State of Ohio. Wendy's International, Inc.
and its subsidiaries are collectively referred to herein as
the "Company."
The Company is primarily engaged in the business of
operating, developing, and franchising a system of
distinctive quick-service restaurants. At December 31,
1995, there were 4,667 Wendy's restaurants (Wendy's) in
operation in the United States and in 33 other countries
and territories. Of these restaurants, 1,311 were operated
by the Company and 3,356 by the Company's franchisees.
On December 29, 1995, the Company completed its acquisition
of the Tim Hortons (Hortons) restaurant chain. The
acquisition was accounted for as a pooling of interests and
is discussed in Management's Discussion and Analysis of
Financial Condition and Results of Operations (Item 7,
pages 10 through 14 of this Form 10-K). The acquisition is
also reflected in the financial statements and notes
thereto (Item 8, pages 15 through 26 of this Form 10-K). At
December 31, 1995, the Company and its franchisees operated
1,197 Hortons restaurants in Canada and the United States.
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OPERATIONS
Each Wendy's restaurant offers a relatively standard menu
featuring hamburgers and filet of chicken breast
sandwiches, which are prepared to order with the customer's
choice of condiments. Wendy's menu also includes a salad
bar, chili, baked and french fried potatoes, prepared
salads, desserts, soft drinks and other non-alcoholic
beverages, and a child's meal. In addition, the restaurants
sell a variety of promotional products on a limited basis.
Each Hortons unit offers coffee, fresh baked goods such as
donuts, muffins, croissants, cookies, and in some units
sandwiches and soups.
The Company strives to maintain quality and uniformity
throughout all restaurants by publishing detailed
specifications for food products, preparation, and service,
by continual in-service training of employees, and by field
visits from Company supervisors. In the case of
franchisees, field visits are made by Company personnel who
review operations and make recommendations to assist in
compliance with Company specifications.
Generally, the Company does not sell food or supplies to
its Wendy's franchisees. However, the Company has arranged
for volume purchases of many of these products. Under the
purchasing arrangements, independent distributors purchase
certain products directly from approved suppliers, and
store and sell them to local Company and franchised
restaurants. These programs help assure availability of
products and provide quantity discounts, quality control,
and efficient distribution. These advantages are available
both to the Company and to any franchisees who choose to
participate in the distribution program.
Under the Hortons franchise arrangements the franchisee is
required to purchase certain products such as coffee,
sugar, flour, and shortening from a Hortons subsidiary.
These products are distributed from six warehouses located
across Canada. Products are delivered to Hortons
restaurants primarily by Hortons fleet of trucks and
trailers.
The New Bakery Co. of Ohio, Inc., (Bakery) a wholly-owned
subsidiary of the Company, is a producer of buns for
Wendy's restaurants. At December 31, 1995, the Bakery
supplied 713 restaurants operated by the Company and 1,243
restaurants operated by franchisees. At the present time,
the Bakery does not manufacture or sell any other products.
See Note 11 under Item 8 on page 26 of this Form 10-K for
information regarding revenues, income before income taxes
and identifiable assets attributable to the Company's
geographic areas.
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RAW MATERIALS
The Company and its franchisees have not experienced any
material shortages of food, equipment, fixtures, or other
products which are necessary to restaurant operations. The
Company anticipates no such shortages of products and, in
any event, alternate suppliers are available.
2
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TRADEMARKS AND SERVICE MARKS OF THE COMPANY
The Company has registered certain trademarks and service
marks in the United States Patent and Trademark office and
in international jurisdictions, some of which include
"Wendy's", "Wendy", "Old Fashioned Hamburgers", and
"Quality Is Our Recipe". The Company, through its
acquisition of Hortons, has acquired the rights of certain
trademarks and service marks registered in the United
States Patent and Trademark office and the Canadian
Trademark office, some of which include "Tim Hortons,"
"TimBits," and "Your Friend Along the Way." The Company
believes that these and other related marks are of material
importance to the Company's business. Domestic trademarks
and service marks expire at various times from 1995 to
2009, while international trademarks and service marks have
various durations of 5 to 20 years. The Company generally
intends to renew trademarks and service marks which expire.
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SEASONALITY
The Company's business is moderately seasonal. Average
restaurant sales are normally higher during the summer
months than during the winter months.
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WORKING CAPITAL PRACTICES
Cash from operations, cash and short-term investments on
hand, and possible asset dispositions should enable the
Company to meet its financing requirements. In addition,
the Company has available unused lines of credit. It is a
normal practice within the quick-service restaurant
industry to maintain a relatively low current ratio.
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COMPETITION
Each Company and franchised restaurant is in competition
with other food service operations within the same
geographical area. The quick-service restaurant industry is
highly competitive. The Company competes with other
organizations primarily through the quality, variety, and
value perception of food products offered. The number and
location of units, quality and speed of service,
attractiveness of facilities, and effectiveness of
marketing are also important factors. The price charged for
each menu item may vary from market to market depending on
competitive pricing and the local cost structure.
The Company's competitive position at its Wendy's
restaurants is enhanced by its use of fresh ground beef,
its unique and diverse menu, promotional products, its wide
choice of condiments, and the atmosphere and decor of its
restaurants. Hortons is known for the freshness of its wide
variety of baked goods and for its excellent coffee.
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RESEARCH AND DEVELOPMENT
The Company engages in research and development on an
ongoing basis, testing new products and procedures for
possible introduction into the Company's systems. While
research and development operations are considered to be of
prime importance to the Company, amounts expended for these
activities are not deemed material.
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GOVERNMENT REGULATIONS
A number of states have enacted legislation which, together
with rules promulgated by the Federal Trade Commission,
affect companies involved in franchising. Much of the
legislation and rules adopted have been aimed at requiring
detailed disclosure to a prospective franchisee and
periodic registration by the franchisor with state
administrative agencies. Additionally, some states have
enacted, and others have considered, legislation which
governs the termination or non-renewal of a franchise
agreement and other aspects of the franchise relationship.
The United States Congress has also considered legislation
of this nature. The Company has complied with requirements
of this type in all applicable jurisdictions. The Company
cannot predict the effect on its operations, particularly
on its relationship with franchisees, of future enactment
of additional legislation. Various other government
initiatives such as minimum wage rates and taxes can all
have a significant impact on the Company's performance.
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ENVIRONMENT AND ENERGY
Various federal, state, and local regulations have been
adopted which affect the discharge of materials into the
environment or which otherwise relate to the protection of
the environment. The Company does not believe that such
regulations will have a material effect on its capital
expenditures, earnings, or competitive position. The
Company cannot predict the effect of future environmental
legislation or regulations.
3
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The Company's principal sources of energy for its
operations are electricity and natural gas. To date, the
supply of energy available to the Company has been
sufficient to maintain normal operations.
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ACQUISITIONS AND DISPOSITIONS
The Company has from time to time acquired the interests of
and sold Wendy's restaurants to franchisees, and it is
anticipated that the Company may have opportunities for
such transactions in the future. The Company generally
retains a right of first refusal in connection with any
proposed sale of a franchisee's interest. The Company will
continue to sell and acquire Wendy's restaurants in the
future where prudent.
See Notes 6 and 7 under Item 8 on page 24 of this Form 10-K
for further information regarding acquisitions and
dispositions.
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INTERNATIONAL OPERATIONS
Markets in Canada are currently being developed for both
company owned and franchised restaurants. In addition to
the countries and territories listed under Item 2 on page 7
of this Form 10-K, the Company has granted development
rights for Bahrain, Egypt, Morocco, Qatar, Tunisia, and the
Yemen Arab Republic.
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FRANCHISED WENDY'S RESTAURANTS
As of December 31, 1995, the Company's franchisees operated
3,356 Wendy's restaurants in 50 states, the District of
Columbia, and 33 other countries and territories.
The rights and franchises under which most franchised
restaurants in the United States are operated are set forth
in one basic document, the Restaurant Franchise Agreement.
This document gives the franchisee the right to construct,
own, and operate a Wendy's restaurant upon a site accepted
by Wendy's and to use the Wendy's system in connection with
the operation of the restaurant at that site. Since January
1995 the Company has used a revised form of agreement, the
Wendy's Unit Franchise Agreement, for new franchised
restaurants operated in the United States.
Wendy's has in the past franchised under different
agreements on a multi-unit basis; however, now it is
generally the intent of the Company to grant new franchises
both in the United States and foreign countries on a
unit-by-unit basis.
After having submitted to Wendy's the requested application
and financial materials, if initially approved by Wendy's,
an individual becomes an approved applicant upon the
execution of a Preliminary Letter Agreement. This
Preliminary Letter Agreement does not guarantee that the
applicant will be accepted as a Wendy's franchisee but
entitles the applicant to commence a training program,
intended to allow both parties the opportunity to more
carefully assess a long-term franchise relationship. For
existing franchisees who in Wendy's opinion are not in need
of additional training or part of a special program, the
Preliminary Letter Agreement may not be necessary. Upon the
execution of a Preliminary Letter Agreement, the applicant
is required to pay a non-refundable fee of $5,000 to help
defray some of the cost of initial orientation, the
processing of the application and background investigation.
Both the Restaurant Franchise Agreement and the Wendy's
Unit Franchise Agreement require that the franchisee pay a
royalty of 4% of gross receipts from the operation of the
restaurant. Both Agreements also typically require that the
franchisee pay the Company a technical assistance fee. In
the United States, the technical assistance fee required
under newly executed Wendy's Unit Franchise Agreements is
currently $25,000 for each restaurant.
The technical assistance fee is used to defray some of the
cost to the Company in providing technical assistance in
the development of the Wendy's restaurant, initial training
of franchisees or their operator, and in providing other
assistance associated with the opening of the Wendy's
restaurant. In certain limited instances (like the
regranting of franchise rights or the relocation of an
existing restaurant) Wendy's may charge a reduced technical
assistance fee or may waive the technical assistance fee.
The Company does not select or employ personnel on behalf
of the franchisees.
The rights and franchises currently offered for
international development are contained in the Franchise
Agreement which is issued upon approval of a restaurant
site. The Franchise Agreement is for an initial term of 20
years or the term of the lease for the restaurant site,
whichever is shorter. The Franchise Agreement licenses the
franchisee to use the Company's trademarks and know-how in
the operation of the restaurant. Upon execution of the
Franchise Agreement, the franchisee is required to pay a
technical assistance fee. Generally, the technical
assistance fee is $30,000 for each restaurant. Currently,
the franchisee is required to pay a monthly net continuing
fee based on the gross sales of the restaurant, usually 4%.
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See Schedule II on page 32 of this Form 10-K, and
Management's Discussion and Analysis of Financial Condition
and Results of Operations under Item 7 on pages 10 through
14 and Note 8 under Item 8 on page 24 of this Form 10-K for
further information regarding reserves, commitments, and
contingencies involving franchisees.
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FRANCHISED HORTONS UNITS
Hortons franchisees operate under several types of license
agreements. The standard term of a license agreement is ten
years plus one renewal period of ten years less one day.
The renewal is at the option of the franchisee.
For franchisees who lease land, building and/or equipment
from Hortons, the license agreement generally requires
between 3% and 6% of gross weekly sales for royalties plus
a base monthly rental payment and an incremental variable
rental payment based on gross monthly sales. For
franchisees who do not lease land, building and/or
equipment from Hortons, the license agreement generally
requires 4.5% to 7.5% of gross weekly sales for royalties.
Hortons generally retains the right to re-acquire a
franchisee's interest in a restaurant in the event the
franchisee wants to sell its interest during the first five
years of the term of the license agreement. After such
period, Hortons generally retains a right of first refusal
with regard to any proposed transfer of the franchisee's
interest in the restaurant, together with the right to
consent to a transfer to a new franchisee.
Franchisees are also required to contribute 4% of gross
monthly sales to the Hortons advertising fund, known as the
Ad Fund.
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ADVERTISING AND PROMOTIONS
Products sold by Wendy's restaurants are advertised through
television, radio, newspapers, and a variety of promotional
campaigns. The Company attempts to keep franchisees
informed of current advertising techniques and effective
promotions. The Company's advertising materials are also
made available to the franchisees. Both the Restaurant
Franchise Agreement and the Wendy's Unit Franchise
Agreement provide that franchisees will spend 4% of their
gross receipts for advertising and promotions. The
Restaurant Franchise Agreement specifies 2% is to be spent
on local and regional advertising (including in many cases
cooperative advertising), and 2% is the required
contribution to The Wendy's National Advertising Program,
Inc. (WNAP). Under the Restaurant Franchise Agreement the
Company has the ability to increase the required local and
regional expenditures to 3%, for a total of 5% for
advertising and promotions, subject to certain conditions.
The Company has the ability under the Wendy's Unit
Franchise Agreement to specify and to change the 4%
advertising and promotions allocation subject to certain
restrictions. Currently, the Company requires franchisees
under the Wendy's Unit Franchise Agreement to allocate 2%
to local and regional advertising and promotions and 2% to
national advertising and promotions. In addition, under
that Agreement the Company may increase the total
advertising and promotions contribution to 5% for
franchisees operating restaurants pursuant to that
Agreement, if such increase is approved by an affirmative
vote representing 75% or more of all domestic Wendy's
restaurants.
In 1995, 1994, and 1993 a systemwide vote was taken on a
proposal to increase national advertising during the
following calendar year. This voluntary program reallocates
the 4% required minimum advertising expenditures such that
21/2% goes toward national advertising and 11/2% toward
local and regional advertising during 1996, 1995, and 1994.
These minimum requirements will revert back to 2% for
national and 2% for local and regional advertising unless a
new systemwide vote in 1996 approves reallocation for 1997.
During 1995, 1994, and 1993, approximately $105 million,
$101 million, and $86 million, respectively, were spent on
advertising, promotions, and related expenses by WNAP. WNAP
is a not-for-profit corporation which was established to
collect and administer the funds contributed by the Company
and all domestic franchisees. WNAP's Trustees are comprised
of representatives of both the Company and its franchisees.
Products sold by Hortons restaurants are advertised through
television, radio, newspapers and a variety of promotional
campaigns. Hortons provides franchisees with suggested
advertising and promotional materials. Hortons currently
collects 4% of monthly gross sales from franchisees as a
contribution to the Ad Fund. During 1995, 1994 and 1993,
approximately $21 million, $17 million and $15 million,
respectively, was spent by the Ad Fund.
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PERSONNEL
As of December 31, 1995, the Company employed approximately
47,000 people, of whom approximately 46,000 were employed
in company-operated restaurants. The total number of
full-time employees at that date was approximately 8,000.
The Company believes that its employee relations are
satisfactory.
5
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ITEM 2. PROPERTIES
Wendy's restaurants are built to Company specifications as
to exterior style and interior decor. The majority are
free-standing, one-story brick buildings, substantially
uniform in design and appearance, constructed on sites of
approximately 40,000 square feet, with parking for
approximately 45 cars. Some restaurants, located in
downtown areas or shopping malls, are of a store-front type
and vary according to available locations but generally
retain the standard sign and interior decor. The typical
new free-standing restaurant contains about 2,800 square
feet and has a preparation area, a dining room capacity for
90 persons, and a double pick-up window for drive-through
service. The restaurants are generally located in urban or
heavily populated suburban areas, and their success depends
upon serving a large number of customers. Wendy's also
operates restaurants in special site locations such as
Wal-Mart stores, travel centers, gas station/convenience
stores, military bases, arenas, malls, hospitals, airports,
and college campuses.
The standard Hortons restaurant currently being built
consists of a free-standing producing unit totaling 3,000
square feet. Each of these includes a bakery capable of
supplying fresh baked goods every 12 hours to several
satellite Hortons within a defined area. In addition,
Hortons has a prefabricated, 500 square foot,
drive-through-only unit. Hortons also has kiosks,
full-service carts, and mobile carts which are typically
located in high traffic areas.
There are also Wendy's and Hortons concepts combined in one
free-standing unit which averages about 5,000 square feet.
They share a common dining room seating 104, but each has
its own food preparation and storage areas and most have a
pick-up window for each restaurant.
At December 31, 1995, the Company and its franchisees
operated 4,667 Wendy's restaurants in the locations listed
under Item 2 on page 7 of this Form 10-K. Of the 1,311
company-operated Wendy's restaurants, the Company owned the
land and building for 625 restaurants, owned the building
and held long-term land leases for 266 restaurants, and
held leases covering land and building for 420 restaurants.
The Company's land and building leases are generally
written for terms of 20 to 25 years with one or more
five-year renewal options. In certain lease agreements the
Company has the option to purchase the real estate. Certain
leases require the payment of additional rent equal to a
percentage (ranging from 1% to 10%) of annual sales in
excess of specified amounts. Some of the real estate owned
by the Company is subject to mortgages which mature over
various terms. Surplus land and buildings are generally
held for sale. At December 31, 1995, there were 1,197
Hortons units, of which all but 38 were franchise operated.
Of the 1,159 franchised units, 192 were owned by Hortons
and leased to franchisees, 623 were leased by Hortons and
in turn sub-leased to a franchisee, with the remainder
either owned or leased directly by the franchise owner.
The Company also owned land and buildings or subleased for
404 Wendy's restaurant locations and 815 Hortons locations
which were in turn leased to its franchisees.
The Company owns approximately 37.6 acres of land in
Dublin, Ohio on which are located the Company's corporate
headquarters. This complex contains approximately 200,000
square feet of office space.
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<TABLE>
<CAPTION>
DOMESTIC WENDY'S
STATE COMPANY FRANCHISE
<S> <C> <C>
Alabama - 84
Alaska - 8
Arizona 50 15
Arkansas - 41
California 14 177
Colorado 38 55
Connecticut - 20
Delaware 11 7
Florida 149 155
Georgia 56 145
Idaho - 17
Illinois 86 115
Indiana - 133
Iowa - 34
Kansas 14 44
Kentucky 3 90
Louisiana 39 22
Maine 1 9
Maryland - 90
Massachusetts 32 26
Michigan 41 145
Minnesota 26 21
Mississippi 21 41
Missouri 16 63
Montana - 13
Nebraska - 30
Nevada - 36
New Hampshire 2 18
New Jersey 2 66
New Mexico - 22
New York - 145
North Carolina 54 119
North Dakota - 6
Ohio 194 170
Oklahoma - 40
Oregon 19 32
Pennsylvania 109 86
Rhode Island - 6
South Carolina - 78
South Dakota - 9
Tennessee - 148
Texas 102 164
Utah - 33
Vermont - 3
Virginia 56 101
Washington 43 14
West Virginia 22 35
Wisconsin - 49
Wyoming - 11
District of Columbia - 6
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1,200 2,997
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</TABLE>
INTERNATIONAL WENDY'S
<TABLE>
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COUNTRY/TERRITORY COMPANY FRANCHISE
<S> <C> <C>
Aruba - 3
Bahamas - 4
Canada 105 98
Cayman Islands - 1
China - 1
Dominican Republic - 4
El Salvador - 5
Greece - 8
Guam - 2
Guatemala - 3
Hawaii - 5
Honduras - 5
Hong Kong - 7
Hungary - 1
Iceland - 1
Indonesia - 18
Italy - 2
Japan - 54
Kuwait - 3
Mexico - 8
New Zealand - 6
Oman - 1
Philippines - 31
Poland - 1
Puerto Rico - 19
Saudi Arabia - 14
South Korea - 26
Switzerland - 3
Taiwan - 12
Thailand - 3
Turkey - 4
United Arab Emirates - 2
United Kingdom 6 1
Virgin Islands - 3
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111 359
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</TABLE>
TIM HORTONS
<TABLE>
<CAPTION>
DOMESTIC CANADA
FRANCHISE COMPANY FRANCHISE
<S> <C> <C>
17 38 1,142
-- -- -----
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
On May 26, 1989, Jonathan Raven and Eli Shapiro,
individually and purportedly on behalf of a putative class
of other persons similarly situated, filed a complaint
against the Company and others in the U.S. District Court
for the Northern District of Illinois, Eastern Division.
The complaint, insofar as it pertained to the Company,
alleged violations of Section 10(b) of the Securities
Exchange Act of 1934, Rule 10b-5 of the Securities and
Exchange Commission promulgated thereunder, and the common
law. The plaintiffs claimed to be investors in a limited
partnership which was a franchisee of the Company. The
partnership was formed in 1985 to purchase from the Company
restaurants located in Washington and Oregon. The purchase
was funded in part by the offering of limited partnership
interests and revenue sensitive subordinated notes to the
investors. The offering was concluded in 1986. The
complaint sought compensatory damages in the amount of $18
million, attorneys fees and rescission of the purchases of
limited partnership interests and revenue sensitive
subordinated notes sold in the offering. The Company
obtained releases from 82% of the potential plaintiffs. The
remaining potential plaintiffs have not been certified as a
class. The case was transferred upon motion of the
defendants to the U.S. District Court in Atlanta, Georgia.
The defendants' motion to dismiss the federal claims was
granted with prejudice on October 9, 1991. The defendants'
motion to dismiss the state claim was granted without
prejudice on the same day. The plaintiffs filed a motion
for reinstatement of their Section 10(b), Rule 10b-5 and
common law claims on February 14, 1992. That motion was
granted on September 24, 1992. The defendants subsequently
filed a motion to permit an interlocutory appeal and
renewed their motion to dismiss the Section 10(b) and Rule
10b-5 claims for reasons the court had not yet considered.
The defendants' motion to file an interlocutory appeal was
granted. In an opinion dated January 22, 1996, the 11th
Circuit Court of Appeals vacated the reinstatement of the
complaint. The plaintiffs have not filed an appeal or
otherwise sought reconsideration. This case was last
referenced in the Company's Form 10-K for the year ended
January 1, 1995.
On April 12, 1994, Richard Johnson and 12 other
individuals, individually and purportedly on behalf of a
putative class of other persons similarly situated, filed a
complaint against the Company and others in the U.S.
District Court for the Northern District of Georgia. The
complaint alleged that the Company had engaged in racial
discrimination in violation of Title VII and 42 U.S.C.
Section 1981. The plaintiffs further alleged that the
Company conspired with certain of its franchisees to
deprive the plaintiffs and employees of such franchisees of
their rights under 42 U.S.C. Section 1985. The plaintiffs
sought judgment in an undetermined amount against the
Company for punitive and compensatory damages (including
benefits) as well as injunctive and equitable relief,
including reinstatement of the plaintiffs to their former
positions. The complaint was dismissed with prejudice
pursuant to a settlement agreement between the parties. The
final order of settlement was entered by the District Court
on January 2, 1996. The settlement was not material to the
financial condition of the Company. This case was last
referenced in the Company's Form 10-K for the year ended
January 1, 1995.
On April 29, 1994, Mercy Health Services filed a complaint
against the Company in the U.S. District Court for the
Southern District of New York. The plaintiff, a shareholder
of the Company, alleges that the Company wrongfully refused
to include a shareholder resolution in the Company's notice
of proxy and proxy statement for the May 2, 1994 Annual
Meeting of Shareholders. The shareholder resolution
requested the Board of Directors to adopt a policy making
all company restaurants smoke-free by 1995, and requested
that the policy include stipulations that, beginning in
1995, all new franchisees' facilities be smoke-free and all
renewals of franchise agreements include smoke-free
facilities in the agreements. The plaintiff seeks a
declaration that the Company's failure to include the
shareholder resolution in the proxy statement was unlawful,
an injunction which would enjoin the Company from excluding
the plaintiff's shareholder resolution from any future
proxy statements when the resolution otherwise qualifies
for inclusion under the applicable rules of the Securities
and Exchange Commission, and an award for costs, expenses
and attorneys fees. The Company filed a motion for judgment
on the pleadings and the plaintiff filed a cross-motion for
summary judgment. Both motions were denied by the District
Court on November 29, 1994. Discovery is underway in this
case. The Company intends to defend the action vigorously,
and believes that it has meritorious defenses to this
action and that an unfavorable judgment would not have a
material impact upon the financial condition of the
Company. This case was last referenced in the Company's
Form 10-K for the year ended January 1, 1995.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Wendy's shares are traded on the New York, Boston,
Cincinnati, Midwest, Pacific, and Philadelphia Stock
Exchanges (trading symbol: WEN). Options in Wendy's shares
are traded on the Pacific Stock Exchange.
MARKET PRICE OF COMMON STOCK
<TABLE>
<CAPTION>
1995 High Low Close
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<S> <C> <C> <C> <C>
First Quarter $17 5/8 $14 3/8 $16 3/8
Second Quarter 18 7/8 16 17 7/8
Third Quarter 22 3/4 17 21 1/8
Fourth Quarter 22 1/4 19 1/4 21 1/4
</TABLE>
<TABLE>
<CAPTION>
1994 High Low Close
--------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $18 3/8 $16 1/4 $17 1/8
Second Quarter 18 1/2 15 1/2 15 3/4
Third Quarter 16 1/2 14 14 1/2
Fourth Quarter 15 3/4 13 1/4 14 3/8
</TABLE>
At March 4, 1996, the Company had approximately 64,000
shareholders of record.
DIVIDENDS DECLARED PER SHARE
<TABLE>
<CAPTION>
Quarter 1995 1994
----------------------------------------
<S> <C> <C> <C>
First $.06 $.06
Second .06 .06
Third .06 .06
Fourth .06 .06
</TABLE>
- --------------------------------------------------------------------------------
Item 6. Selected Financial Data
The following has been restated to reflect the acquisition
of Tim Hortons treated as a pooling of interests.
<TABLE>
<CAPTION>
1995 1994 1993 1992* 1991
OPERATIONS (In millions)
<S> <C> <C> <C> <C> <C>
Systemwide sales - Wendy's $4,494.8 4,227.2 3,924.1 3,612.9 3,223.6
Systemwide sales - Hortons $ 541.3 440.4 377.4 340.5 308.1
Retail sales $1,461.9 1,365.7 1,288.5 1,207.0 1,038.6
Revenues $1,746.3 1,591.6 1,482.4 1,381.0 1,186.6
Gross profit** $ 444.6 388.7 343.2 309.7 258.9
Income before income taxes $ 165.1 150.3 118.2 103.8 78.9
Net income $ 110.1 97.4 80.5 66.5 51.9
Capital expenditures $ 217.5 172.4 137.2 139.5 86.3
FINANCIAL POSITION (In millions)
Total assets $1,509.2 1,214.8 1,100.3 1,013.4 965.9
Property and equipment, net $1,006.7 865.2 786.7 745.3 682.2
Long-term obligations $ 337.2 144.9 200.6 233.7 239.6
Shareholders' equity $ 818.8 701.9 623.8 552.9 504.2
PER SHARE DATA
Net income - fully diluted $ .88 .79 .67 .56 .45
Dividends $ .24 .24 .24 .24 .24
Market price at year-end $ 21.25 14.38 17.38 12.63 9.25
</TABLE>
* Fiscal year 1992 includes 53 weeks.
** Total revenues less cost of sales, company restaurant
operating costs, and operating costs.
9
<PAGE> 10
- --------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1995 Overview
1995 brought major changes to the composition of Wendy's
International, Inc. (company). The company acquired all the
stock of the parent of the Tim Hortons restaurant chain
(Hortons) on December 29, 1995 (the transaction). (See Note
6 to Consolidated Financial Statements). Hortons is the
second largest restaurant chain in Canada and the largest
chain that features coffee and fresh baked goods such as
donuts, muffins, croissants, cookies, and fancy desserts.
This transaction was accounted for as a pooling of
interests and therefore all financial statements were
restated to reflect the activity of both Wendy's and
Hortons. As a result, the income statement presentation has
been modified to accommodate the combined activities of
both companies.
The net income for prior years has been restated to give
effect to the transaction. The following chart shows
restated net income and the impact of some related special
charges on 1995's net income. The equivalent fully diluted
earnings per share (EPS) is also included.
<TABLE>
<CAPTION>
1995 EPS 1994 EPS 1993 EPS
<S> <C> <C> <C> <C> <C> <C>
Net income
as reported $110,070 $ .88 $ 97,432 $.79 $80,517 $.67
Profit sharing 16,299 16,042 12,907
-------- -------- -------
Pro forma
net income 126,369 $1.01 113,474 $.92 93,424 $.77
Special charges 15,365
-------- -------- -------
Net income
before special
charges $141,734 $1.12 $113,474 $.92 $93,424 $.77
-------- -------- -------
</TABLE>
The profit sharing item (the pro forma adjustment on the
Consolidated Statement of Income) reflects the add back of
compensation expense, net of taxes, to the sole shareholder
of Hortons. This expense, included as part of special
charges on the Consolidated Statement of Income, occurred
while Hortons was a private company and no similar expense
applies in 1996 and future years. In addition, in 1995
there were significant special charges including legal,
accounting, and professional fees related to the Hortons
transaction, reserves provided for various contingencies,
and costs related to organizing Canadian operations to
blend the Wendy's and Hortons concepts.
Retail Sales
Retail sales, which include sales from company-operated
restaurants and bakery and warehouse sales, grew 7.0% in
1995 over 1994, from $1.366 billion to $1.462 billion, and
grew 6.0% in 1994 compared with 1993. The changes reflect
an increase of 1.3% in average company-operated domestic
net restaurant sales in 1995, and 2.4% in 1994.
Contributing to this were an additional 37, 26, and 32
average Wendy's company-operated domestic restaurants open
during 1995, 1994, and 1993, respectively. Bakery and
warehouse sales also increased 23% in 1995 and 25% in 1994,
in line with an increase in the number of franchised
restaurants serviced.
The improvement in average Wendy's company domestic net
sales was a result of the value menu strategy, such as
Combo Meals, Kids' Meals, and Super Value Menu, and solid
restaurant operations, and effective marketing campaigns.
However, intense competition within the quick-service
restaurant industry continued to adversely affect Wendy's
domestic retail sales, and harsh weather conditions in the
last quarter of 1995 additionally impacted sales. The
average number of transactions in domestic Wendy's
increased approximately .4% in 1995 compared with a 1.2%
increase in 1994, and 4.2% in 1993. Domestic selling prices
increased only .2% during the year, while remaining
unchanged for 1994, and decreasing .4% in 1993, reflecting
the company's continued emphasis on its value strategy.
The following chart reflects average net sales per domestic
Wendy's restaurant for the last three years:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Company $1,014,000 $1,001,000 $978,000
Franchise $ 974,000 $ 982,000 $960,000
Total domestic $ 986,000 $ 988,000 $966,000
</TABLE>
Franchise Revenues
Franchise revenues primarily consist of royalties, rental
income, franchise fees, and gains from restaurant
dispositions. Reserves against collection of these
franchise revenues are also provided. The franchise fees
primarily include reimbursement for various company costs
and expenses related to establishing the franchisees'
business, and includes initial equipment packages for
Hortons franchisees.
10
<PAGE> 11
Royalties before reserves increased $10.4 million or 8.0%
in 1995, and $12.0 million or 10.2% in 1994. This primarily
reflects an increase in the number of franchise
restaurants. An average of 263 more restaurants were open
in 1995 and an average of 231 more in 1994.
Management reviews reserves on a regular basis and believes
the company has adequate levels for royalty and other
franchise-related receivables and contingencies. When the
outlook changes for reserve levels established in prior
years, they are modified accordingly and the impact is
reflected in general and administrative expense, as
discussed below.
Rental income on restaurants increased $10.7 million in
1995 and $7.3 million in 1994. Rental income increases
reflect the additional number of restaurants being leased
to franchisees. At the end of 1995, 1,257 restaurants were
leased to franchisees, versus 1,055 in 1994, and 818 in
1993.
Franchise fees increased $8.0 million in 1995 and $8.6
million in 1994, reflecting additional franchise
restaurants.
In keeping with the company's continuing strategy of buying
and selling Wendy's restaurants, pretax gains related to
franchising 120 restaurants amounted to $37.8 million in
1995, $11.6 million in 1994 for 49 restaurants, and $8.1
million in 1993 for 86 restaurants. Additionally, pretax
gains resulting from disposition of properties which were
previously leased by franchisees from Wendy's amounted to
$3.8 million in 1995, $2.4 million in 1994, and $.8 million
in 1993.
Cost of Sales and Restaurant Operating Costs
Domestic Wendy's cost of sales increased to 58.7% of retail
sales in 1995 from 58.0% in 1994, and 58.5% in 1993.
Domestic food costs as a percent of domestic retail sales
decreased to 29.1% in 1995 from 29.3% in 1994, and 30.2% in
1993. This reflects favorable purchase prices for key
products such as beef and chicken offset by higher produce
prices during 1995. All key products reflected favorable
pricing during 1994. Bakery and warehouse cost of sales
increased $23.7 million in 1995 and $20.8 million in 1994
reflecting new franchise restaurants serviced.
Domestic Wendy's restaurant labor costs as a percent of
domestic retail sales were 25.6% in 1995 compared with
24.8% in 1994, and 24.5% in 1993. The percentages reflect
increases in restaurant labor due to inflation in the
restaurant labor wage rate, particularly in 1995. The
inflation was driven by demand throughout the industry for
quality labor to provide quality service to customers.
Compounding this problem is the current demographic trend
toward a smaller portion of the population in this targeted
group. The company continues to control labor costs by
adherence to its labor guidelines. Sales per labor hour
increased in both 1995 and 1994 in company restaurants.
Domestic Wendy's company restaurant operating costs
increased $12.6 million in 1995, $11.4 million in 1994, and
$12.0 million in 1993. Domestic operating costs were 26.2%,
26.3%, and 26.6% of retail sales, respectively. As a
percent of sales, costs were consistent in 1995 and 1994.
Improvements during 1994 were seen in advertising,
utilities, and insurance expense.
Domestic Company Operating Margin
Competition in the domestic quick-service restaurant
industry was very intense during the last three years,
particularly focusing on prices. Therefore, while costs of
running the restaurant are subject to normal inflation,
selling prices have remained virtually unchanged. The
average sales increases from domestic Wendy's of 1.3% in
1995 and 2.4% in 1994 were not sufficient to provide
leverage on costs as a percent of retail sales. This, in
conjunction with increasing labor rates resulted in a
domestic operating margin of 15.1% in 1995 versus 15.7% in
1994, the first margin decline since 1989. In 1994, the
margin improved .8% from the prior year with advertising,
utilities, and insurance expense a lower percent of sales.
The following chart details the domestic company operating
margin:
<TABLE>
<CAPTION>
1995 1994 1993
% OF SALES % OF SALES % OF SALES
<S> <C> <C> <C>
Retail sales 100.0% 100.0% 100.0%
Cost of sales 58.7% 58.0% 58.5%
Company restaurant operating costs 26.2% 26.3% 26.6%
----- ----- -----
Domestic company operating margin 15.1% 15.7% 14.9%
----- ----- -----
</TABLE>
Operating Costs
Operating costs include rent expense related to properties
leased to franchisees, and cost of equipment sold to
Hortons franchisees as part of the initiation of the
franchise business. Training and other costs necessary to
insure a successful Hortons franchise opening, and costs to
operate and maintain the warehouse and bakery operations
are also included in operating costs. Costs that can not be
directly related to generating revenue are included in
general and administrative expenses. Depreciation on
properties owned and leased to franchisees is included in
depreciation expense on the income statement.
The increases in operating costs of $7.8 million, a 14.8%
increase in 1995, and $8.3 million, an 18.7% increase in
1994 were due to the addition of restaurants leased to
franchisees. There were 202 more restaurants under
franchise lease arrangements in 1995 than in 1994, and 237
more in 1994 than 1993.
11
<PAGE> 12
General and Administrative Expenses
General and administrative expenses were $136.4 million or
7.8% of revenues for the year 1995 compared with $120.6
million or 7.6% for 1994, and $113.0 million or 7.6% for
1993. Salaries and related benefits, the largest component
of general and administrative expenses, increased $7.7
million in 1995 and $8.4 million in 1994. This primarily
reflects annual merit-based employee compensation increases
and administrative staff additions to support the rapid
growth of Hortons in Canada and international and domestic
Wendy's growth. Insurance expense declined $3.1 million in
1994 as the prior year included an additional $4.0 million
accrual to reflect trends in domestic year-end 1993's
workers' compensation and general liability claims.
As a result of continuing improvement in the financial
strength of the Wendy's franchise community, net reserve
reversals reduced expenses by $1.2 million in 1995, $2.1
million in 1994, and $2.2 million in 1993.
Special Charges
The Hortons transaction resulted in unusual expenses being
realized. Compensation expense was paid to the sole
shareholder of Hortons and amounted to $29.6 million in
1995, $28.9 million in 1994, and $23.3 million in 1993.
Various legal, accounting, and other professional fees of
$4.0 million were incurred to effectuate the Hortons
transaction. Additionally, reserves of $13.5 million were
provided for possible environmental issues and
contingencies. Other costs were incurred related to
organizing Canadian operations to efficiently blend the
Wendy's and Hortons concepts.
Interest
Net interest expense decreased in 1995 and 1994 primarily
as a result of lower interest expense of $20.5 million in
1995 compared with $22.2 million in 1994, and $23.6 million
in 1993. Interest expense was reduced due to debt
retirements of Wendy's related borrowings, partly offset by
higher interest expense on loans to support Hortons growth.
Income Taxes
The effective income tax rate for 1995 was 33.3% compared
with 35.2% for 1994, and 31.9% in 1993. In 1993, the
company generated a Canadian tax benefit of $6.0 million as
a result of regionalizing Canadian operations. A tax
benefit of $6.6 million related to Canadian operations was
realized in 1995 pursuant to further successful
developments related to the 1993 Canadian reorganization.
FINANCIAL POSITION
Overview
Total assets increased $294.4 million or 24.2% over 1994
primarily due to additions to property and equipment for
restaurant development. Total cash and short-term
investments amounted to $213.8 million at year-end 1995
compared with $142.9 million at year-end 1994. The increase
primarily reflects the issuance of $100 million 6.35%,
ten-year Notes and $100 million 7%, 30-year Debentures at
the end of 1995 net of $50 million note repayment in early
1995. Long-term notes receivable from restaurant
dispositions during 1995 were $37 million. Income taxes
payable reflects prepayment of income taxes which will be
recovered in early 1996. Return on average assets, without
special charges previously discussed, was 17.1% in 1995
compared with 17.5% in 1994.
Long-term debt increased in 1995 reflecting the issuance of
the $200 million additional debt, net of $7.0 million
representing interest rate hedges and discount. Offsetting
this was the repayment of the $50 million note. The
long-term debt to equity ratio increased to 41% for
year-end 1995 compared to 21% at year-end 1994.
The company's return on average equity was 18.3% in 1995
compared with 16.7% in 1994. As with the return on average
assets, this return is calculated excluding the special
charges previously discussed.
The following chart shows year-end reserve balances related
to royalty receivables and other franchise-related
receivables and contingencies by balance sheet category:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
(in millions) 1995 1995
<S> <C> <C>
Accounts receivable, net $ 7.4 $ 7.1
Notes receivable, net .6 .8
Other assets 2.5 2.3
Accrued expenses, other .3 .6
----- -----
$10.8 $10.8
----- -----
</TABLE>
12
<PAGE> 13
Cash Flow
Cash provided by operating activities was $164.9 million in
1995, $168.0 million in 1994, and $151.3 million in 1993.
Over the past three years, cash provided by operating
activities was primarily used for capital expenditures,
dividend payments, debt repayment, and acquisitions of
franchised restaurants. During this time, the company
acquired 149 Wendy's restaurants and repaid $214.5 million
in debt.
Cash proceeds of $40.4 million were realized in 1995 from
the sale of Wendy's company-operated restaurants to
franchisees, while $21.1 million was provided in 1994, and
$17.2 million in 1993. The company issued $200 million of
additional long-term debt in 1995.
During 1995, capital expenditures amounted to $217.5
million. New restaurant expenditures amounted to $123.5
million; $54.3 million was spent for improvements to
existing restaurants; and $39.7 million was spent for other
additions. These included Hortons expenditures of $40.3
million for new restaurant development, which are leased to
franchisees. Current plans are to open or have under
construction about 475 new Wendy's restaurants, of which
approximately 150 will be company-operated Wendy's sites,
and 273 new Hortons in 1996. Capital expenditures could
total as much as $345 million in 1996 including
approximately $52 million for Hortons. Cash provided by
operating activities, cash and investments on hand,
existing revolving credit agreements, and possible asset
dispositions should enable the company to meet its
financial requirements through 1996. If additional cash is
needed for capital expenditures, future acquisitions of
restaurants from franchisees, or for other corporate
purposes, the company believes it would be able to obtain
additional cash through existing revolving credit
agreements, new revolving credit agreements which the
company believes it could execute, or through the issuance
of debt securities.
Inflation
Financial statements determined on a historical cost basis
may not accurately reflect all the effects of changing
prices on an enterprise. Several factors tend to reduce the
impact of inflation for the company. Inventories
approximate current market prices, there is some ability to
adjust prices, and liabilities are repaid with dollars of
reduced purchasing power.
International
Hortons is the second largest quick-service restaurant
chain in Canada and at year end had 1,197 restaurants.
These include standard full-size restaurants, satellites,
drive-through-only units, and kiosks/Essos sites. In total,
273 sites opened in 1995. The average sales at standard
restaurants were $641,000 (U.S. dollars) in 1995, an
increase of 2.9%. The company believes there are
significant opportunities to expand the Hortons concept
throughout Canada, and eventually perhaps other
international markets. Future expansion should primarily be
through franchising, and the company plans to open, or have
under construction, 273 Hortons units in 1996.
Canada is the largest international market for the Wendy's
concept, and like domestic markets, the restaurant industry
is extremely competitive. The environment includes a
difficult economy, adverse tax laws, and minimum wage
increases. It was a productive year in 1995 as average net
sales of company-operated restaurants increased 5.9% in
local currency, following a 5.9% increase a year ago. In
1995, 13 company-operated Wendy's and 15 franchised Wendy's
opened in Canada, bringing the total restaurants to 203 at
year end. The company plans to have open as many as 50 new
restaurants in 1996. Included in these restaurants are
combination units of Wendy's and Hortons which have proven
successful with 23 units open at the end of 1995, and plans
to develop as many as 25 more in 1996. The combination
units are also being tested in U.S. markets, with one unit
open at year end and seven planned for 1996.
The company's expansion of the Wendy's concept outside
Canada continued with 42 new restaurants open, including
the 54th restaurant in Japan, the company's second largest
international market. International growth continues to be
primarily through franchising, but joint ventures will also
be utilized, and parts of England are being developed as
company-operated Wendy's markets. The company anticipates
opening or having under construction 100 new Wendy's in
international markets outside Canada in 1996. Approximately
half of these are planned for Asia.
The company intends to accelerate all international
development in 1996 and beyond. At year-end 1995 there were
470 Wendy's and 1,180 Hortons open outside the U.S. The
company anticipates opening or having under construction
150 international Wendy's and 273 Hortons in 1996.
MANAGEMENT'S OUTLOOK
The company anticipates 1996 to be even more challenging
than 1995 given increased price competition, the difficulty
in obtaining quality employees, increased marketing costs
and continued efforts to insure food safety.
The company continued to adhere to the basic strategies
begun seven years ago and consumers have come to expect
quality and value from Wendy's and Tim Hortons. The company
believes that by focusing on areas which can be controlled
and improved, such as quality food, quality service and
value pricing, customers will recognize the difference and
prefer Wendy's and Tim Hortons over the competition.
13
<PAGE> 14
The company is still committed to aggressive but
responsible growth. The company plans on opening or having
under construction 150 new Wendy's company-owned
restaurants and 325 new Wendy's franchise restaurants in
1996, along with 273 new Hortons. This expansion will be
accomplished by use of cash and investments on hand, cash
provided by 1996 operations, existing revolving credit
agreements, potential asset dispositions, and possible
borrowings.
The Hortons concept has been developed primarily by
franchising restaurants. The company anticipates that, at
least in the near term, development will remain primarily
franchised. While Hortons currently operates almost
entirely in Canada, future expansion will include domestic
and possibly other international markets.
The company will continue its strategy of acquiring Wendy's
restaurants from and selling Wendy's restaurants to
franchisees where prudent. Acquired restaurants, which may
be underperforming, can be improved and then operated
profitably by the company or sold to a qualified
franchisee. Franchised Wendy's restaurants may also be
acquired due to geographic or operational benefits to
existing company-operated markets. Selling restaurants
generates cash which is used for new development,
acquisitions, and remodeling programs. During the last
three years, the company purchased 149 Wendy's franchised
restaurants and sold 255 company-operated Wendy's
restaurants to franchisees. Underperforming restaurants,
whether company or franchise operated, are monitored
carefully and revitalized where economically possible or
closed if necessary for the financial health of the system.
The strength of the system's franchise community is an
essential part of the company's continued success.
Strategies already proven successful are aimed at
encouraging responsible new restaurant development,
increasing franchise financial health, increasing royalty
income, and improving royalty receivable collection rates.
The company will continue to maintain appropriate reserves
against franchise receivables.
Competition within the quick-service restaurant industry
remains extremely intense, particularly in areas of pricing
and advertising. Additionally, however, numerous external
factors can have a significant influence on the company's
performance. These factors could include the economy,
consumer perceptions of food safety, harsh weather,
particularly in the first and fourth quarters, changing
consumer tastes, the labor supply, legal claims, risks
inherent to international development, the company's
ability to obtain and finance real estate, and government
initiatives such as minimum wage rates, taxes, and possible
franchise legislation.
Financial Accounting Standard Number 121 (SFAS 121) -
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" was issued in March
1995. This statement requires that long-lived assets and
certain identifiable intangibles being held and used by an
entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Additionally, the
statement requires that long-lived assets and certain
identifiable intangibles being disposed of be reported at
the lower of carrying amount or fair value less cost to
sell. The company is in the process of evaluating the
impact of this statement on the results of operations and
financial condition of the company. Also in October 1995,
Financial Accounting Standard Number 123 (SFAS 123) -
"Accounting for Stock-Based Compensation" was issued. This
pronouncement establishes the accounting and reporting
standards for stock-based employee compensation plans. This
new standard defines a fair value-based method of
accounting for these equity instruments. Companies may
elect to adopt this standard or to continue accounting for
these types of equity instruments under current guidance,
APB Opinion No. 25, "Accounting for Stock Issued to
Employees," (Opinion 25). Companies which elect to continue
using the rules of Opinion 25 must make pro forma
disclosures of net income and earnings per share as if this
new statement had been applied. The company is in the
process of evaluating the impact of this statement on the
results of operations and financial condition of the
company. Both new standards are required for fiscal years
beginning after December 15, 1995.
14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Years ended December 31, 1995, January 1, 1995, and January 2, 1994
<TABLE>
<CAPTION>
(In thousands, except per share data) 1995 1994 1993
<S> <C> <C> <C>
Revenues
Retail sales $1,461,880 $1,365,723 $1,288,532
Franchise revenues 284,400 225,864 193,853
---------- ---------- ----------
1,746,280 1,591,587 1,482,385
---------- ---------- ----------
Costs and expenses
Cost of sales 890,363 817,500 772,790
Company restaurant operating costs 351,062 332,880 322,163
Operating costs 60,216 52,461 44,200
General and administrative expenses 136,424 120,621 113,032
Depreciation and amortization of
property and equipment 80,573 74,538 71,071
Other expenses 2,595 1,220 4,242
Special charges 49,672 28,905 23,256
Interest, net 10,230 13,169 13,390
---------- ---------- ----------
1,581,135 1,441,294 1,364,144
---------- ---------- ----------
Income before income taxes 165,145 150,293 118,241
Income taxes 55,075 52,861 37,724
---------- ---------- ----------
Net income $ 110,070 $ 97,432 $ 80,517
========== ========== ==========
Pro forma adjustment for profit sharing
expense (net of income taxes of
$13,336, $12,863, and $10,349) 16,299 16,042 12,907
---------- ---------- ----------
Pro forma net income $ 126,369 $ 113,474 $ 93,424
---------- ---------- ----------
Primary earnings per share $ .90 $ .81 $ .68
---------- ---------- ----------
Fully diluted earnings per share $ .88 $ .79 $ .67
---------- ---------- ----------
Pro forma primary earnings per share $ 1.04 $ .94 $ .78
---------- ---------- ----------
Pro forma fully diluted earnings per share $ 1.01 $ .92 $ .77
---------- ---------- ----------
Dividends per share $ .24 $ .24 $ .24
---------- ---------- ----------
Primary shares 122,041 120,588 119,247
---------- ---------- ----------
Fully diluted shares 130,230 128,718 127,595
---------- ---------- ----------
</TABLE>
The accompanying notes beginning on page 19 are an integral part of
the Consolidated Financial Statements.
15
<PAGE> 16
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995, and January 1, 1995
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 206,127 $ 119,639
Short-term investments, at market 7,682 23,235
Accounts receivable, net 49,555 41,568
Notes receivable, net 12,272 10,457
Deferred income taxes 18,389 10,807
Inventories and other 27,254 26,941
----------- -----------
321,279 232,647
----------- -----------
Property and equipment, at cost
Land 288,029 251,515
Buildings 471,599 407,408
Leasehold improvements 251,176 214,974
Restaurant equipment 383,701 349,195
Other equipment 65,643 64,929
Capital leases 67,420 63,531
----------- -----------
1,527,568 1,351,552
Accumulated depreciation and amortization (520,824) (486,399)
----------- -----------
1,006,744 865,153
----------- -----------
Cost in excess of net assets acquired, net 42,927 30,780
Deferred income taxes 19,233 16,142
Other assets 118,978 70,083
----------- -----------
$ 1,509,161 $ 1,214,805
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities
Accounts and drafts payable $ 108,182 $ 100,708
Accrued expenses
Salaries and wages 23,158 22,473
Taxes 20,828 17,480
Insurance 29,320 26,037
Other 24,207 20,063
Income taxes (2,516) 1,683
Due to officer 63,221 39,992
Current portion of long-term obligations 29,469 57,674
----------- -----------
295,869 286,110
----------- -----------
Long-term obligations
Term debt 297,029 104,842
Capital leases 40,200 40,018
----------- -----------
337,229 144,860
----------- -----------
Deferred income taxes 47,853 39,799
Other long-term liabilities 9,431 13,823
Due to officer 28,286
Commitments and contingencies
Shareholders' equity
Preferred stock, authorized: 250,000 shares
Common stock, $.10 stated value, authorized: 200,000,000 shares
Issued: 103,993,000 and 101,787,000 shares, respectively 10,399 10,179
Capital in excess of stated value 199,804 171,888
Retained earnings 614,799 529,294
Unrealized loss on investments (1,504) (723)
Translation adjustments (3,007) (3,787)
Pension liability adjustment (3,212)
----------- -----------
820,491 703,639
Treasury stock at cost: 129,000 shares (1,712) (1,712)
----------- -----------
818,779 701,927
----------- -----------
$ 1,509,161 $ 1,214,805
----------- -----------
</TABLE>
The accompanying notes beginning on page 19 are an integral part of the
Consolidated Financial Statements.
16
<PAGE> 17
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31, 1995, January 1, 1995, and January 2, 1994
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 110,070 $ 97,432 $ 80,517
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 84,452 80,194 74,394
Deferred income taxes (4,393) (2,082) (7,002)
Net gain from restaurant dispositions (37,810) (11,588) (8,140)
Net loss (gain) on other asset dispositions 760 (68) 5,449
Net reserves for receivables and other contingencies 15,424 1,403 (747)
Changes in operating assets and liabilities net of effects
of acquisitions and dispositions of restaurants
Accounts and notes receivable (11,091) (12,673) (4,064)
Inventories and other (1,245) (616) (5,178)
Accounts and drafts payable and accrued expenses 10,910 12,440 14,382
(Increase) decrease in other assets (3,243) (82) (305)
Income taxes (3,540) (1,225) (4,356)
Other changes, net 4,603 4,860 6,348
--------- --------- ---------
Net cash provided by operating activities 164,897 167,995 151,298
--------- --------- ---------
Cash flows from investing activities
Proceeds from restaurant dispositions 40,412 21,065 17,155
Proceeds from other asset dispositions 19,139 18,621 13,484
Capital expenditures (217,532) (172,427) (137,202)
Acquisition of franchises (42,746) (12,761) (8,685)
Proceeds from (investment in) marketable securities 14,509 20,694 (2,208)
Other investing activities (1,519) (1,884) (2,235)
--------- --------- ---------
Net cash used in investing activities (187,737) (126,692) (119,691)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of term debt 285,410 10,488
Proceeds from issuance of common stock 20,653 7,360 12,890
Principal payments on long-term obligations (169,017) (5,581) (39,853)
Dividends paid (24,565) (25,071) (23,826)
(Payment) loan due officer, net (5,057) 22,005 12,643
Other financing activities 1,428 (2,284) 929
--------- --------- ---------
Net cash provided by (used in) financing activities 108,852 6,917 (37,217)
--------- --------- ---------
Effect of exchange rate changes on cash 476 (279) (104)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 86,488 47,941 (5,714)
--------- --------- ---------
Cash and cash equivalents at beginning of period 119,639 71,698 77,412
--------- --------- ---------
Cash and cash equivalents at end of period $ 206,127 $ 119,639 $ 71,698
--------- --------- ---------
Supplemental disclosures of cash flow information
Interest paid $ 19,939 $ 21,478 $ 23,725
--------- --------- ---------
Interest received 10,040 8,512 8,832
--------- --------- ---------
Income taxes paid 53,364 55,614 41,798
--------- --------- ---------
Debt converted to common stock 84 1,510
--------- --------- ---------
Capital lease obligations incurred 7,717
--------- --------- ---------
Acquisition of franchises
Fair value of assets acquired, net 67,291 15,859 13,170
--------- --------- ---------
Cash paid 42,746 12,761 8,685
--------- --------- ---------
Liabilities assumed 24,850 3,098 4,485
--------- --------- ---------
</TABLE>
The accompanying notes beginning on page 19 are an integral part of the
Consolidated Financial Statements.
17
<PAGE> 18
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995, January 1, 1995, and January 2, 1994
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Common stock at stated value
Balance at beginning of period $ 10,179 $ 10,082 $ 9,885
Exercise of options 220 97 188
Conversion of subordinated debentures 9
--------- --------- ---------
Balance at end of period 10,399 10,179 10,082
--------- --------- ---------
Capital in excess of stated value
Balance at beginning of period 171,888 162,122 142,442
Exercise of options, including tax benefits 27,832 9,766 18,179
Conversion of subordinated debentures 84 1,501
--------- --------- ---------
Balance at end of period 199,804 171,888 162,122
--------- --------- ---------
Retained earnings
Balance at beginning of period 529,294 456,933 400,242
Net income 110,070 97,432 80,517
Dividends paid (24,565) (25,071) (23,826)
--------- --------- ---------
Balance at end of period 614,799 529,294 456,933
--------- --------- ---------
Unrealized loss on investments (1,504) (723)
--------- --------- ---------
Translation adjustments (3,007) (3,787) (1,060)
--------- --------- ---------
Pension liability adjustment (3,212) (2,572)
--------- --------- ---------
Treasury stock at cost (1,712) (1,712) (1,712)
--------- --------- ---------
Shareholders' equity $ 818,779 $ 701,927 $ 623,793
--------- --------- ---------
Common shares
Balance issued at beginning of period 101,787 100,823 98,855
Exercise of options 2,200 964 1,882
Conversion of subordinated debentures 6 86
--------- --------- ---------
Balance issued at end of period 103,993 101,787 100,823
--------- --------- ---------
Treasury shares (129) (129) (129)
--------- --------- ---------
Common shares issued and outstanding 103,864 101,658 100,694
--------- --------- ---------
Common shares issuable upon
conversion of exchangeable shares 16,450 16,450 16,450
--------- --------- ---------
Common shares issued, issuable, and
outstanding 120,314 118,108 117,144
--------- --------- ---------
</TABLE>
The accompanying notes beginning on page 19 are an integral part of the
Consolidated Financial Statements.
18
<PAGE> 19
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
The company's principal business is the operation of quick-service
restaurants serving high-quality food. At year-end 1995 the company and its
franchise owners operated 4,667 of these restaurants under the name "Wendy's" in
50 states and in 33 other countries and territories.
Additionally, the company and its franchise owners operated 1,197
restaurants under the name "Tim Hortons" in Canada with 17 units open in the
United States.
Fiscal year
The company's fiscal year ends on the Sunday nearest to December 31.
Basis of presentation
The Consolidated Financial Statements include the accounts of the company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Certain reclassifications have been made for prior years to conform with
the 1995 presentation.
For purposes of the Consolidated Statement of Cash Flows, the company
considers short-term investments with original maturities of three months or
less as cash equivalents.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
The pro forma adjustment to the Consolidated Statement of Income represents
the profit sharing contribution made to the sole shareholder of Hortons prior to
the acquisition discussed in Note 6. This amounted to $29.6 million, or $16.3
million after tax in 1995, $28.9 million, or $16.0 million after tax in 1994,
and $23.3 million, or $12.9 million after tax in 1993. Profit sharing is
included in special charges on the Consolidated Statement of Income. In 1995,
there were other costs in special charges which included legal, accounting, and
other professional fees of $4.0 million to effectuate the Hortons transaction.
Also, reserves of $13.5 million for possible environmental issues and
contingencies, and miscellaneous costs to organize Canadian operations to
efficiently blend the Wendy's and Hortons concepts are included.
Due to officer of $63.2 million and $68.3 million (both current and
long-term portions) as of December 31, 1995, and January 1, 1995, respectively,
primarily represents profit sharing contributions and demand notes payable to
the former sole shareholder of Hortons.
Inventories
Inventories, amounting to $15.0 million and $13.8 million at December 31,
1995, and January 1, 1995, respectively, are stated at the lower of cost
(first-in, first-out) or market, and consist primarily of restaurant food items,
new equipment and parts, and paper supplies.
Property and equipment
Depreciation and amortization are recognized on the straight-line method in
amounts adequate to amortize costs over the following estimated useful lives:
buildings, up to 25 years; leasehold improvements, up to 25 years; restaurant
equipment, up to 15 years; other equipment, up to ten years; and property under
capital leases, the primary lease term. Interest cost associated with the
construction of new restaurants is capitalized, while certain other costs, such
as ground rentals and real estate taxes, are expensed as incurred.
Cost in excess of net assets acquired
The cost in excess of net assets acquired is amortized on the straight-line
method over periods ranging from ten to 40 years which, for leased restaurants,
include the original lease period plus renewal options, if applicable. The
company periodically reviews goodwill and, based upon undiscounted cash flows,
impairments will be recognized when a permanent decline in value has occurred.
Accumulated amortization of cost in excess of net assets acquired was $16.6
million and $14.8 million at December 31, 1995, and January 1, 1995,
respectively.
Pre-opening costs
The company capitalizes certain operating costs which are incurred prior to
the opening of a new restaurant. These costs are amortized over a one-year
period.
Capitalized software development costs
The company capitalizes internally developed software costs which are
amortized over a seven-year period.
Advertising costs
The company recognizes advertising costs as incurred.
Franchise operations
The company grants franchises to independent operators who in turn pay
technical assistance/franchise fees which may include equipment, royalties, and
in some cases, rents for each restaurant opened. A technical
assistance/franchise fee is recorded as income when each restaurant commences
operations. Royalties, based upon a percent of monthly net sales, are recognized
as income on the accrual basis. The company has established reserves related to
the collection
19
<PAGE> 20
of franchise royalties and other franchise-related receivables and commitments
(see Note 8). Included in other assets is the long-term portion of notes
receivable amounting to $72.6 million and $31.0 million at December 31, 1995,
and January 1, 1995, respectively. The carrying amount of notes receivable
currently approximates fair value.
Franchise owners receive assistance in such areas as real estate site
selection, construction consulting, purchasing, and marketing from company
personnel who also furnish these services to company-operated restaurants.
Franchise expenses are included in general and administrative expenses.
Foreign operations
At December 31, 1995, the company and its franchise owners operated 203
Wendy's restaurants and 1,180 Tim Hortons restaurants in Canada. Additionally,
267 Wendy's restaurants were operated by franchise owners in other foreign
countries and territories. The functional currency of each foreign subsidiary is
the respective local currency.
Net income per share
Primary earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding and dilutive common share
equivalents during each period. Fully diluted computations assume full
conversion of the subordinated debentures into common shares, when dilutive, and
the elimination of related expenses, net of income taxes.
Financial Accounting Standards Board Statement
Financial Accounting Standard Number 121 (SFAS 121) - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" was
issued in March 1995. The company is in the process of evaluating the impact of
this statement on the results of operations and financial condition of the
company.
NOTE 2 TERM DEBT
Term debt at each year-end consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Notes, unsecured, and
Mortgages Payable with a
weighted average interest
rate of 6.0%, due in
installments through 2010 $ 27,351 $ 5,465
Industrial Development
Revenue Bonds, with a
weighted average interest
rate of 11.1%, due in
installments through 2002 761 1,624
121/8% Notes, due April 1, 1995 49,995
7% Convertible
Subordinated Debentures,
due April 1, 2006 99,915 100,000
6.35% Notes, due December 15, 2005 96,251
7% Debentures,
due December 15, 2025 96,429
--------- ---------
320,707 157,084
Current portion (23,678) (52,242)
--------- ---------
$ 297,029 $ 104,842
--------- ---------
</TABLE>
The industrial development revenue bonds were issued to provide funds for
the acquisition, construction, and improvement of various restaurants.
The 7% convertible debentures are subordinated as to principal, premium, if
any, and interest to all senior indebtedness as defined in the indenture. The
conversion price is $12.30 per common share, subject to adjustment in certain
events. The debentures are redeemable, with limited exceptions, at the option of
the company on or after April 5, 1996.
The 6.35% notes and 7% debentures are unsecured and unsubordinated. They
are not redeemable by the company prior to maturity.
The company entered into interest rate swaps to manage its exposure to
interest rate fluctuations on the 6.35% and 7% securities issued in December
1995. The company reflects realized and unrealized gains and losses on hedging
instruments as an adjustment to the carrying value of the hedged asset or
liability. Accordingly, losses related to these interest rate swaps amounting to
$3.6 million and $3.4 million, respectively, have been recorded as a reduction
of the carrying value of the notes and debentures and will be amortized to
interest expense over the term of the related debt.
Based on quoted market prices for the convertible subordinated debentures
and future cash flows for all other term debt, the fair value of total term debt
was approximately $394 million at December 31, 1995, and $185 million at January
1, 1995.
The combined aggregate amounts of future maturities for all term debt are
as follows:
<TABLE>
<CAPTION>
(In thousands)
<C> <C>
1996 $ 23,678
1997 295
1998 222
1999 210
2000 171
Later years 296,131
--------
$320,707
--------
</TABLE>
20
<PAGE> 21
At year-end, the company had unused contractual lines of credit aggregating
$100 million from various financial institutions, generally at their respective
prime rates.
Net interest expense for each year consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Total interest charges $ 20,456 $ 22,176 $ 23,552
Interest income (10,226) (9,007) (10,162)
-------- -------- --------
$ 10,230 $ 13,169 $ 13,390
-------- -------- --------
</TABLE>
NOTE 3 LEASES
The company occupies land and buildings and uses equipment under terms of
numerous lease agreements expiring on various dates through 2027. Terms of land
only and land and building leases are generally for 20 to 25 years. Many of
these leases provide for future rent escalations and renewal options. Certain
leases require contingent rent, determined as a percentage of sales, when annual
sales exceed specified levels. Most leases also obligate the company to pay the
costs of maintenance, insurance, and property taxes.
At each year-end capital leases consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Buildings $ 67,420 $ 63,531
Accumulated amortization (33,967) (31,764)
-------- --------
$ 33,453 $ 31,767
-------- --------
</TABLE>
At December 31, 1995, future minimum lease payments for all leases, and the
present value of the net minimum lease payments for capital leases, were as
follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) Leases Leases
<C> <C> <C>
1996 $ 9,466 $ 41,110
1997 9,052 39,687
1998 8,220 38,218
1999 6,545 35,072
2000 4,801 31,271
Later years 32,654 215,262
-------- --------
Total minimum lease payments 70,738 $400,620
--------
Amount representing interest (24,747)
--------
Present value of net minimum lease
payments 45,991
Current portion (5,791)
--------
$ 40,200
--------
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease
rentals of $1.3 million under capital leases, and $233.8 million under operating
leases due in the future under noncancelable subleases.
Rent expense for each year is primarily included in company restaurant
operating costs and amounted to:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Minimum rents $45,142 $41,348 $39,649
Contingent rents 9,709 8,589 8,452
------- ------- -------
$54,851 $49,937 $48,101
------- ------- -------
</TABLE>
In connection with the franchising of certain restaurants, the company has
leased land, buildings, and equipment to the related franchise owners.
Most leases provide for monthly rentals based on a percentage of sales,
while others provide for fixed payments with contingent rent when sales exceed
certain levels. Lease terms are approximately ten to 20 years with one or more
five-year renewal options. The franchise owners bear the cost of maintenance,
insurance, and property taxes.
The company generally accounts for the building and equipment portions of
the fixed payment leases as direct financing leases. The land portion of leases
and leases with rents based on a percentage of sales are accounted for as
operating leases.
At each year-end the net investment in financing leases receivable,
included in other assets, consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Total minimum lease receipts $ 37,206 $ 36,315
Estimated residual value 4,618 4,542
Amount representing
unearned interest (19,579) (19,659)
Current portion, included
in accounts receivable (979) (927)
-------- --------
$ 21,266 $ 20,271
-------- --------
</TABLE>
21
<PAGE> 22
At each year-end assets leased under operating leases consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Land $ 97,581 $ 78,789
Building 184,394 144,980
Equipment 29,659 26,401
--------- ---------
311,634 250,170
Accumulated amortization (72,184) (62,479)
--------- ---------
$ 239,450 $ 187,691
--------- ---------
</TABLE>
At December 31, 1995, future minimum lease receipts were as follows:
<TABLE>
<CAPTION>
Financing Operating
(In thousands) Leases Leases
<C> <C> <C>
1996 $ 3,018 $ 33,560
1997 3,080 32,130
1998 3,085 30,181
1999 2,980 28,049
2000 2,918 25,798
Later years 22,125 80,587
------- --------
$37,206 $230,305
------- --------
</TABLE>
Rental income for each year is included in franchise revenues and amounted
to:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Minimum rents $28,612 $23,140 $20,206
Contingent rents 33,542 27,462 23,102
------- ------- -------
$62,154 $50,602 $43,308
------- ------- -------
</TABLE>
NOTE 4 INCOME TAXES
The provision for income taxes for each year consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Current
Federal $ 51,641 $ 49,802 $ 39,512
State and local 3,864 4,403 3,126
Foreign 3,963 738 2,088
-------- -------- --------
59,468 54,943 44,726
-------- -------- --------
Deferred
Federal 7,724 (1,418) (243)
State and local (476) (213) (127)
Foreign (11,641) (451) (6,632)
-------- -------- --------
(4,393) (2,082) (7,002)
-------- -------- --------
$ 55,075 $ 52,861 $ 37,724
-------- -------- --------
</TABLE>
In the first quarter of 1993, the company adopted Financial Accounting
Standard Number 109 (SFAS 109) - "Accounting for Income Taxes". Under SFAS No.
109, like Financial Accounting Standard Number 96 (SFAS 96) - "Accounting for
Income Taxes" which the company adopted in 1989, deferred income taxes are
recognized by employing the liability method. The company elected not to restate
prior years' financial statements under the provisions of SFAS No. 109 and has
determined that the cumulative effect of the implementation was not significant.
The temporary differences which give rise to deferred tax assets and
liabilities at each year-end consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Deferred tax assets
Lease transactions $ 3,996 $ 4,285
Reserves not currently deductible 18,896 12,468
Foreign operations 14,748 13,794
All other 2,390 6,654
-------- --------
40,030 37,201
Valuation allowance (1,466) (7,144)
-------- --------
$ 38,564 $ 30,057
-------- --------
Deferred tax liabilities
Lease transactions $ 8,264 $ 8,128
Property and equipment
basis differences 30,049 29,356
Installment sales 7,540 1,605
All other 2,942 3,818
-------- --------
$ 48,795 $ 42,907
-------- --------
</TABLE>
A deferred tax asset for foreign operations was established, upon the
adoption of SFAS 109, for excess capital allowances and net operating loss
carryovers which are primarily related to a Canadian subsidiary. This deferred
tax asset was largely offset by a valuation allowance. As a result of the
regionalization and legal entity restructuring of Canadian operations and the
acquisition of Tim Hortons, the company reduced the valuation allowance by $7.3
million, $279,000, and $6.0 million in 1995, 1994 and 1993, respectively,
primarily due to the realization of Canadian tax benefits.
22
<PAGE> 23
A reconciliation of the statutory U.S. Federal income tax rate of 35% to
the company's effective tax rate for each year is shown below:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Income taxes at statutory rate $ 57,801 $ 52,602 $ 41,384
Effect of foreign operations (2,993) (853) 1,229
State and local taxes, net of
federal benefit 2,209 2,737 1,949
Canadian restructuring benefit (3,936) (279) (6,000)
Jobs and other tax credits (270) (722) (456)
Tax-exempt interest (506) (616) (537)
Goodwill amortization 426 407 526
Other 2,344 (415) (371)
-------- -------- --------
Income taxes at effective rate $ 55,075 $ 52,861 $ 37,724
-------- -------- --------
</TABLE>
NOTE 5 STOCK OPTION AND SHAREHOLDER RIGHTS PLANS
The company has various stock option plans which provide options for
certain employees and outside directors to purchase common shares of the
company. Grants of options to employees and the periods during which such
options can be exercised are at the discretion of the Board of Directors. Grants
of options to outside directors and the periods during which such options can be
exercised are specified in the plan applicable to directors and do not involve
discretionary authority of the Board. All options expire at the end of the
exercise period. Options are granted at the fair market value of the company's
common shares on the date of grant and no amounts applicable thereto are
reflected in net income. The company makes no recognition of the options in the
financial statements until they are exercised.
On August 2, 1990, the Board of Directors adopted the WeShare Stock Option
Plan (WeShare Plan), a non-qualified stock option plan to provide for grants of
options equal to ten percent of each eligible employee's earnings, with a
minimum of 20 options to be made to each eligible employee annually. An
aggregate of 4.6 million common shares of the company have been reserved
pursuant to the WeShare Plan.
The options have a term of ten years from the grant date and become
exercisable in installments of 25 percent on each of the first four
anniversaries of the grant date. On August 3, 1995, August 9, 1994, and August
5, 1993, approximately 785,000 options, 865,000 options, and 860,000 options
were granted to eligible employees at an exercise price of $18.31 per share,
$15.38 per share, and $14.38 per share, respectively.
In addition, the Board of Directors also adopted the 1990 Stock Option Plan
(1990 Plan) on August 2, 1990, and amended the 1990 Plan on August 1, 1991, and
February 23, 1994. An aggregate of 12.5 million common shares of the company
have been reserved for issuance to key employees and outside directors under the
1990 Plan, as amended.
On August 3, 1995, August 9, 1994, and August 5, 1993, approximately 1.3
million options, 1.3 million options, and 1.1 million options were granted to
key employees at an exercise price of $18.31 per share, $15.38 per share, and
$14.38 per share, respectively.
The following is a summary of stock option activity for the last three
years:
<TABLE>
<CAPTION>
Shares Under Option Price
(Shares in thousands) Option Per Share
<S> <C> <C>
Balance at January 3, 1993 8,892 $ 4.06-$13.69
Granted 2,091 14.38- 16.44
Exercised (1,882) 4.13- 12.56
Canceled (560)
------- -------------
Balance at January 2, 1994 8,541 4.06- 16.44
Granted 2,500 15.38- 18.06
Exercised (964) 4.06- 14.38
Canceled (423)
------ -------------
Balance at January 1, 1995 9,654 5.13- 18.06
Granted 2,262 18.31- 20.13
Exercised (2,200) 5.13- 18.31
Canceled (414)
------- -------------
Balance at December 31, 1995 9,302 $ 5.13-$20.13
------- -------------
</TABLE>
Options exercisable to purchase common shares totaled 4.2 million, 4.6
million, and 3.1 million at December 31, 1995, January 1, 1995, and January 2,
1994, respectively. Shares reserved under the plans at each year-end were 12.5
million in 1995, 14.1 million in 1994, and 10.5 million in 1993.
The company has a Shareholder Rights Plan (Rights Plan) which provides for
the distribution of one preferred stock purchase right (Right), as a dividend
for each outstanding common share. Each Right entitles a shareholder to buy one
ten-thousandth of a share of a new series of preferred stock for $25 upon the
occurrence of certain events. Rights would be exercisable once a person or group
acquires 15 percent or more of the company's common shares, or ten days after a
tender offer for 15 percent or more of the common shares is announced (these
thresholds were 20 percent until the Rights Plan was amended effective December
29, 1995). No certificates will be issued unless the Rights Plan is activated.
23
<PAGE> 24
Under certain circumstances, all Rights holders, except the person or
company holding 15 percent or more of the company's common shares, will be
entitled to purchase common shares at about half the price that such shares
traded for prior to the announcement of the acquisition. Alternatively, if the
company is acquired after the Rights plan is activated, the Rights will entitle
the holder to buy the acquiring company's shares at a similar discount. The
company can redeem the Rights for one cent per Right under certain
circumstances. If not redeemed, the Rights will expire on August 10, 1998.
In October 1995, Financial Accounting Standard Number 123 (SFAS 123) -
"Accounting for Stock-Based Compensation" was issued. This pronouncement
establishes the accounting and reporting standards for stock-based employee
compensation plans. This new standard defines a fair value-based method of
accounting for these equity instruments. Companies may elect to adopt this
standard or to continue accounting for these types of equity instruments under
current guidance, APB Opinion No. 25, "Accounting for Stock Issued to
Employees," (Opinion 25). Companies which elect to continue using the rules of
Opinion 25 must make pro forma disclosures of net income and earnings per share
as if this new statement had been applied. This new standard is required for
fiscal years beginning after December 15, 1995. The company is in the process of
evaluating the impact of this statement on the results of operations and
financial condition of the company.
NOTE 6 ACQUISITIONS
On December 29, 1995, the company acquired all of the stock of 1052106
Ontario Limited (Ontario), formerly 632687 Alberta Ltd., the parent company of
the Tim Hortons donut restaurant chain, for 16.45 million shares of a Canadian
subsidiary of the company exchangeable for 16.45 million common shares of
Wendy's International, Inc. Tim Hortons is the leading franchisor of bakery and
coffee shops in Canada. The transaction has been accounted for as a pooling of
interests and, accordingly, the consolidated financial statements for all
periods presented have been restated to include the accounts of Tim Hortons.
Certain adjustments were made to Tim Hortons financial statements to conform to
the same accounting practices as the company.
Revenues and net income of the separate companies for the periods preceding
the acquisition consisted of the following:
<TABLE>
<CAPTION>
(In thousands) WENDY'S TIM HORTONS TOTAL
<S> <C> <C> <C>
1995
Revenues $1,507,925 $238,355 $1,746,280
Net income 111,632 (1,562) 110,070
1994
Revenues 1,403,420 188,167 1,591,587
Net income 97,156 276 97,432
1993
Revenues 1,329,339 153,046 1,482,385
Net income 79,267 1,250 80,517
</TABLE>
In connection with the acquisition, $4.0 million in professional fees to
effectuate the transaction were incurred and have been charged to expense in the
fourth quarter of 1995.
Additionally during 1995, the company acquired 33 restaurants in the Little
Rock market for cash of $37.0 million and 47 restaurants in the Pittsburgh
market for $4.0 million cash and notes of $23.0 million. Three other restaurants
were acquired for $1.7 million during 1995.
During 1994, the company acquired 29 restaurants in the Kansas City market
for cash of $10.5 million and the assumption of certain liabilities. The company
acquired four other domestic restaurants from franchisees for $2.3 million
during 1994, and 33 domestic restaurants for $8.7 million during 1993.
NOTE 7 DISPOSITIONS
The company franchised 118 domestic and two Canadian restaurants during
1995. Additionally, 49 and 86 domestic restaurants were franchised in 1994 and
1993, respectively. These transactions resulted in pretax gains of approximately
$37.8 million, $11.6 million, and $8.1 million in 1995, 1994, and 1993,
respectively, and are included in franchise revenues.
Notes receivable related to dispositions were $63.6 million at December 31,
1995, and $25.9 million at January 1, 1995, and are included in notes receivable
and other assets.
NOTE 8 COMMITMENTS AND CONTINGENCIES
At December 31, 1995, and January 1, 1995, the company's reserves
established for doubtful royalty receivables were $3.6 million and $4.3 million,
respectively. Reserves related to possible losses on notes receivable, real
estate, guarantees, claims, and contingencies involving franchisees totaled $7.2
million at December 31, 1995, and $6.5 million at January 1, 1995. These
reserves are included in accounts receivable, notes receivable, other assets,
and other accrued expenses.
The company has guaranteed certain leases and debt payments of franchise
owners with average annual obligations of $16.5 million over the next three
years. 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 self-insured for most workers' compensation, general
liability, and automotive liability losses subject to per occurrence and
aggregate annual liability limitations. The company is also self-insured for
health care claims for eligible participating employees subject to certain
deductibles and limitations. The company determines its liability for claims
incurred but not reported on an actuarial basis.
The company has entered into long-term purchase agreements with some of its
suppliers. The range of prices and volume of purchases under the agreements may
vary according to the company's demand for the products and fluctuations in
market rates.
24
<PAGE> 25
The company and its subsidiaries are parties to various legal actions and
complaints arising in the ordinary course of business; many of these are covered
by insurance. It is the opinion of the company that such matters will not
materially affect the company's financial condition or earnings.
The company has undertaken to complete environmental assessments of its
properties belonging to one of its Canadian subsidiaries. Although the ultimate
amount of reclamation obligations to be incurred is uncertain, the company
estimates such amounts, representing assessment, cleanup, and remediation costs,
at $11.7 million. This amount has been charged to operations in the third
quarter of 1995.
NOTE 9 RETIREMENT PLANS
The company's retirement program covers substantially all full-time
employees qualified as to age and service. The program includes a contributory
defined benefit pension plan and a defined contribution plan for management and
administrative employees. The defined benefit pension plan allows for employee
contributions and provides a matching benefit from the company in addition to a
basic benefit which is independent of employee contributions. The pension plan
also provides for a guaranteed rate of return on employee account balances. The
defined contribution plan provides for an annual discretionary contribution
which is determined each year by the Board of Directors. Effective April 1,
1995, the defined contribution plan allows for 401(k) contributions, acceptance
of qualified rollovers, a loan feature, and a choice of four investing options,
one of which is common stock of the company. In addition, the retirement program
includes a noncontributory defined benefit pension plan for all eligible crew
employees and shift supervisors of the company.
The company also has supplemental retirement plans for certain key
employees to replace benefits otherwise not available from the pension and
profit sharing plans due to the limitations imposed under the Internal Revenue
Code and to assure that projected benefit levels were not decreased by the
changes to the retirement program which were implemented January 1, 1989.
The funded status of the pension plans for each year-end consisted of the
following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Accumulated benefit obligation:
Vested $(34,811) $(27,537)
Nonvested $ (4,035) $ (2,978)
Projected benefit obligation $(41,763) $(32,700)
Fair value of plan assets 41,354 29,822
Unrecognized net transition asset (192) (384)
Unrecognized net loss 6,579 8,047
Unrecognized prior service costs 142 189
Minimum pension adjustment (5,390)
-------- --------
Prepaid pension cost (liability) $ 6,120 $ (416)
-------- --------
</TABLE>
In determining the present value of benefit obligations, discount rates of
7.0% and 8.0% were used in 1995 and 1994, respectively. The expected long-term
rate of return on assets used was 8.5% in 1995 and 1994. The assumed rate of
increase in compensation levels was 8.0% for 1995 and 1994. Plan assets as of
December 31, 1995, consisted of debt and equity instruments and cash
equivalents.
Net periodic pension cost for each year consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Service cost $ 3,756 $ 3,761 $ 3,326
Interest cost on
projected benefit
obligation 2,903 2,432 2,165
Return on plan assets (8,580) 564 (1,607)
Net amortization 5,533 (3,139) (142)
------- ------- -------
$ 3,612 $ 3,618 $ 3,742
------- ------- -------
</TABLE>
The company provided for profit sharing and supplemental retirement
benefits of $3.6 million, $2.8 million, and $2.3 million for 1995, 1994, and
1993, respectively.
A minimum pension liability equal to the excess of the accumulated benefit
obligation over the fair value of plan assets and liabilities already accrued is
reflected in the balance sheet by recording an intangible asset and reducing
shareholders' equity.
The company has an agreement with the Chairman of the Board which provides
for severance pay and commencement of retirement benefits if he terminates
employment for any reason. Upon termination the agreement requires the executive
to be available for consultation and prohibits him from competing against the
company for a two-year period. The agreement also provides that the company may
require him to return to active employment for up to 12 months under certain
circumstances. Retirement by the executive in 1996 would result in an expense
charge of approximately $3.3 million.
NOTE 10 ADVERTISING COSTS
The Wendy's National Advertising Program, Inc. (WNAP) is a not-for-profit
corporation which was established to collect and administer funds contributed by
the company and all domestic franchise owners. These contributions total 2% of
net sales and are used for advertising programs designed to increase sales and
enhance the reputation of the company and its franchise owners. For 1996, 1995,
and 1994, the domestic system agreed to increase national advertising spending
from 2% to 2.5% of net sales. During 1995, 1994, and 1993, the company
contributed $30.3 million, $29.0 million, and $27.7 million, respectively, to
WNAP. These contributions were recognized in company restaurant operating costs.
At December 31, 1995, and January 1, 1995, the company's payable to WNAP
amounted to $2.3 million and $2.2 million, respectively.
25
<PAGE> 26
Total advertising expense of the company amounted to $62.1 million, $58.2
million, and $56.8 million in 1995, 1994, and 1993, respectively.
NOTE 11 SEGMENT REPORTING
The company operates exclusively in the food-service industry. The
following presents information about the company by geographic area. There were
no material amounts of revenues or transfers among geographic areas.
<TABLE>
<CAPTION>
UNITED
(In thousands) STATES INTERNATIONAL CORPORATE TOTAL
<S> <C> <C> <C> <C>
1995
Revenues $1,402,918 $343,362 $1,746,280
Income before
income taxes 240,765 48,921 (124,541) 165,145
Identifiable
assets (1) 972,126 169,844 26,679 1,168,649
1994
Revenues $1,307,551 $284,036 $1,591,587
Income before
income taxes 213,701 38,314 (101,722) 150,293
Identifiable
assets (1) 811,071 127,794 27,151 966,016
1993
Revenues $1,237,430 $244,955 $1,482,385
Income before
income taxes 184,273 29,624 (95,656) 118,241
Identifiable
assets (1) 747,318 108,362 27,605 883,285
</TABLE>
(1) Excludes cash and cash equivalents, deferred income taxes, certain
other current assets, and investments.
NOTE 12 QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected quarterly financial data has been restated to
reflect the acquisition of Tim Hortons treated as a pooling of interests.
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
(In thousands) 1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $398,008 $358,764 $437,370 $414,195 $451,542 $409,724 $459,360 $408,904
Gross profit * 87,939 75,830 115,990 108,807 117,975 103,316 122,735 100,793
Net income 15,636 12,747 40,039 33,489 36,237 29,902 18,158 21,294
</TABLE>
* Total revenues less cost of sales, company restaurant operating costs, and
operating costs.
- --------------------------------------------------------------------------------
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
26
<PAGE> 27
PART III
- --------------------------------------------------------------------------------
ITEMS 10, 11, 12, AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY OFFICER SINCE
<S> <C> <C> <C>
R. David Thomas 63 Senior Chairman of the Board and Founder, Director 1969
James W. Near 57 Chairman of the Board, Director 1986
Gordon F. Teter 52 President, Chief Executive Officer and
Chief Operating Officer, Director 1987
John K. Casey 63 Vice Chairman and Chief Financial Officer, Director 1981
Ronald E. Musick 55 Executive Vice President, Director 1986
Charles W. Rath 59 Executive Vice President 1987
George Condos 42 Executive Vice President 1982
John T. Schuessler 45 Executive Vice President 1983
John W. Wright 48 President - International Division 1993
Edward L. Austin 38 Senior Vice President 1990
Lawrence A. Laudick 48 Vice President, General Controller & 1976
Assistant Secretary
Lawrence E. Schauf 50 Senior Vice President, General Counsel & Secretary 1987
Stephen D. Farrar 45 Senior Vice President 1984
John F. Brownley 53 Senior Vice President and Treasurer 1981
Jack C. Whiting 46 Senior Vice President 1987
Robert G. Zoeller 51 Senior Vice President 1991
Joyce L. Eufemi 49 Senior Vice President 1993
Brion G. Grube 44 Senior Vice President 1990
</TABLE>
No arrangements or understandings exist pursuant to which
any person has been, or is to be, selected as an officer,
except in the event of a change in control of the Company,
as provided in the Company's Key Executive Agreements. The
executive officers of the Company are appointed by the
Board of Directors.
With the exception of Messrs. Teter, Casey, Musick, Condos,
Schuessler, Wright, Schauf, Farrar, Whiting, Zoeller,
Austin, and Grube, and Ms. Eufemi each of the above
individuals has held the same principal occupation with the
Company for at least the last five years.
Mr. Near was President and Chief Operating Officer of
Sisters International, Inc. from 1981 until 1986, when he
assumed the position of President and Chief Operating
Officer of the Company. He assumed the duties of Chief
Executive Officer in 1989. Mr. Near became Chairman of the
Board in 1991.
Mr. Teter was President of Casa Lupita Restaurants and
Executive Vice President of its parent company, Ponderosa,
Inc., from 1985 to 1987. Mr. Teter became a Senior Vice
President of the Company in 1987 and Executive Vice
President in 1988. He was named President and Chief
Operating Officer in 1991. Mr. Teter assumed the title of
Chief Executive Officer in 1994.
Mr. Casey was Senior Vice President of the Company from
1984 to 1987, at which time he became Executive Vice
President. Mr. Casey became Executive Vice President -
Finance and Administration in 1987. He assumed his current
position in 1991.
Mr. Musick was Senior Vice President, Secretary and
Treasurer of Sisters International, Inc. from 1982 to 1987.
Mr. Musick became a Senior Vice President of the Company in
1986. He assumed his current position in 1991.
27
<PAGE> 28
Mr. Condos joined the Company in 1977. In 1987, he was promoted
from Vice President of Company Operations to Senior Vice
President of Company Operations. In 1988, he was promoted to
Senior Vice President of Wendy's Southwest Region. In 1992, he
was named Executive Vice President of Development.
Mr. Schuessler joined the Company in 1974. He served in Company
Operations as Regional Vice President from 1983 to 1984, Zone
Vice President from 1984 to 1986, and Division Vice President
from 1986 until 1987, when he was promoted to Senior Vice
President to the Northeast Region. In 1995, Mr. Schuessler was
promoted to Executive Vice President to U.S. Operations.
Mr. Wright joined Wendy's in 1993 as President, International. He
was with Pizza Hut, Inc. as Division Vice President from 1989 to
1993 and also with Pizza Hut, Inc. from 1981 to 1986 where he had
successful international experience with their operations in
Europe. From 1986 to 1989 Mr. Wright was National Vice President
of Operations, East with Taco Bell.
Mr. Schauf joined the Company in 1987 as Vice President, General
Counsel and Secretary. In 1991, he became Senior Vice President,
General Counsel and Secretary. Prior to joining the Company, Mr.
Schauf was affiliated with Pizza Hut, Inc.
Mr. Farrar joined Wendy's in 1980 as Area Director. In 1982, he
transferred from Company Operations to Franchise Operations. He
became Regional Vice President in 1984. In 1988, he moved back to
Company Operations as Division Vice President where he held that
position until being named Senior Vice President to the Southwest
Region in 1992.
Mr. Whiting joined the Company in 1975. In 1982, he became
Regional Director for the West Virginia Region and named Division
Vice President in 1987. In 1992, he became Senior Vice President
to the Midwest Region.
Mr. Zoeller joined the Company in 1991 as Division Vice President
of the Eastern Division. Prior to joining Wendy's, he was a
Managing Partner for Tony Roma's, A Place for Ribs from 1989 to
1991. In 1995, Mr. Zoeller was promoted to Senior Vice President
to the Northeast Region.
Mr. Grube joined Wendy's in 1990 as Division Vice President and
was promoted to Senior Vice President - Canada in 1993. Before
joining Wendy's, he was with Imperial Savings Association from
1988 to 1990. Prior to that time, Mr. Grube spent 12 years with
Pizza Hut, Inc.
Mr. Austin joined Wendy's in November 1976. Before being named
Senior Vice President of the Southeast Region in January 1996,
Mr. Austin had held the position of Division Vice President for
the New Orleans Division since January of 1994 and for the Los
Angeles Division since 1990.
Ms. Eufemi joined Wendy's in March of 1993. After holding the
position of Division Vice President for both the Colonial
Division and Chicago Division, she was named Senior Vice
President, Upper U.S. Region in May of 1995. Prior to joining
Wendy's, Ms. Eufemi was with Nutri/System, Inc. from 1989 to 1993
as Vice President/General Manager of the Western Region.
The information required by these Items, other than the
information set forth above, is omitted and incorporated herein
by reference from the Company's Definitive Proxy Statement dated
March 6, 1996. However, no information set forth in the
Definitive Proxy Statement regarding the Report of the
Compensation Committee on Executive Compensation (pages 10-16) or
the performance graph (pages 16-17) shall be deemed incorporated
by reference into this Form 10-K.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) - The following Consolidated Financial Statements
of Wendy's International, Inc. and Subsidiaries are included
in Item 14(a).
Consolidated Statement of Income - Years ended December
31, 1995, January 1, 1995, and January 2, 1994.
Consolidated Balance Sheet - December 31, 1995, and
January 1, 1995.
Consolidated Statement of Cash Flows - Years ended
December 31, 1995, January 1, 1995, and January 2, 1994.
Consolidated Statement of Shareholders' Equity - Years
ended December 31, 1995, January 1, 1995, and January 2,
1994.
Notes to the Consolidated Financial Statements.
28
<PAGE> 29
(3) Listing of Exhibits - See Index to Exhibits.
The following management contracts or compensatory plans or
arrangements are required to be filed as exhibits to this
report:
Sample Key Executive Agreement between the Company and
Messrs. Thomas and Near.
Sample New Key Executive Agreement between the Company and
Messrs. Brownley, Condos, Laudick, Ourant, Rath, Schauf,
Schuessler, Teter, and Wright.
Sample New Key Executive Agreement between the Company and
Messrs. Casey and Musick.
Sample Separation and Consulting Agreement between the
Company and Mr. Near.
Agreement between the Company and Mr. Teter.
Senior Executive Earnings Maximization Plan.
Description of Earnings Maximization Plan.
Description of Management Incentive Plan.
Supplemental Executive Retirement Plan, as amended.
1978 Non-Qualified Stock Option Plan, as amended.
1982 Stock Option Plan, as amended.
1984 Stock Option Plan, as amended.
1987 Stock Option Plan, as amended.
1990 Stock Option Plan, as amended.
Wendy's WeShare Stock Option Plan, as amended.
(b) The Company filed a Form 8-K during the quarter ended
December 31, 1995. The Form 8-K filed December 4, 1995,
disclosed the Share Purchase Agreement entered into on
October 31, 1995 to acquire all of the outstanding shares of
632687 Alberta Ltd. for 16.45 million common shares of a
Canadian subsidiary of the Company exchangeable for 16.45
million common shares of the Company. Included were the
financial statements of 632687 Alberta Ltd. at December 31,
1994 and September 30, 1995, and pro forma consolidated
statements of income for the year ended January 1, 1995 and
for the year-to-date ended October 1, 1995, and a pro forma
consolidated balance sheet as of October 1, 1995.
(c) Exhibits filed with this report are attached hereto.
(d) The following Consolidated Financial Statement Schedule of
Wendy's International, Inc. and Subsidiaries is included in
Item 14(d):
II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions, are inapplicable, or the information has been
disclosed elsewhere.
29
<PAGE> 30
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
By /s/ JOHN K. CASEY 3/29/96
------------------------------------------
John K. Casey
Vice Chairman and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ R. DAVID THOMAS* 3/29/96 /s/ JAMES W. NEAR* 3/29/96
------------------------------------------- ---------------------------------------
R. David Thomas, Senior James W. Near, Chairman of the
Chairman of the Board and Board, Director
Founder, Director
/s/ JOHN K. CASEY 3/29/96 /s/ GORDON F. TETER* 3/29/96
------------------------------------------- ---------------------------------------
John K. Casey, Vice Chairman Gordon F. Teter, President,
and Chief Financial Officer, Chief Executive Officer and
Director Chief Operating Officer, Director
/s/ RONALD E. MUSICK* 3/29/96 /s/ LAWRENCE A. LAUDICK* 3/29/96
------------------------------------------- ---------------------------------------
Ronald E. Musick, Executive Vice Lawrence A. Laudick, Vice
President, Director President, General Controller
and Assistant Secretary
/s/ W. CLAY HAMNER* 3/29/96
------------------------------------------- ---------------------------------------
W. Clay Hamner, Director Ernest S. Hayeck, Director
/s/ JANET HILL* 3/21/96 /s/ THOMAS F. KELLER* 3/20/96
------------------------------------------- ---------------------------------------
Janet Hill, Director Thomas F. Keller, Director
/s/ FIELDEN B. NUTTER, SR.* 3/21/96 /s/ JAMES V. PICKETT* 3/21/96
------------------------------------------- ---------------------------------------
Fielden B. Nutter, Sr., Director James V. Pickett, Director
/s/ THEKLA R. SHACKELFORD* 3/29/96
------------------------------------------- ---------------------------------------
Frederick R. Reed, Director Thekla R. Shackelford, Director
*By /s/ JOHN K. CASEY 3/29/96
---------------------------------------
John K. Casey
Attorney-in-Fact
</TABLE>
30
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
WENDY'S INTERNATIONAL, INC.
We have audited the consolidated financial statements and financial
statement schedule of Wendy's International, Inc. and Subsidiaries
listed in Item 14(a) of this Form 10-K. These financial statements
and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Wendy's International, Inc. and Subsidiaries as of
December 31, 1995, and January 1, 1995, and the consolidated results
of their operations and their cash flows for the years ended
December 31, 1995, January 1, 1995, and January 2, 1994, in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Columbus, Ohio COOPERS & LYBRAND L.L.P.
February 22, 1996
- --------------------------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Wendy's International, Inc. and Subsidiaries on Form
S-3 (File Nos. 33-39525 and 33-57101), and Form S-8 (File Nos.
2-67253, 2-98696, 33-18177, 2-82823, 33-36602, 33-36603, and
33-57913) of our report dated February 22, 1996 on our audits of the
consolidated financial statements and financial statement schedule
of Wendy's International, Inc. and Subsidiaries as of December 31,
1995, and January 1, 1995, and for the years ended December 31,
1995, January 1, 1995, and January 2, 1994, which report is included
in this Annual Report on Form 10-K.
Columbus, Ohio COOPERS & LYBRAND L.L.P.
March 29, 1996
31
<PAGE> 32
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED (CREDITED) BALANCE AT
BEGINNING TO COSTS & ADDITIONS END OF
CLASSIFICATION OF YEAR EXPENSES (DEDUCTIONS) (A) YEAR
<S> <C> <C> <C> <C>
Fiscal year ended December 31, 1995:
Reserve for royalty receivables $ 4,315 $ 48 $ (784) $ 3,579
Reserve for possible franchise-
related losses & contingencies 6,479 1,474 (722) 7,231
-------- -------- -------- --------
$ 10,794 $ 1,522 $ (1,506) $ 10,810
-------- -------- -------- --------
Fiscal year ended January 1, 1995:
Reserve for royalty receivables $ 5,273 $ (188) $ (770) $ 4,315
Reserve for possible franchise-
related losses & contingencies 5,005 1,961 (487) 6,479
-------- -------- -------- --------
$ 10,278 $ 1,773 $ (1,257) $ 10,794
-------- -------- -------- --------
Fiscal year ended January 2, 1994:
Reserve for royalty receivables $ 6,418 $ 881 $ (2,026) $ 5,273
Reserve for possible franchise-
related losses & contingencies 5,973 (1,581) 613 5,005
-------- -------- -------- --------
$ 12,391 $ (700) $ (1,413) $ 10,278
-------- -------- -------- --------
</TABLE>
(a) Primarily represents reserves written off or reversed or transferred due to
the resolution of certain franchise situations.
Year-end balances are reflected in the Consolidated Balance Sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 2,
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deducted from accounts receivable $ 7,363 $ 7,122 $ 7,190
Deducted from notes receivable 642 755 452
Deducted from other assets 2,516 2,273 1,881
Included in accrued expenses - other 289 644 755
------- ------- -------
$10,810 $10,794 $10,278
------- ------- -------
</TABLE>
32
<PAGE> 33
- --------------------------------------------------------------------------------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
2(a) Share Purchase Agreement, dated as of Incorporated herein by reference from
October 31, 1995, by and among Wendy's Exhibit 2 of Form 10-Q for the quarter
International, Inc., 1149658 OntarioInc., ended October 1, 1995.
632687 Alberta Ltd. and Ronald V. Joyce
(b) Amendment to the Share Purchase Incorporated by reference to Exhibit 2.2
Agreement, dated as of December 28, to Ronald V. Joyce's Schedule 13D, dated
1995, by and among Wendy's January 5, 1996.
International, Inc., 1149658 Ontario Inc.,
1052106 Ontario Limited and Ronald V.
Joyce
(c) Share Exchange Agreement, dated as of Incorporated by reference to Exhibit 2.3
December 29, 1995, by and among to Ronald V. Joyce's Schedule 13D, dated
Wendy's International, Inc., an Ohio January 5, 1996.
corporation, 1149658 Ontario Inc., an
Ontario Corporation and a subsidiary
of Wendy's, and Ronald V. Joyce
(d) Provisions attaching to Exchangeable Incorporated by reference to Exhibit 2.4
Shares to Ronald V. Joyce's Schedule 13D, dated
January 5, 1996.
(e) Support Agreement, dated as of December Incorporated by reference to Exhibit 2.5
29, 1995, by and among Wendy's to Ronald V. Joyce's Schedule 13D, dated
International, Inc., 1149658 Ontario Inc., January 5, 1996.
and Ronald V. Joyce
(f) Irrevocable Trust Agreement for the Benefit of Incorporated by reference to Exhibit 2.6
Ronald V. Joyce, dated as of December to Ronald V. Joyce's Schedule 13D, dated
29, 1995, between Dana Klein and The January 5, 1996.
Huntington Trust Company, N.A.
(g) Subscription Agreement, dated as of Incorporated by reference to Exhibit 2.7
December 29, 1995, by and between to Ronald V. Joyce's Schedule 13D, dated
the Irrevocable Trust for the Benefit January 5, 1996.
of Ronald V. Joyce, an Ohio Trust, and
Wendy's International, Inc.
(h) Guaranty Agreement, dated as of Incorporated by reference to Exhibit 2.8
December 29, 1995, by and between The to Ronald V. Joyce's Schedule 13D, dated
Irrevocable Trust for the Benefit of Ronald January 5, 1996.
V. Joyce, an Ohio Trust, and Ronald V.
Joyce
(i) Escrow Agreement, dated as of December Incorporated by reference to Exhibit 2.9
29, 1995, by and among Wendy's to Ronald V. Joyce's Schedule 13D, dated
International, Inc., an Ohio corporation, January 5, 1996.
1149658 Ontario Inc., Ronald V. Joyce,
and The Trust Company of Bank of
Montreal, as escrow agent
(j) Registration Rights Agreement, dated as of Incorporated by reference to Exhibit 2.10
December 29, 1995, between Wendy's to Ronald V. Joyce's Schedule 13D,
International, Inc. and Ronald V. Joyce dated January 5, 1996.
3(a) Articles of Incorporation, as amended to Incorporated herein by reference from
date Exhibit 3(a) of Form 10-K for the year
ended January 3, 1993.
(b) New Regulations, as amended Incorporated herein by reference from
Exhibit 3(b) of Form 10-K for the year
ended January 3, 1993.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
*4(a) Indenture between the Company and Incorporated herein by reference from
The Huntington National Bank pertaining Form S-3 Registration Statement, File No.
to 7% debentures and 6.35% notes due 33-57101.
December 15, 2025 and December 15, 2005,
respectively
(b) Indenture between the Company and Incorporated herein by reference from
The Huntington National Bank pertaining Form S-3 Registration Statement, File No.
to 7% convertible subordinated debentures 33-39525.
due 2006
(c) Preferred Stock Purchase Rights Agreement Incorporated herein by reference from
between the Company and Morgan Form 8-A Registration Statement, File
Shareholder Services Trust Company No. 1-8116.
(d) Amendment, dated as of December 29, Incorporated herein by reference from
1995, to the Rights Agreement, dated as Amendment No. 1 to Form 8-A/A
of August 10, 1988, between the Company Registration Statement, File No. 1-8116.
and American Stock Transfer and Trust
Company, as successor to Morgan
Shareholder Services Trust Company
10(a) Sample Key Executive Agreement between Incorporated herein by reference from
the Company and Messrs. Thomas and Exhibit 10(a) of Form 10-K for the year
Near. The Employment Term is ten years ended January 3, 1993.
for Mr. Thomas and five years for Mr. Near
(b) Sample New Key Executive Agreement Incorporated herein by reference from
between the Company and Messrs. Exhibit 10(b) of Form 10-K for the year
Brownley, Condos, Laudick, Ourant, ended January 3, 1993.
Rath, Schauf, Schuessler, Teter, and Wright
(c) Sample New Key Executive Agreement Incorporated herein by reference from
between the Company and Messrs. Casey Exhibit 10(c) of Form 10-K for the year
and Musick ended January 3, 1993.
(d) Sample Separation and Consulting Incorporated herein by reference from
Agreement between the Company and Exhibit 10(d) of Form 10-K for the year
Mr. Near ended January 3, 1993.
(e) Agreement between the Company Incorporated herein by reference from
and Mr. Teter Exhibit 10(e) of Form 10-K for the year
ended January 1, 1995.
(f) Employment Agreement between The 36-43
TDLGroup Ltd. (a subsidiary of the
Company) and Ronald Vaughn Joyce
(g) Senior Executive Earnings Incorporated herein by reference from the
Maximization Plan Company's Definitive Proxy Statement,
dated March 11, 1994.
(h) Description of Earnings Maximization Plan Incorporated herein by reference from
Exhibit 10(f) of Form 10-K for the year
ended January 3, 1993.
(i) Description of Management Incentive Plan 44
(j) Supplemental Executive Retirement Plan, 45-49
as amended
(k) 1978 Non-Qualified Stock Option Plan, Incorporated herein by reference from
as amended the Company's Definitive Proxy
Statement, dated March 11, 1994.
</TABLE>
* Neither the Company nor its subsidiaries are party to any other instrument
with respect to long-term debt for which securities authorized thereunder
exceed 10 percent of the total assets of the Company and its subsidiaries on
a consolidated basis. Copies of instruments with respect to long-term debt of
lesser amounts will be furnished to the Commission upon request.
34
<PAGE> 35
<TABLE>
<S> <C> <C>
(l) 1982 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 11, 1994.
(m) 1984 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 11, 1994.
(n) 1987 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 11, 1994.
(o) 1990 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 11, 1994.
(p) Wendy's WeShare Stock Option Plan, 50-53
as amended
11 Computation of Net Income Per Share 54
21 Subsidiaries of the Registrant 55
23 Consent of Coopers & Lybrand L.L.P. Incorporated by reference to page 31
of this Form 10-K.
24 Powers of Attorney 56-66
99 Safe harbor under the Private Securities 67-68
Litigation Reform Act of 1995
</TABLE>
35
<PAGE> 1
EXHIBIT 10(f)
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made the 29th day of December, 1995, by and between THE TDL
GROUP LTD., a corporation organized under the laws of Ontario (the "Company"),
and RONALD VAUGHAN JOYCE (the "Executive") and WENDY'S INTERNATIONAL, INC.
("Wendy's).
WHEREAS, entering into this Agreement is a condition of closing under a Share
Purchase Agreement dated as of the 31st day of October, 1995, as amended (the
"Purchase Agreement"), whereby 1149658 Ontario Inc. ("Newco") purchased from the
Executive all of the shares of 1052106 Ontario Limited (previously 632687
Alberta Ltd. and herein referred to as "Alberta"), the sole shareholder of the
Company;
WHEREAS, it is contemplated that immediately after such purchase Newco and
Alberta will be amalgamated (with the Company, Newco and Alberta, their
successors and their respective subsidiaries being referred to herein as the
"TDL Group"); and
WHEREAS, the Company and the Executive wish to set forth the terms and
conditions of the Executive's employment by the Company and Wendy's is a party
hereto solely for the purposes of sections 3(b) and 8;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
consummation of the transactions contemplated by the Purchase Agreement and
other good and valuable consideration, receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Employment
The Company agrees to employ the Executive for the Term specified in
paragraph 2, and the Executive agrees to accept such employment, upon the
terms and conditions hereinafter set forth.
2. Term
Subject to the terms and conditions of this Agreement, this Agreement shall
be for a term commencing on the date hereof and expiring on the close of
business on December 31, 2000 (the "Term"). If at the expiry of the term the
Executive's employment is not extended by written agreement all obligations
of the Company and its affiliates to the Executive will be at an end without
any requirement of notice to the Executive or pay in lieu of notice.
3. Duties and Responsibilities
(a) During the Term, the Executive shall have the title of Senior Chairman
of the Company, and shall act in an advisory role and generally promote
the overall health and best interests of the TDL Group and in
connection therewith shall perform such executive and managerial duties
and responsibilities as may be mutually agreed upon from time to time
with the Chairman, the President or the Board of Directors of the
Company.
(b) Wendy's will use its best efforts to cause the Executive to be
appointed to the Board of Directors of the Company's parent
corporation, Wendy's, as soon as there is a vacancy on the board (but
he shall be permitted to resign such directorship without being
considered to be in breach of this Agreement). As an employee of a
subsidiary of Wendy's, the Executive acknowledges that in accordance
with the policies of Wendy's he will be serving as a director of
Wendy's without compensation. The Executive will be provided with such
Director's and officer's liability insurance coverage as is currently
and from time to time in effect for other members of the Wendy's Board
of Directors. The Executive further acknowledges that such position
will impose on him certain fiduciary obligations toward Wendy's, its
subsidiaries and their shareholders and covenants and agrees that at
all times during the Term he will fulfil such obligations as a director
or former director of Wendy's.
(c) The Executive will, at all times, use all reasonable efforts to perform
his duties and responsibilities within the parameters of the then
current budget of the Company as approved by the Board of Directors of
the Company (except as otherwise permitted by the Board of Directors)
and will abide by the policies of the TDL Group and of Wendy's and all
reasonable requests of the senior management of the Company, Wendy's
and of the Board of Directors of the Company. The Executive shall
comply and use all reasonable efforts to ensure that the TDL Group
complies on a timely basis with all budgetary, approval and reporting
requirements reasonably requested by the TDL Group or Wendy's. In no
event will the Executive incur obligations on behalf of the TDL Group
or enter into any transaction on behalf of the TDL Group except in
accordance with the policies and internal controls of Wendy's and the
TDL Group.
36
<PAGE> 2
(d) The Executive agrees that he will (i) devote such business time and
attention as are required to perform the functions assigned to him (not
to exceed 6 months in each calendar year); (ii) carry out his duties
and work with other employees of the Company and, to the extent
necessary, employees of Wendy's, in a competent and professional
manner; and (iii) generally use his best efforts, skill and ability to
promote the best interests of the Company.
(e) The Executive's services shall be performed at the Company's offices in
Calgary, Canada, subject to reasonably necessary travel requirements of
his position and duties hereunder.
4. Compensation
(a) As compensation for his services hereunder the Company shall pay the
Executive, in accordance with the Company's normal payroll practices,
direct salary compensation at an annual rate of C$500,000 through the
period ending December 31, 2000.
(b) Annually during the Term in respect of the 1996 fiscal year and
subsequent years, the Company will pay the Executive a bonus in an
amount which is the Canadian dollar equivalent of the greater of (i)
the bonus paid to R. David Thomas under the Wendy's Senior Executive
Earnings Maximization Plan, a copy of which is attached as Schedule "A"
hereto (the "Plan"), and (ii) 25% of the aggregate payments in respect
of such year under the Plan. Such bonus shall be paid coincident with
the bonus payments under the Plan and the Executive shall be recognized
as an employee with more than ten years of continuous service.
5. Expenses; Fringe Benefits
(a) In addition to the compensation provided for under paragraph 4, the
Company agrees to pay or to reimburse the Executive during the Term for
all reasonable and customary expenses incurred in the performance of
his services hereunder in accordance with the policies of the Company
and Wendy's as from time to time in effect. With respect to the use of
the Executive's personal aircraft, regulatory requirements will limit
reimbursement of expenses to the actual cost of fuel consumed. The
Executive shall not transport other employees of the Company or Wendy's
on the Executive's aircraft except as permitted by the then current
policies of the Company and Wendy's and as permitted by all applicable
laws and regulations. Before any other employees of the Company or
Wendy's are transported the Company and Wendy's shall first, and shall
from time to time, be permitted to examine the aircraft maintenance
records and the policies and practices for pilot training and flight
time. The Company and Wendy's shall also be given appropriate lead time
to arrange for any additional insurance coverage which they feel to be
reasonable in the circumstances. In the event all applicable regulatory
requirements are met to permit the chartering of the Executive's
aircraft and appropriate insurance is in place, the Company will in
addition to fuel consumed reimburse the Executive for reasonable
overhead costs (including pilot salaries and "tie down" fees) in
respect of use of such aircraft for Company business as agreed to from
time to time.
(b) During the Term the Executive shall be entitled to participate in all
insurance, pension and other fringe benefits as hereafter may be
established by the Company for the benefit of the Company's employees
generally or the officers of the Company, subject, however, to the
provisions of the various benefit plans and programs in effect from
time to time. The Executive acknowledges that his ability to
participate in or contribute to the Employee Incentive Plan and the
Retirement Compensation Agreement now in effect at the Company will be
terminated at closing.
6. Termination
The Company shall be entitled to terminate the Term and to discharge the
Executive for "Cause" without notice, or any payment in lieu of notice, and
in such event the Executive's right to receive any unearned, non-vested or
non-accrued compensation hereunder from the Company shall then forthwith
terminate. The term "Cause" shall mean any grounds at common law whereby an
employer is entitled to terminate the services of an employee without notice
and shall include, but shall not be limited to, the following grounds:
(a) the Executive's failure or refusal to perform his material duties and
responsibilities as set forth in paragraph 3 hereof, if such failure or
refusal continues after written warning to the Executive;
(b) misappropriation of TDL Group funds or property;
(c) excessive use of alcohol or illegal drugs which interferes with the
performance of the Executive's obligations under this Agreement which
continues after written warning;
(d) the entry of a conviction for a Canadian Criminal Code offence (other
than a traffic violation or summary conviction offense) or of any crime
involving moral turpitude, fraud or misrepresentation;
(e) the commission by the Executive of any wilful or intentional act which
could reasonably be expected to materially injure the reputation,
business or business relationships of the TDL Group;
37
<PAGE> 3
(f) the Executive's breach of his fiduciary duties to Wendy's, its
subsidiaries, or their shareholders or other breach of his obligations
pursuant to section 8 hereof; and
(g) any material breach (other than those specified in any of the clauses
(a) through (f) above) of any of the provisions of this Agreement, if
such breach is not cured within 10 days after written notice thereof to
the Executive by the Company.
7. Death
Notwithstanding any other provision hereof should the
Executive die during the Term this Agreement shall
terminate and the Company's only obligation thereafter
will be to continue to pay to the Executive's estate
his then salary and all accrued benefits hereunder to
the end of the month in which such death occurs and to
pay the Executive's estate a pro rata share of the
bonus contemplated under section 4(b) hereof.
8. Protection of Confidential Information and Non-Competition
(a) As used in this Agreement:
"Business of the Company" shall include the business of the Company and
of other members of the TDL Group and means the franchising,
development, opening, and operating of retail outlets involving the
production, merchandising, and sale of donuts, muffins, tarts, cakes,
pies, cookies, coffee, sandwiches, cups or coffee makers and such other
products as may be offered for sale by Tim Hortons Shops now or
hereafter during the Term and the sourcing and supply of ingredients,
supplies, or merchandise for such products or such business.
"Confidential Information" means:
(i) proprietary information of the TDL Group or of the Wendy's Group;
(ii) information marked or designated by the TDL Group or the Wendy's
Group as confidential;
(iii) information, whether or not in written form and whether or not
designated as confidential, which is known to the Executive as
being treated by the TDL Group or the Wendy's Group as
confidential;
(iv) information provided to the TDL Group or the Wendy's Group by
third parties which the TDL Group or the Wendy's Group is
obligated to keep confidential; and
(v) without limitation, know-how, supplier lists, franchisee lists,
marketing and distribution plans and practices, and financial and
technical information of the TDL Group or the Wendy's Group.
"Wendy's Group" means Wendy's and its subsidiaries other than the TDL
Group.
(b) The Executive acknowledges that he now has and in the course of
performing his duties for the Company he will have access to
Confidential Information, the ownership and confidential status of
which are highly important to the TDL Group and the Wendy's Group, and
the Executive agrees, in addition to the specific covenants contained
herein, to comply with all reasonable policies and procedures of the
TDL Group and the Wendy's Group as may be established from time to time
for the protection of such Confidential Information.
(c) The Executive acknowledges that all Confidential Information is and
shall continue to be the exclusive property of the TDL Group or the
Wendy's Group as applicable, whether or not prepared in whole or in
part by him and whether or not disclosed to or entrusted to him in
connection with his employment by the Company or in his capacity as a
director of Wendy's.
(d) The Executive agrees not to use Confidential Information for his
benefit or for the benefit of any third party and agrees not to
disclose Confidential Information, directly or indirectly, under any
circumstances or by any means, to any third person. In the event that
the Executive becomes legally compelled to disclose any of the
Confidential Information, he agrees to provide the Company and Wendy's
with prompt notice so that they may seek a protective order or other
appropriate remedy and/or waive compliance with the applicable
provisions of this Agreement. In the event that either such protective
order or other remedy is obtained or the Company and Wendy's waive
compliance with the applicable provisions of this Agreement, the
Executive agrees to furnish only that portion of the Confidential
Information which is legally required and will exercise his best
efforts to obtain reliable assurance that confidential treatment will
be accorded the Confidential Information. The Company and Wendy's agree
to reimburse the Executive for his reasonable fees and expenses of
counsel in connection therewith. The Executive agrees that he will not
copy, transmit, reproduce, summarize, quote or make any commercial or
other use whatsoever of Confidential Information, except as may be
necessary to perform work done by him for the TDL Group or in his
capacity as a director of Wendy's.
(e) The Executive agrees to exercise the highest degree of care in
safeguarding Confidential Information against loss, theft, or other
inadvertent disclosure and agrees generally to take all steps necessary
or requested by the TDL Group or the Wendy's Group to ensure that
confidentiality is maintained at all times.
38
<PAGE> 4
(f) This Section 8 shall not apply to the following information:
(i) information now or hereafter voluntarily disseminated by the TDL
Group or the Wendy's Group to the public or which otherwise
becomes part of the public domain through lawful means;
(ii) information subsequently and rightfully received from third
parties and not subject to any obligation of confidentiality; and
(iii) information independently developed by the Executive after
termination of his employment hereunder.
(g) The Executive agrees that all creative work prepared or originated by
him for the TDL Group or during or within the scope of his employment
by the Company is owned by the applicable member of the TDL Group; and,
in any event, the Executive assigns to such entity all intellectual
property rights in such work whether by right of copyright, trade
secret or otherwise and whether or not subject to protection by
copyright laws.
(h) The Executive agrees that during the Term of this Agreement and for one
year thereafter, he will not, without the prior written consent of the
Company, directly or indirectly, whether as employee, officer,
director, independent contractor, consultant, licensor, licensee,
stockholder, partner, or otherwise, engage or assist others to engage
in or have any interest in any business which competes with the
Business of the Company: (a) in the areas which now comprise the
provinces and territories of Canada; (b) in the states of New York,
Florida, Minnesota, Michigan and Washington; or (c) within 100 miles of
any operating Tim Hortons Shop in such states of the United States of
America or such other foreign jurisdictions where the TDL Group then
operates or licenses parties to carry on the Business; provided,
however, that Executive may own directly or indirectly, solely as an
investment, securities of any person which engages in such a business
which are traded on any national securities exchange if he (y) is not a
controlling person of, or a member of a group which controls, such
person or (z) does not, directly or indirectly, own 1% or more of any
class of securities of such person.
(i) During the Term of this Agreement and for a period of one year
thereafter, the Executive agrees that he will not: (i) solicit, induce,
or attempt to induce any person who is an employee of the TDL Group to
leave the employ of the TDL Group or to engage in any business that
competes with the Business of the Company; or (ii) hire or assist in
the hiring of any person who is an employee of the TDL Group to work
for any business that competes with the Business of the Company.
(j) For a period of one year after termination of his employment by the
Company, the Executive agrees to notify the Company in writing of any
involvement by him with any business that competes with the Business of
the Company. The Executive shall disclose the existence and contents of
this Agreement to any business with which the Executive proposes to
become involved within such time period.
(k) Upon termination of this Agreement and any extension hereof, the
Executive shall deliver to the Company all materials, including without
limitation supplier lists, lists of current or prospective franchisees,
documents, records, drawings, prototypes, models and schematic
diagrams, which describe, depict, contain, constitute, reflect, record
or in any way relate to Confidential Information (including all copies
and extracts therefrom), which are in the Executive's possession or
under his control, whether or not the materials were prepared by the
Executive.
(l) If the Executive is served with any subpoena or other compulsory
judicial or administrative process calling for production of
Confidential Information or if the Executive is otherwise required by
law or regulation to disclose Confidential Information, the Executive
will immediately, and prior to production or disclosure, notify the
Company in writing and provide it with such information as may be
necessary in order that the Company may take such action as it deems
necessary to protect its interests.
(m) If the Executive commits a breach of any of the provisions of this
paragraph 8, the Company shall have the right to have the provisions of
this Agreement specifically enforced by any court having equity
jurisdiction without being required to post bond or other security and
without having to prove the inadequacy of any other available remedies,
it being acknowledged and agreed that any such breach will cause
irreparable harm to the Company and that monetary damages will not
provide an adequate remedy to the Company. In addition, the Company may
take all such other actions and remedies available to it in law or in
equity and shall be entitled to such damages as it can show it has
sustained by reason of such breach or attempted breach.
(n) The Executive acknowledges that in his capacity as a director of
Wendy's he will have certain fiduciary obligations towards Wendy's and
the Wendy's Group. In consideration of Wendy's causing Newco to
purchase Alberta and agreeing to appoint the Executive to the Wendy's
board the Executive hereby agrees that he will continue to be bound by
such fiduciary obligations for the longer of (i) a one year period
after he ceases to be a director of Wendy's, and (ii) the period for
which he would otherwise be bound by such fiduciary obligations.
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<PAGE> 5
(o) The parties acknowledge that the nature, extent and periods of
restriction imposed in the provisions of this paragraph 8 are fair and
reasonable and are reasonably required for the protection of the
Company, and the goodwill and the Business of the Company in the
context of the acquisition by Newco of Alberta, including its
wholly-owned subsidiary, the Company; and that the time, scope,
geographic area and other provisions of this paragraph 8 have been
specifically negotiated by sophisticated commercial parties and are
given as an integral part of the transactions contemplated by the
Purchase Agreement. If any of the covenants in this paragraph 8, or any
part thereof, is hereafter construed to be invalid or unenforceable, it
is the intention of the parties that the same shall not affect the
remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portions. If any of the covenants
contained in this paragraph 8, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court making such
determination should reduce the duration and/or areas of such provision
such that, in its reduced form, said provision shall then be
enforceable.
9. Release of Prior Claims
The Executive is a long term employee of the Company who has over a number
of years received bonuses from the Company in addition to his salary.
Pursuant to the Purchase Agreement, and as a condition to the entering into
of this Agreement, the Executive hereby releases any and all claims for
compensation from the Company in his capacity as an employee, officer or
director including notice of termination or pay in lieu of notice except
pursuant to the terms of this Agreement and acknowledges that he has been
paid all sums of money to which he is entitled to the date hereof under the
Employment Standards Act of Ontario or any other applicable legislation. As
at the date of execution of this Agreement the Executive has also provided a
written release of similar claims against Alberta and its subsidiaries and
the subsidiaries of the Company.
10. Enforceability
The failure of either party at any time to require performance by the other
party of any provision hereunder shall in no way affect the right of that
party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by either party of the breach of any
provision hereof be taken or held to be a waiver of any subsequent breach of
such provision or as a waiver of the provision itself.
11. Assignment
This Agreement is a personal contract and the Executive's rights and
obligations hereunder may not be sold, transferred, assigned, pledged or
hypothecated by the Executive. The rights and obligations of the Company
hereunder shall be binding upon and run in favour of the Company; provided,
however, the Company may not assign its rights and obligations under this
Agreement except in connection with the sale or transfer of all or
substantially all of the Company's business (whether by way of sale of
assets, amalgamation or otherwise).
12. Modification
This Agreement may not be orally cancelled, changed, modified or amended,
and no cancellation, change, modification or amendment shall be effective or
binding, unless in writing and signed by both parties to this Agreement, and
approved in writing by the Chief Executive Officer of Wendy's.
13. Severability
In the event any provision of this Agreement is found to be void and
unenforceable by a court of competent jurisdiction, the remaining provisions
of this Agreement shall nevertheless be binding upon the parties with the
same effect as though the void or unenforceable provision had been severed
and deleted. The provisions of paragraphs 8 and 13 shall survive termination
of this Agreement.
14. Notice
All notices and other communications hereunder shall be in writing and shall
be deemed given if delivered by hand, sent by facsimile transmission with
confirmation of receipt requested, or sent via a reputable international
courier service with confirmation of receipt requested, to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice), and shall be deemed given on the date on which
delivered by hand or otherwise on the date of receipt as confirmed:
If to the Executive:
Ronald V. Joyce
10 Blue Ridge Mountain Estates
Calgary, Alberta
T2M 4N4
Facsimile: (403) 547-5953
40
<PAGE> 6
with a copy to:
Tory Tory DesLauriers & Binnington
Suite 3000 Aetna Tower
P.O. Box 270
Toronto-Dominion Centre
Toronto, Ontario
M5K 1N2
Attention: Gordon Coleman, Esq., Q.C.
Facsimile: (416) 865-7380
If to the Company:
874 Sinclair Road
Oakville, Ontario
L6K 2Y1
with a copy to:
Wendy's International, Inc.
P.O. Box 256
4288 West Dublin Granville Road
Dublin, Ohio 43017
U.S.A.
Attention: Lawrence E. Schauf, Esq.
Facsimile: (614) 764-3243
and
Lang Michener
BCE Place, Suite 2500
P.O. Box 747
181 Bay Street
Toronto, Ontario
M5J 2T7
Attention: Robert Glass, Esq.
Facsimile: (416) 365-1719
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Lois Herzeca
Facsimile: (212) 859-4000
15. Applicable Law
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario (and the laws of Canada applicable therein)
without regard to their respective conflict of law rules.
16. No Conflict
The Executive represents and warrants that he is not subject to any
agreement, instrument, order, judgment or decree of any kind, or any other
restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive
upon the performance of his duties pursuant to this Agreement.
17. Entire Agreement
This Agreement represents the entire agreement between the Company and the
Executive with respect to the subject matter hereof, and all prior
agreements relating to the employment of the Executive, written or oral, are
nullified and superseded hereby.
41
<PAGE> 7
18. Headings
The headings contained in this Agreement are for reference purposes only,
and shall not affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement on and as of the
day and year first above written.
THE TDL GROUP LTD.
By:
---------------------------------
SIGNED, SEALED AND DELIVERED
in the presence of:
- ----------------------------------- ------------------------------------
RONALD VAUGHAN JOYCE
Acknowledged and agreed to for the
purposes of sections 3(b) and 8.
WENDY'S INTERNATIONAL, INC.
By:
--------------------------------
42
<PAGE> 8
SCHEDULE A
WENDY'S INTERNATIONAL, INC.
SENIOR EXECUTIVE EARNINGS MAXIMIZATION PLAN
1. Purpose. The purpose of the Senior Executive Earnings Maximization Plan (the
"Plan") is to enhance Wendy's International, Inc.'s (the "Company") ability
to attract, motivate, reward, and retain key employees, to strengthen their
commitment to the success of the Company and to align their interests with
those of the Company's shareholders by providing additional compensation to
designated key employees of the Company based on the achievement of
performance objectives. To this end, the Plan provides a means of rewarding
participants based on the performance of the Company.
2. Committee. The Plan shall be administered by a committee of the Board of
Directors of the Company (the "Committee"). Each member of the Committee
must be an "outside director" within the meaning of the Regulations proposed
under Section 162(m) of the Internal Revenue Code of 1986, as amended.
3. Eligible Employees. Eligible employees shall include the individuals
holding the positions of Senior Chairman of the Board, Chairman of the
Board, Chief Executive Officer, President, Chief Operating Officer or Chief
Financial Officer; provided, however, that no more than three persons will
participate in the Plan for any particular fiscal year of the Company (those
Eligible Employees who are participants in respect of any fiscal year are
hereinafter referred to as "Participants"). The Eligible Employees who will
participate in the Plan for any fiscal year will be designated by the
Committee in its sole discretion prior to commencement of that fiscal year.
4. Creation of a Bonus Pool. The Committee shall establish Net Income targets
at three levels for each fiscal year. A bonus pool (the "Bonus Pool") will
be created in respect of any fiscal year in which Net Income exceeds one of
those target levels. The amount of the Bonus Pool in any such fiscal year
shall be a percentage of the Net Income of the Company for such year, such
percentage to be based on which target level of Net Income was achieved. The
Committee may establish such targets and percentages for a period of years,
but in all circumstances prior to the commencement of the year to which the
targets and percentages relate (except in the case of 1994, in which case
the targets and percentages must be established before April 1, 1994). "Net
Income" as used in this Plan shall mean net income of the Company as
reflected in the Company's consolidated audited financial statements for the
applicable fiscal year.
The Net Income target for each fiscal year is based on an assumed Federal
Statutory Tax Rate applicable to the Company of 34%. If the Federal
Statutory Tax Rate applicable to the Company for any fiscal year is other
than 34%, then the Net Income targets for such fiscal year shall be adjusted
based on the same pre-federal tax income amount which could be calculated
using the stated Net Income targets for such fiscal year (at the assumed 34%
Federal Statutory Tax Rate) multiplied by the actual Federal Statutory Tax
Rate for such fiscal year, provided that no adjustment will be made for any
fiscal year unless the Company's Effective Federal Tax Rate for the fiscal
year is more than the Company's actual Federal Statutory Tax Rate for such
fiscal year. If the Federal Statutory Tax Rate applicable to the Company
changes during a fiscal year, the Net Income target for such year shall be
adjusted pro-rata for such portion of the fiscal year that each Federal
Statutory Tax Rate was in effect. "Federal Statutory Tax Rate" as used in
this Plan shall mean the highest federal marginal tax rate applicable to the
Company for a stated fiscal year (or portion thereof). "Effective Federal
Tax Rate" as used in this Plan shall mean the quotient obtained by dividing
the Company's federal income taxes for a given year by its income before
federal income taxes for the same year, multiplied by 100.
5. Allocation. The Bonus Pool created in respect of any fiscal year shall be
allocated among the Participants in the manner established by the Committee
prior to the beginning of such fiscal year; provided, however, that the
Committee in its sole discretion may reduce at any time, including during or
following the fiscal year, the amount of the bonus payable to any or all
participants in respect of such fiscal year. No bonus shall be payable to
any Participant unless he is employed by the Company on the last day of the
fiscal year, unless the Participant's employment was terminated because of
his death, disability or retirement after attaining age 55 and the
completion of 10 years of continuous service with the Company, in which
event the Participant will be entitled to a pro-rata portion of the bonus
otherwise payable in respect of that fiscal year, subject to the Committee's
discretion as set forth in the proviso to the preceding sentence. Any
portion of the Bonus Pool that is not paid to a Participant in respect of
any fiscal year shall not be paid to any Eligible Employee.
6. Certification. Prior to payment of a bonus in respect of a fiscal year, the
Committee must certify in writing as to the satisfaction of and compliance
with the performance goals and other material terms of the Plan for that
fiscal year.
7. Amendment or Termination. The Committee may amend or terminate the Plan at
any time in its discretion; provided, however, that no amendment or
termination of the Plan may affect any award made under the Plan prior to
that time.
8. Shareholder Approval. The adoption of this Plan is subject to the approval
of the shareholders of the Company.
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EXHIBIT 10(i)
- --------------------------------------------------------------------------------
DESCRIPTION OF
MANAGEMENT INCENTIVE PLAN
The Management Incentive Plan (the "Plan") was adopted by the Executive
Committee of the Company to provide incentive cash compensation to key officers
and other employees of the Company. The Plan applies only to regular full-time
management and administrative employees of the Company at or above a specified
grade level. The Chairman of the Board and Chief Executive Officer is not
eligible to participate in the Plan.
The Plan establishes a year-end cash payout opportunity, based on the
financial success of the Company and each individual participant's performance.
The payout for each fiscal year is determined based on the Company's final
actual earnings per share and return on assets compared to the budgeted earnings
per share and return on assets. No bonus payment is made if the Company does not
achieve the minimum performance levels in a given fiscal year.
Each participant in the plan has a targeted bonus percentage based on such
participant's grade level. The targeted bonus percentages range from 12% - 25%
of the participant's base salary for the fiscal year.
The Company's earnings per share and return on assets performance
establishes a "bonus factor" of between 0% and 225%. For each fiscal year, the
same bonus factor percentage applies to all participants. The actual bonus
amount paid to each participant is calculated by multiplying such participant's
base salary times the targeted bonus percentage times the bonus factor
percentage. Each participant is only eligible to receive a payout under the Plan
if the participant's most recent performance appraisal rating was one of the
three highest categories.
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EXHIBIT 10(j)
- --------------------------------------------------------------------------------
WENDY'S INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, Wendy's International, Inc. (the "Company") maintains the Wendy's
International, Inc. Pension Plan (the "Pension Plan") and the Wendy's
International, Inc. Profit Sharing and Savings Plan (the "Profit Sharing and
Savings Plan") for the benefit of its noncrew employees; and
WHEREAS, the Company provided supplemental excess benefits to certain employees
pursuant to a nonqualified plan known as the Wendy's International, Inc.
Supplemental Retirement Agreement (the "Nonqualified Plan"); and
WHEREAS, as a result of the Tax Reform Act of 1986, the Pension Plan and the
Profit Sharing Plan were redesigned and restated, including the restatement of
the Pension Plan as an account balance pension plan (the "Account Balance
Plan"), effective as of January 1, 1989; and
WHEREAS, as a result of the changes, the Nonqualified Plan did not provide
executives at the Company with the benefits that were available under the prior
plans, and the Company adopted the Wendy's International, Inc. Supplemental
Executive Retirement Plan (the "Plan"), effective January 1, 1989 (the
"Effective Date"); and
WHEREAS, the Company has decided to further amend and to restate the plan in its
entirety;
NOW, THEREFORE, the Company hereby adopts the Wendy's International, Inc.
Supplemental Executive Retirement Plan (the "Plan"), effective January 1, 1989
except as otherwise stated herein, as follows:
SECTION 1 - DEFINITIONS AND ASSUMPTIONS
1.1 In General
The words and phrases, when used herein with initial capital letters,
except where specifically defined in this Section 1, shall have the
meanings given to them in the Account Balance Plan or the Profit Sharing
and Savings Plan, as appropriate, unless the context clearly requires
otherwise.
1.15 Active Participant
Active Participant means a Covered Employee who becomes a Participant and
is not an Inactive Participant.
1.2 Actuarial Assumptions
The actuarial assumptions used in the determination of a Participant's
Accrued Benefit under the Account Balance Plan are hereby specifically
incorporated by reference in this Agreement. The actuarial assumptions
used to determine the targeted benefit in this Plan shall be interest at
the rate of seven and one-half percent (71/2%) compounded annually and
mortality pursuant to the UP 1984 Mortality Table with no setbacks.
1.3 Beneficiary
Beneficiary shall mean the person or persons designated by the Participant
in accordance with Section 4.3 to receive any benefits payable under the
Plan after his death.
1.4 Final Average Compensation
Final Average Compensation means a Participant's average annual
Compensation over the five (5) consecutive calendar years while a Covered
Employee (or the total number of completed calendar years while a Covered
Employee if less than five (5) out of the last ten (10) completed calendar
years while a Covered Employee preceding the Participant's attainment of
age sixty (60) which will provide him with the highest annual average
Compensation. The continuity of a period used to determine a Participant's
Final Average Compensation shall be deemed to be uninterrupted by an
absence during which the Participant is not a Covered Employee which does
not result in a Break in Service. For purposes of this Section 1.4,
Compensation shall mean Compensation as defined in the Account Balance
Plan, except that Compensation in excess of two hundred thousand dollars
($200,000) (or such other amount as may be established by the Secretary of
Treasury from time to time) shall not be disregarded. Also for purposes of
this Section 1.4 effective for Plan Years beginning on or after January 1,
1994, Compensation in excess of one hundred fifty thousand dollars
($150,000) (or such other amount as may be adjusted by the Commissioner
from time to time) shall not be disregarded.
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<PAGE> 2
1.45 Inactive Participant
Inactive Participant means a former Active Participant who is no longer a
Covered Employee, who has retired or terminated, or who has been demoted
to an Ineligible Job Class.
1.48 Ineligible Job Class
Ineligible Job Class means a position with a title other than:
(a) For Covered Employees of the Company, "Vice-President" or above;
(b) For Covered Employees of Wendy's Restaurants of Canada, Inc.,
"Senior Vice President" or above; or
(c) For Covered Employees of the New Bakery Company of Ohio, Inc., "Vice
President and General Manager".
l.5 Plan Year
Plan Year means the twelve (12) month period beginning each January 1 and
ending each December 31.
1.6 Supplemental Target Account
The Company shall establish a bookkeeping account, the Supplemental Target
Account, for the benefit of each Participant in this Plan.
1.7 Supplemental Profit Sharing Accounts
The Company shall establish one or more bookkeeping accounts, the
Supplemental Profit Sharing Accounts, for the benefit of each Participant
in this Plan. If the Participant was a participant in the Nonqualified
Plan on the day prior to the Effective Date, then the beginning balance of
such Participant's Supplemental Profit Sharing Accounts in this Plan on
the Effective Date shall be equal to the balance of such prior accounts
maintained for such Participant in the Nonqualified Plan on the day prior
to the Effective Date.
SECTION 2 - ELIGIBILITY FOR PARTICIPATION
2.1 Eligibility
(a) All Covered Employees of the Company with the title "Vice President"
or above shall become Participants in this Plan on the latest of the
Effective Date, or the first day of the Plan Year following
employment, or the first day of the Plan Year following promotion to
a position with the title "Vice President" or above.
(b) All Covered Employees who have the title "Senior Vice President" or
above of the Wendy's Restaurants of Canada, Inc. shall become
Participants on the latest of the Effective Date, or the first day of
the Plan Year following employment, or the first day of the Plan Year
following promotion to a position with the title "Senior Vice
President" or above.
(c) All Covered Employees who have the title "Vice President and General
Manager" of the New Bakery Company of Ohio, Inc. ("New Bakery") shall
become Participants in this Plan on the latest of January 1, 1993,
the first day of the Plan Year following employment, or the first day
of the Plan Year following promotion to "Vice President and General
Manager" of New Bakery.
2.2 Rehired Participants
If a Participant terminates employment for any reason and is later
rehired, such former Participant shall again be eligible to become a
Participant in accordance with the provisions of Section 2.1 above.
SECTION 3 - AMOUNT OF BENEFIT
3.1 Credits to Supplemental Target Account
Except as provided in Section 3.3 below, on the last day of each Plan
Year, the Company shall credit to each Supplemental Target Account of each
Active Participant who remains employed by the Company on the last day of
the Plan Year the following amounts ("Target Credits"):
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<PAGE> 3
(a) An amount which will provide each Participant with a targeted annual
benefit payable as a life annuity at his Normal Retirement Date equal
to the amount obtained, if any, when the sum of (2), (3), (4) and (5)
below is subtracted from (1) below:
(1) Fifty percent (50%) of the Participant's expected Final Average
Compensation at age 60 (determined without salary projection)
multiplied by a fraction, not exceeding one (1), the numerator of
which is the number of the Participant's expected Years of
Service at his Normal Retirement Date and the denominator of
which is fifteen (15).
(2) The Participant's expected Accrued Benefit Derived from Company
Contributions at his Normal Retirement Date under the Account
Balance Plan, assuming the Participant elects to make Participant
Contributions to the Plan until Normal Retirement and that
interest credited to the Cash Balance Benefit for future years
will be at the rate of 71/2%, including the Prior Plan Benefit
and the Minimum Benefit.
(3) The Participant's Profit Sharing and Savings Plan Company Matched
Contribution Account and Company Contribution Account plus any
prior distributions from such Accounts plus future expected
Profit Sharing and Savings Plan contributions equal to the
Participant's Profit Sharing and Savings Plan contribution for
the Plan Year, when projected for the number of years from the
earlier of the distribution of such Accounts to the Participant
or the date of this calculation to the Participant's Normal
Retirement Age at an interest rate of seven and one-half percent
(71/2%) compounded annually. In the event that such Profit
Sharing and Savings Plan Accounts are distributed to the
Participant on different dates, then this projection shall be
applied separately to each distribution based upon the specific
dates of distribution. The total projected value shall be
converted to a life annuity payable at Normal Retirement Date,
using the interest rate published by the Pension Benefit Guaranty
Corporation for use in calculating immediate annuities which is
in effect on the first day of the Plan Year.
(4) The Participant's Supplemental Profit Sharing Account projected
and converted to a life annuity payable at his Normal Retirement
Date in the same manner as the Profit Sharing and Savings Plan
Accounts in (3) above.
(5) The amount of the retirement income the Participant is entitled
to receive pursuant to the Supplemental Retirement Agreement
under the Nonqualified Plan.
(b) An amount equal to the interest rate applied to the Cash Balance
Benefit for the Plan Year in the Account Balance Plan applied to the
amount in the Participant's Supplemental Target Account as of the
first day of the Plan Year.
3.2 Credits and Charges to Supplemental Profit Sharing Account
The Company shall credit or charge, as applicable, to each Participant's
Supplemental Profit Sharing Accounts the following amounts:
(a) For each Plan Year during which the Participant is an Active
Participant in the Profit Sharing and Savings Plan, the amount by
which:
(1) The amount of Employer Contributions which the Company would
have allocated to the Active Participant's Accounts under the
Profit Sharing and Savings Plan without regard to the maximum
annual limitations imposed by Section 415 of the Code or the
limitation on compensation imposed by Section 401(a) (17) of the
Code; exceeds
(2) The actual amount of Employer Contributions which the Company
allocates to the Active Participant's Accounts under the Profit
Sharing and Savings Plan.
(b) For each Plan Year during which the Participant is an Active
Participant, an Inactive Participant or a Former Participant in the
Profit Sharing and Savings Plan, an amount equal to the net gain (or
net loss) that would have been credited (or charged) had the amounts
allocated to the Participant's Supplemental Plan Accounts been
invested in a manner similar to the investment of his dollars under
the Profit Sharing and Savings Plan during a similar time frame.
For any period of time that a Participant has no current account
balance under the Profit Sharing and Savings Plan, his Supplemental
Plan Accounts shall be treated as though they had been invested in
the default fund (as referenced in Section 16.01 of the Profit
Sharing and Savings Plan document, or any successor section thereto)
under the Profit Sharing and Savings Plan for such period of time.
3.3 Cash Election
Each Active Participant who is projected to have five (5) or more Years of
Service by the end of the Plan Year may elect, prior to notification of
the Target Credit (as determined under Section 3.1(a) above), for such
Plan Year to receive in cash the amount that would otherwise be credited
to his Supplemental Target Account on the last day of such Plan Year.
Payment of the vested Target Credits, which were elected to be taken as
cash, shall be paid by the end of the month following the last day of the
Plan Year for which the dollars are credited.
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<PAGE> 4
3.4 Termination Benefit
If a Participant's employment is terminated for any reason on or after his
Normal Retirement Age, after incurring a Total and Permanent Disability,
as a result of death or after completing five (5) Years of Service, such
Participant (or his Beneficiary in the event of the Participant's death)
shall be entitled to receive a benefit, payable in accordance with Section
4, equal to the balance of his Supplemental Target Account and
Supplemental Profit Sharing Accounts. If a Participant's employment is
terminated for any reason prior to the earliest of attaining his Normal
Retirement Age, incurring a Total and Permanent Disability the date of his
death or completing five (5) years of Service, then notwithstanding any
contrary provision in this Plan, neither the Participant nor his
Beneficiary shall be entitled to any benefits under this Plan.
SECTION 4 - PAYMENT OF BENEFITS
4.1 Form of Payment
Payment of benefits under this Plan shall be made to the Participant (or
his Beneficiary in the event of the Participant's death after the
commencement of the payment of benefits but prior to the full payment of
his benefits) in substantially equal annual installments over a period, to
be determined by the Committee, not exceeding the joint and last survivor
life expectancies of the Participant and his spouse; provided, however,
that if a Participant dies prior to the commencement of payment, his
benefits shall be paid to his Beneficiary in one (1) lump sum.
4.2 Time of Payment
Participants shall not be entitled to receive payments of benefits under
the Plan prior to termination of employment, except as otherwise set forth
in this Section 4.2. Payment of benefits under this Plan shall commence as
of the first day of the calendar year coincident with or immediately
following an Inactive Participant's attainment of age sixty-five (65) or
at an earlier date, as determined by the Committee; provided, however,
that if a Participant dies or incurs a Total and Permanent Disability
prior to the commencement of payment, his benefits shall be paid as soon
as practicable following the date of death or disability.
4.3 Designation of Beneficiary
Each Participant shall designate, by giving a written designation in
approved form to the Plan Administrator, a Beneficiary to receive any
benefits which may become or continue to be payable upon or after his
death under this Plan. Successive designations may be made, and the last
designation determined to not be illegal or ineffective received by the
Plan Administrator prior to the death of the Participant shall be
effective and shall revoke all prior designations.
If no Beneficiary designation is in effect at the time of the death of the
Participant, or if no Beneficiary so designated survives the Participant,
then his benefits shall be paid to the surviving members of the following
classes of persons, in the order listed, in equal shares among members of
a class:
(a) The Participant's surviving spouse;
(b) The lineal descendants of the Participant, including legally adopted
children and stepchildren;
(c) The Participant's surviving parents; or
(d) The Participant's estate.
If a Participant designates a child as his Beneficiary or if benefits will
be payable to a Participant's child under Section 4.3(b) above, all
payments shall be made to the child's legal guardian unless the child has
reached the age of majority.
4.4 Participants' Rights to Payment
All benefits under this Plan will be paid from the general assets of the
Company. The Company is not obligated to set aside specific assets for
payment of sums due under this Plan but may reserve on its books such sums
as it deems necessary to provide the benefits hereunder. Since no separate
fund will be established, such sums will remain the sole property of the
Company and will continue to be subject to the claims of the Company's
creditors. The Participant shall not have the power to direct the Company
with respect to the investment of any amounts accrued on his behalf. The
right of the Participant to receive distributions hereunder shall be an
unsecured claim against the general assets of the Company and the
Participant shall not have any rights in or against any security or other
asset acquired by the Company with any amount accrued on his behalf.
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SECTION 5 - ADMINISTRATION
The Company shall appoint one (1) or more individuals to serve as a
Committee to act as its agent or delegate in carrying out its
administrative duties under the Plan. The Committee shall act by a
majority of its members. Any and all determinations, actions or decisions
of the Company and Committee with respect to the administration of the
Plan, including without limitation the determination of benefit
eligibility and interpretation of Plan provisions, shall be final and
conclusive and binding upon all parties having an interest in the Plan.
All costs of administering the Plan will be paid by the Company.
SECTION 6 - PARTICIPANTS' RIGHTS
Nothing contained in this Plan shall be construed as a contract of
employment between the Company and any Participant or as a right of any
Participant to be continued in the employment of the Company or as a
limitation of the rights of the Company to discharge any Participant with
or without cause.
SECTION 7 - INALIENABILITY
No benefit payable under this Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
or charge prior to actual receipt thereof by the payee, and any attempt so
to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge prior to such receipt shall be void; nor shall the Company be in
any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of any Participant or Beneficiary, except as may be
required by the tax withholding provision of the Internal Revenue Code or
any state's income tax act.
SECTION 8 - AMENDMENT AND TERMINATION
The Company may amend or terminate the Plan at any time by action of its
Board of Directors or a committee thereof without the consent of any
Participant. However, in the event of the amendment or termination of the
Plan, any benefit accrued to such date shall not be reduced or forfeited.
SECTION 9 - APPLICABLE LAW
To the extent not preempted by Federal law, the provisions of this Plan
shall be construed and applied in accordance with the laws of the State of
Ohio.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its duly authorized officer this 27th day of December 1995.
WENDY'S INTERNATIONAL, INC.
By: /s/ Gordon F. Teter
---------------------------------
Its: PRESIDENT, CEO & COO
---------------------------------
49
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EXHIBIT 10(p)
- --------------------------------------------------------------------------------
WENDY'S INTERNATIONAL, INC.
WENDY'S WESHARE STOCK OPTION PLAN
(REFLECTS AMENDMENTS THROUGH AUGUST 3, 1995)
SECTION 1. PURPOSE. This Wendy's WeShare Stock Option Plan (hereinafter referred
to as the "Plan") is intended as a means whereby employees (hereinafter referred
to as "Employee" or "Employees" and "Optionee" or "Optionees") of Wendy's
International, Inc. (hereinafter referred to as the "Company") or its
subsidiaries (hereinafter referred to as the "Subsidiaries") can each enlarge
his proprietary interest in the Company, thereby encouraging the judgment,
initiative and efforts of the Employees for the successful conduct of the
Company's business. The Plan is also intended to create common interests between
the Employees and the other shareholders of the Company, and to assist the
Company in attracting, retaining and motivating Employees.
SECTION 2. ADMINISTRATION OF THE PLAN. The Board of Directors of the Company
shall appoint a Compensation Committee (hereinafter referred to as the
"Committee") of not less than three (3) directors to administer the Plan. The
members of the Committee shall serve at the pleasure of the Board, which shall
have the power at any time, or from time to time, to remove members from the
Committee or to add members thereto. All members of the Committee shall be
qualified to administer the Plan as contemplated by Securities and Exchange
Commission Rule 16b-3, as amended or superseded from time to time. The Committee
shall construe and interpret the Plan, establish such operating guidelines and
rules as it deems necessary for the proper administration of the Plan and make
such determinations and take such other action in connection with the Plan as it
deems necessary and advisable. It shall determine the individuals to whom and
the time or times at which Options shall be granted, the number of shares to be
subject to each Option, the Option price and the duration of leaves of absence
which may be granted to participants without constituting a termination of their
employment for purposes of the Plan. Any such construction, interpretation,
rule, determination or other action taken by the Committee pursuant to the Plan
shall be final, binding and conclusive on all interested parties, including the
Company, its Subsidiaries and all former, present and future Employees of the
Company or its Subsidiaries.
Actions by a majority of the Committee at a meeting at which a quorum is
present, or actions approved in writing by all of the members of the Committee,
shall be the valid acts of the Committee. No member of the Board of Directors or
the Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it.
The Committee shall have no authority to make any adjustment (other than in
connection with a stock dividend, recapitalization or other transaction where an
adjustment is permitted or required under the terms of this Plan) or amendment
of the exercise price of an option previously granted under this Plan, whether
through amendment, cancellation or replacement grants, or other means, unless
the Company's shareholders shall have approved such adjustment or amendment.
SECTION 3. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN. Subject to any adjustment
as provided in the Plan, the shares to be offered under the Plan may be, in
whole or in part, authorized but unissued Common Shares of the Company, or
issued Common Shares which shall have been reacquired by the Company and held by
it as treasury shares. The aggregate number of Common Shares to be delivered
upon exercise of all Options granted under the Plan shall not exceed 4,600,000,
plus the amount of any additional Common Shares which may result from any share
distributions effected after the approval of this Plan by the Board of Directors
of the Company. If any Option granted hereunder shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares with
respect thereto shall again be available for other Options to be granted under
the Plan unless the Plan shall have been terminated.
SECTION 4. SELECTION OF OPTIONEES. All those Employees of the Company or its
Subsidiaries as shall be determined from time to time by the Committee shall be
eligible to participate in the Plan, provided, however, that no Employee may be
granted Options in the aggregate which would result in that Employee receiving
more than ten percent of the maximum number of shares available for issuance
under the Plan. Any person who has been granted an Option under a prior stock
option plan of the Company may be granted an additional Option or Options under
the Plan if the Committee shall so determine.
SECTION 5. OPTION PRICE. The purchase price for the shares covered by each
Option granted shall be not less than one hundred percent (100%) of the fair
market value of the shares on the date of the grant of the Option. Such fair
market value shall be equal to the mean of the high and low prices at which
Common Shares of the Company are traded on the New York Stock Exchange on such
date.
SECTION 6. OPTION REQUIREMENTS. The Options granted pursuant to the Plan shall
be authorized by the Committee and shall be evidenced in writing in a form
approved by the Committee and shall include the following terms and conditions:
(a) Optionee. Each Option shall state the name of the Optionee.
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<PAGE> 2
(b) Number of Shares. Each Option shall state the number of shares to
which that Option pertains.
(c) Purchase Price. Each Option shall state the Option price, which
shall be not less than one hundred percent (100%) of the fair market
value of the shares covered by such Option on the date of grant of
such Option. See Section 5, Option Price, and Section 28, date of
grant.
(d) Payment. The purchase price for the Options being exercised must be
paid in full at the time of exercise in a manner acceptable to the
Committee. In addition, in order to enable the Company to meet any
applicable foreign, federal (including FICA), state and local
withholding tax requirements, an Optionee shall also be required to
pay the amount of tax to be withheld at the time of exercise. No
Common Shares will be delivered to any Optionee until all such
amounts have been paid.
(e) Length of Option. Each Option shall be granted for a period to be
determined by the Committee but in no event to exceed more than ten
(10) years. However, subject to Sections 9 and 10, each Option shall
be exercisable only during such portion of its term as the Committee
shall determine, and only if the Optionee is employed by the Company
or a Subsidiary of the Company at the time of such exercise.
(f) EXercise of Option. With respect to the Options offered pursuant to
the Plan to an Employee who is subject to Section 16 of the
Securities Exchange Act of 1934 ("Section 16 of the Exchange Act"),
no option can be exercised for at least six (6) months after the
date of grant except in the case of death or disability as set forth
in Section 10 where the Option is otherwise exercisable. Otherwise,
each Optionee shall have the right to exercise his or her Option in
the manner specified in this Plan or in the agreement evidencing
granting of such Option.
SECTION 7. METHOD OF EXERCISE OF OPTIONS. Each Option shall be exercised
pursuant to the terms of such Option and pursuant to the terms of the Plan by
giving written notice to the Company at its principal place of business or other
address designated by the Company, accompanied by cash, check, shares, or other
property acceptable to the Committee, in payment of the Option price for the
number of shares specified and paid for. From time to time the Committee may
establish procedures relating to effecting such exercises. No fractional shares
shall be issued as a result of exercising an Option. The Company shall make
delivery of such shares as soon as possible; provided, however, that if any law
or regulation requires the Company to take action with respect to the shares
specified in such notice before issuance thereof, the date of delivery of such
shares shall then be extended for the period necessary to take such action.
SECTION 8. NON-TRANSFERABILITY OF OPTIONS. Except as set forth in Section 10, an
Option is exercisable during an Optionee's lifetime only by the Optionee. The
Options shall not be transferable except by will or the laws of descent and
distribution, and shall terminate as provided in this Plan.
SECTION 9. EARLIER TERMINATION OF OPTIONS. Except as set forth in Section 10,
upon the termination of the Optionee's employment for any reason whatsoever, the
Options will terminate as to all shares covered by Options which have not been
exercised as of the date of such termination.
SECTION 10.
(a) EXERCISE UPON DEATH OR DISABILITY. In the event an Optionee dies
while employed by the Company or a Subsidiary, then all Options held
by the Optionee shall become immediately exercisable as of the date
of death and the estate of the deceased Optionee shall have the
right to exercise any rights the Optionee would otherwise have under
this Plan for a period of one year after the date of the Optionee's
death, with exercise to be made as set forth in Section 7.
In the event an Optionee becomes Disabled while employed by the
Company or a Subsidiary, then all Options held by the Optionee shall
become immediately exercisable as of the date the Optionee becomes
Disabled, and the Optionee (or, in the event the Optionee is
incapacitated and unable to exercise Options, the Optionee's legal
guardian or legal representative whom the Committee deems
appropriate based on applicable facts and circumstances) shall have
the right to exercise any rights the Optionee would otherwise have
under this Plan for a period of one year after the date the Optionee
becomes Disabled, with exercise to be made as set forth in Section
7.
(b) EXERCISE UPON RETIREMENT. In the event an Optionee's employment with
the Company and its Subsidiaries is terminated by reason of the
Optionee's retirement, the Optionee shall have the right to exercise
any rights the Optionee would otherwise have under this Plan for a
period of 48 months after the date the Optionee retires with
exercise to be made as set forth in Section 7. For purposes of this
Section 10(b), "retirement" shall mean termination of employment at
or after attaining age 55 with at least ten (10) years of service
(as defined in the Company's qualified retirement plans), other than
by reason of death or Disability or for cause.
51
<PAGE> 3
(c) EXERCISE UPON TERMINATION OF EMPLOYMENT IN CONNECTION WITH A
DISPOSITION OF RESTAURANTS. In the event an Optionee's employment with
the Company and its Subsidiaries is terminated without cause in
connection with a disposition of one or more restaurants by the Company
or its Subsidiaries, the Optionee shall have the right to exercise any
rights the Optionee would otherwise have under this Plan for a period
of one year following the Optionee's termination of employment, with
exercise to be made as set forth in Section 7.
SECTION 11. LIMITATION ON SALE OF COMMON SHARES OFFERED PURSUANT TO PLAN. With
respect to the Common Shares offered pursuant to the Plan to an Employee who is
subject to Section 16 of the Exchange Act, such Common Shares cannot be sold for
at least six (6) months after acquisition, except in the case of death or
Disability.
SECTION 12. NON-QUALIFIED STOCK OPTIONS. The Options granted under the Plan
shall be non-qualified stock options.
SECTION 13. EFFECT OF CHANGE IN COMMON SHARES SUBJECT TO THE PLAN. In the event
any dividend upon the Common Shares payable in shares is declared by the
Company, or in case of any subdivision or combination of the outstanding Common
Shares, the aggregate number of Common Shares to be delivered upon exercise of
all Options granted under the Plan shall be increased or decreased
proportionately so that there will be no change in the aggregate purchase price
payable upon the exercise of the Option. In the event of any other
recapitalization or any reorganization, merger, consolidation or any change in
the corporate structure or stock of the Company, the Committee shall make such
adjustment, if any, as it may deem appropriate to reflect accurately the terms
of the Option as to the number and kind of shares deliverable upon subsequent
exercising of the Option and in the Option prices under the Option.
SECTION 14. LISTING AND REGISTRATION OF COMMON SHARES. If at any time the
Committee shall determine that listing, registration or qualification of the
Common Shares covered by the Option upon any securities exchange or under any
state or federal law or the consent or the approval of any governmental
regulatory body is necessary or desirable as a condition of or in connection
with the purchase of Common Shares under the Option, the Option may not be
exercised in whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee. Any person exercising an Option
shall make such representations and agreements and furnish such information as
the Committee may request to assure compliance with the foregoing or any other
applicable legal requirements.
SECTION 15. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.
SECTION 16. MISCONDUCT. In the event that an Optionee has (i) used for profit or
disclosed to unauthorized persons, confidential information or trade secrets of
the Company or its Subsidiaries, or (ii) breached any contract with or violated
any fiduciary obligation to the Company or its Subsidiaries, or (iii) engaged in
unlawful trading in the securities of the Company or its Subsidiaries or of
another company based on information gained as a result of that Optionee's
employment with the Company or its Subsidiaries, then that Optionee shall
forfeit all rights to any unexercised Options granted under the Plan and all of
that Optionee's outstanding Options shall automatically terminate and lapse,
unless the Committee shall determine otherwise.
SECTION 17. FOREIGN EMPLOYEES. Without amending the Plan, the Committee may
grant Options to eligible Employees who are foreign nationals on such terms and
conditions different from those specified in the Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of the Plan, and, in furtherance of such purposes, the Committee may
make such modifications, amendments, procedures, and the like as may be
necessary or advisable to comply with provisions of laws of other countries in
which the Company or its Subsidiaries operate or have employees.
SECTION 18. BUY OUT OF OPTION GAINS. At any time after any Option becomes
exercisable, the Committee shall have the right to elect, in its sole discretion
and without the consent of the holder thereof, to cancel such Option and pay to
the Optionee the excess of the fair market value of the Common Shares covered by
such Option over the Option price of such Option at the date the Committee
provides written notice (the "Buy Out Notice") of the intention to exercise such
right. Buy outs pursuant to this provision shall be effected by the Company as
promptly as possible after the date of the Buy Out Notice. Payments of buy out
amounts may be made in cash, in Common Shares, or partly in cash and partly in
Common Shares, as the Committee deems advisable. To the extent payment is made
in Common Shares, the number of shares shall be determined by dividing the
amount of the payment to be made by the fair market value of a Common Share at
the date of the Buy Out Notice. In no event shall the Company be required to
deliver a fractional Common Share in satisfaction of this buy out provision.
Payments of any such buy out amounts shall be made net of any applicable
foreign, federal (including FICA), state and local withholding taxes. For the
purposes of this Section 18, fair market value shall be equal to the mean of the
high and low prices at which Common Shares of the Company are traded on the New
York Stock Exchange on the relevant date.
52
<PAGE> 4
SECTION 19. NO RIGHTS TO OPTIONS OR EMPLOYMENT. No Employee or other person
shall have any claim or right to be granted an Option under the Plan. Having
received an Option under the Plan shall not give an Employee any right to
receive any other grant under the Plan. An Optionee shall have no rights to or
interest in any Option except as set forth herein. Neither the Plan nor any
action taken herein shall be construed as giving any Employee any right to be
retained in the employ of the Company or its Subsidiaries.
SECTION 20. MERGER, CONSOLIDATION, ETC. In the event that the Company is a party
to a plan or agreement for merger or consolidation or reclassification of its
securities or the exchange of its securities for the securities of another
person which has acquired the Company's assets or which is in control (as
defined in Section 368(c) of the Internal Revenue Code of 1986, as amended) of a
person which has acquired the Company's assets, where the terms of such plan or
agreement are binding upon all shareholders of the Company, except to the extent
that dissenting shareholders may be entitled to relief under Section 1701.85 of
the Ohio Revised Code, then Options granted and outstanding pursuant to the Plan
for more than six (6) months, notwithstanding the date of exercise fixed in the
grant of such Options, shall become immediately exercisable and each Optionee
shall be entitled to receive, upon payment of the amount required for exercise
of each Option, securities or cash consideration, or both, equal to those the
Optionee would have been entitled to receive under such plan or agreement if the
Optionee had already exercised such Option.
SECTION 21. AMENDMENT OR TERMINATION. The Board of Directors may amend or
terminate the Plan at any time, provided that the Board of Directors shall not
(except as provided in Sections 9, 10 and 13 hereof) make any change in the
Options which will impair the rights of the Optionee therein, without the
consent of the Optionee. No option shall be granted hereunder after December 31,
1999.
SECTION 22. OTHER ACTIONS. This Plan shall not restrict the authority of the
Committee, the Board of Directors or of the Company or its Subsidiaries for
proper corporate purposes to grant or assume stock options, other than under the
Plan, to or with respect to any Employee or other person.
SECTION 23. COSTS AND EXPENSES. Except as provided in Section 6(d) hereof with
respect to taxes, the costs and expenses of administering the Plan shall be
borne by the Company, and shall not be charged to any grant nor to any Employee
receiving a grant.
SECTION 24. PLAN UNFUNDED. The Plan shall be unfunded. Except for reserving a
sufficient number of authorized shares to the extent required by law to meet the
requirements of the Plan, the Company shall not be required to establish any
special or separate fund or to make any other segregation of assets to assure
payment of any grant under the Plan.
SECTION 25. LAWS GOVERNING PLAN. This Plan shall be construed under and governed
by the laws of the State of Ohio.
SECTION 26. CAPTIONS. The captions to the several sections hereof are not a part
of this Plan, but are merely guides or labels to assist in locating and reading
the several sections hereof.
SECTION 27. EFFECTIVE DATE. The Plan shall become effective on the date it is
approved by the Board of Directors of the Company.
SECTION 28. DEFINITIONS. Unless the context clearly indicates otherwise, the
following terms, when used in this Plan, shall have the meaning set forth below:
(a) The "date of grant" or "grant date" of an Option shall be the date on
which an Option is granted under the Plan.
(b) "Option" means the right granted under the Plan to an Optionee to
purchase a Common Share of the Company at a fixed price for a specified
period of time.
(c) "Option price" means the price at which a Common Share covered by an
Option granted hereunder may be purchased.
(d) With regard to any particular Employee, "Disabled" shall have the
meaning set forth in the Company's long term disability program
applicable to such Employee.
53
<PAGE> 1
- --------------------------------------------------------------------------------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 11(a)
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 1, JANUARY 2,
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average number of
common shares outstanding................ 102,484 101,172 99,336
Shares issuable pursuant to employee
stock option plans, less shares assumed
repurchased at the average market price.. 3,107 2,966 3,461
Shares issuable upon conversion of
exchangeable shares...................... 16,450 16,450 16,450
-------- -------- --------
Number of shares for computation of
primary earnings per share............... 122,041 120,588 119,247
Net income.................................. $110,070 $ 97,432 $ 80,517
Primary earnings per share.................. $.90 $.81 $.68
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 11(b)
COMPUTATION OF EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 1, JANUARY 2,
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average number of
common shares outstanding ........................... 102,484 101,172 99,336
Shares issuable pursuant to employee stock option plans,
less shares assumed repurchased at the higher of the
average market or period end price .................. 3,173 2,966 3,679
Shares issuable upon conversion of
exchangeable shares ................................. 16,450 16,450 16,450
Additional dilutive shares issuable
assuming conversion of subordinated
debentures .......................................... 8,123 8,130 8,130
-------- -------- --------
Number of shares for computation of
fully diluted earnings per share .................... 130,230 128,718 127,595
Net income ............................................. $110,070 $ 97,432 $ 80,517
Add interest savings on assumed dilutive
conversion of subordinated
debentures, net of tax .............................. 4,727 4,615 4,871
-------- -------- --------
Net income for computation of
fully diluted earnings per share .................... $114,797 $102,047 $ 85,388
--------
Fully diluted earnings per share ....................... $.88 $.79 $.67
==== ==== ====
</TABLE>
54
<PAGE> 1
- --------------------------------------------------------------------------------
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
OF INCORPORATION OR
ORGANIZATION
SUBSIDIARY COUNTRY STATE
<S> <C> <C>
Wendy's Old Fashioned Hamburgers of New York, Inc. U.S. Ohio
Wendy's Capital Corporation U.S. Virginia
Wendy Restaurant, Inc. U.S. Delaware
Wendy's of Denver, Inc. U.S. Colorado
The New Bakery Co. of Ohio, Inc. U.S. Ohio
Delavest, Inc. U.S. Delaware
Wentexas, Inc. U.S. Texas
Restaurant Finance Corporation U.S. Ohio
Wendco Northwest Limited U.S. Delaware
Progressive Rent-A-Car, Inc. U.S. Ohio
Wendy's Restaurants of Canada Inc. Canada
Wendy's of N.E. Florida, Inc. U.S. Florida
Wendy's Old Fashioned Hamburgers Restaurants Pty. Ltd. Australia
Wendy's Restaurants (NZ) Limited New Zealand
Wendcreek Venture U.S. Florida
Wendco (N.Z.) Limited New Zealand
M & W (U.K.) Limited United Kingdom
WendServe (Korea), Inc. U.S. Delaware
Wendy's Restaurants of Canada (No. 3), Inc. Canada
Wendy's Restaurants (Ireland) Limited Ireland
WendServe, Inc. U.S. Delaware
WENTIM Corporation U.S. Delaware
Wenark, Inc. U.S. Florida
Wendy's Limited U.K.
WENTIM, LTD. Canada
Delcan, Inc. U.S. Delaware
Delcan Finance No. 1, Inc. Canada
Delcan Finance No. 2, Inc. Canada
Delcan Finance No. 3, Inc. Canada
Delcan Finance No. 4, Inc. Canada
Alberta (Delaware), Inc. U.S. Delaware
Tim Donut (U.S.) Limited, Inc. U.S. Florida
T.H.D. Donut (Delaware), Inc. U.S. Delaware
The TDL Group Ltd. Canada
Barhav Developments Limited Canada
TIMWEN Partnership Canada
</TABLE>
55
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
29th day of March, 1996.
/s/ R. David Thomas
-----------------------------------
R. David Thomas, Senior Chairman of
the Board & Founder, Director
56
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
29th day of March, 1996.
/s/ James W. Near
----------------------------------------------
James W. Near, Chairman of the Board, Director
57
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
29th day of March, 1996.
/s/ Gordon F. Teter
-----------------------------------------------------
Gordon F. Teter, President, Chief Executive Officer &
Chief Operating Officer, Director
58
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
29th day of March, 1996.
/s/ Ronald E. Musick
----------------------------------
Ronald E. Musick,
Executive Vice President, Director
59
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
29th day of March, 1996.
/s/ Lawrence A. Laudick
------------------------------------
Lawrence A. Laudick
Vice President, General Controller &
Assistant Secretary
60
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
29th day of March, 1996.
/s/ W. Clay Hamner
------------------------
W. Clay Hamner, Director
61
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
21st day of March, 1996.
/s/ Janet Hill
--------------------
Janet Hill, Director
62
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
20th day of March, 1996.
/s/ Thomas F. Keller
--------------------------
Thomas F. Keller, Director
63
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
21st day of March, 1996.
/s/ Fielden B. Nutter, Sr.
--------------------------------
Fielden B. Nutter, Sr., Director
64
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
21st day of March, 1996.
/s/ James V. Pickett
--------------------------
James V. Pickett, Director
65
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned officer and/or
director of Wendy's International, Inc. (the "Company"), which is about to file
a Form 10-K with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, hereby constitutes and appoints
John K. Casey and Lawrence A. Laudick as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Form 10-K, any and all amendments and documents
related thereto, and to file the same, and all exhibits thereto, and other
documents relating thereto, with the Securities and Exchange Commission, and
grants unto each of said attorneys-in-fact and substitute or substitutes full
power and authority to do each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
or she might do in person, and hereby ratifies and confirms all things that each
of said attorneys-in-fact and substitute or substitutes may lawfully do and seek
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
29th day of March, 1996.
/s/ Thekla R. Shackelford
-------------------------------
Thekla R. Shackelford, Director
66
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATEED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-03-1994
<PERIOD-END> JAN-01-1995
<CASH> 119,639
<SECURITIES> 23,235
<RECEIVABLES> 52,025
<ALLOWANCES> 10,800
<INVENTORY> 26,941
<CURRENT-ASSETS> 232,647
<PP&E> 1,351,552
<DEPRECIATION> 486,399
<TOTAL-ASSETS> 1,214,805
<CURRENT-LIABILITIES> 286,110
<BONDS> 104,842
0
0
<COMMON> 10,179
<OTHER-SE> 691,748
<TOTAL-LIABILITY-AND-EQUITY> 1,214,805
<SALES> 1,365,723
<TOTAL-REVENUES> 1,591,587
<CGS> 817,500
<TOTAL-COSTS> 1,202,841
<OTHER-EXPENSES> 225,284
<LOSS-PROVISION> 1,773
<INTEREST-EXPENSE> 13,169
<INCOME-PRETAX> 150,293
<INCOME-TAX> 52,861
<INCOME-CONTINUING> 97,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,432
<EPS-PRIMARY> .81
<EPS-DILUTED> .79
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> DEC-31-1995
<CASH> 206,127
<SECURITIES> 7,682
<RECEIVABLES> 61,827
<ALLOWANCES> 10,800
<INVENTORY> 27,254
<CURRENT-ASSETS> 321,279
<PP&E> 1,527,568
<DEPRECIATION> 520,824
<TOTAL-ASSETS> 1,509,161
<CURRENT-LIABILITIES> 295,869
<BONDS> 297,029
<COMMON> 10,399
0
0
<OTHER-SE> 808,380
<TOTAL-LIABILITY-AND-EQUITY> 1,509,161
<SALES> 1,461,880
<TOTAL-REVENUES> 1,746,280
<CGS> 890,363
<TOTAL-COSTS> 1,301,641
<OTHER-EXPENSES> 269,264
<LOSS-PROVISION> 1,522
<INTEREST-EXPENSE> 10,230
<INCOME-PRETAX> 165,145
<INCOME-TAX> 55,075
<INCOME-CONTINUING> 110,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,070
<EPS-PRIMARY> .90
<EPS-DILUTED> .88
</TABLE>
<PAGE> 1
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (he "Act") provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances and
plans and objectives of management, contained, or incorporated by reference, in
the Company's Annual Report on Form 10-K for fiscal year 1995 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 appear together with such statement. Also, 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:
Competition. The quick-service restaurant industry is intensely competitive with
respect to price, service, location, personnel, and type and quality of food.
The Company and its franchisees compete with international, regional and local
organizations primarily through the quality, variety and value perception of
food products offered. The number and location of units, quality and speed of
service, attractiveness of facilities and effectiveness of advertising and
marketing programs are also important factors. The Company anticipates that
intense competition will continue to focus on pricing, and certain of the
Company's competitors have substantially larger marketing budgets.
Economic, Market and Other Conditions. The quick-service restaurant industry is
affected by changes in national, regional and local economic conditions,
consumer preferences and spending patterns, demographic trends, consumer
perceptions of food safety, weather, traffic patterns and the type, number and
location of competing restaurants. Factors such as inflation, food costs, labor
and benefit costs, legal claims, and the availability of management and hourly
employees also affect restaurant operations and administrative expenses. The
ability of the Company and its franchisees to finance new restaurant
development, improvements and additions to existing restaurants and the
acquisition of restaurants from, and sale of restaurants to, franchisees, is
affected by economic conditions, including interest rates and other government
policies impacting land and construction costs and the cost and availability of
borrowed funds.
Importance of Locations. The success of Company and franchised restaurants is
dependent in substantial part on location. There can be no assurance that
current locations will continue to be attractive, as demographic patterns
change. It is possible the neighborhood or economic conditions where restaurants
are located could decline in the future, thus resulting in potentially reduced
sales in those locations.
Government Regulation. The Company and its franchisees are subject to various
federal, state and local laws affecting their business. The development and
operation of restaurants depend to a significant extent on the selection and
acquisition of suitable sites, which are subject to zoning, land use,
environmental, traffic and other regulations. Restaurant operations are also
subject to licensing and regulation by state and local departments relating to
health, sanitation and safety standards, federal and state labor laws (including
applicable minimum wage requirements, overtime, working and safety conditions,
and citizenship requirements), federal and state laws which prohibit
discrimination and other laws regulating the design and operation of facilities,
such as the Americans With Disabilities Act of 1990. The operation of the
Company's franchisee system is also subject to regulation enacted by a number of
states and rules promulgated by the Federal Trade Commission. The Company cannot
predict the effect on its operations, particularly on its relationship with
franchisees, of the future enactment of additional legislation regulating the
franchise relationship.
Growth Plans. The Company plans to significantly increase the number of
systemwide Wendy's and Tim Hortons restaurants open or under construction. There
can be no assurance that the Company or its franchisees will be able to achieve
growth objectives or that new restaurants opened or acquired will be profitable.
The opening and success of restaurants depends on various factors, including the
identification and availability of suitable and economically viable locations,
sales levels at existing restaurants, the negotiation of acceptable lease or
purchase terms for new locations, permitting and regulatory compliance, the
ability to meet construction schedules, the financial and other development
capabilities of franchisees, the ability of the Company to hire and train
qualified management personnel, and general economic and business conditions.
67
<PAGE> 2
International Operations. The Company's business outside of the United States is
subject to a number of additional factors, including international economic and
political conditions, differing cultures and consumer preferences, currency
regulations and fluctuations, diverse government regulations and tax systems,
the availability and cost of land and construction costs, and the availability
of experienced management and appropriate franchisees and joint venture
partners. Although the Company believes it has developed the support structure
required for international growth, there is no assurance that such growth will
occur or that international operations will be profitable.
68
