<PAGE> 1
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
For the Fiscal Year Ended December 29, 1996
( ) 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 __________
Commission File Number: 1-8116
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WENDY'S INTERNATIONAL, INC.
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(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
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 614-764-3100
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Securities registered pursuant to Section 12(b) of the Act:
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<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- -------------------------------------------- -----------------------------------------
<S> <C>
Common Shares, $.10 stated value New York, Boston, Cincinnati, Midwest,
(131,276,000 shares outstanding Pacific, and Philadelphia
at March 3, 1997) Stock Exchanges
$2.50 Term Convertible Securities, Series A New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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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. X
-----
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 3, 1997 was $2,234,352,000.
Documents incorporated by reference:
Portions of the Definitive Proxy Statement dated March 5, 1997 are
incorporated by reference into Part III.
Exhibit index on pages 34-36.
1 of 54
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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 29, 1996, there were
4,933 Wendy's restaurants (Wendy's) in operation in the United
States and in 33 other countries and territories. Of these
restaurants, 1,315 were operated by the Company and 3,618 by the
Company's franchisees.
Additionally, at December 29, 1996, the Company and its
franchisees operated 1,384 Tim Hortons (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 pita sandwich, salad
bar, chili, baked and french fried potatoes, prepared salads,
desserts, soft drinks and other non-alcoholic beverages, and
children's meals. 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, bagels, 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 29, 1996, the Bakery supplied 688
restaurants operated by the Company and 1,437 restaurants
operated by franchisees. At the present time, the Bakery does
not manufacture or sell any other products.
See Note 12 under Item 8 on page 27 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
<PAGE> 3
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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 has registered certain trademarks and
service marks 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 1997
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.
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.
3
<PAGE> 4
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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 7 and 8 under Item 8 on page 25 and 26 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 29, 1996, the Company's franchisees operated
3,618 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%.
See Schedule II on page 33 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 9 under
Item 8 on page 26 of this Form 10-K for further information
regarding reserves, commitments, and contingencies involving
franchisees.
4
<PAGE> 5
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FRANCHISED HORTONS UNITS
Hortons franchisees operate under several types of license
agreements. The standard term of a license agreement for a
standard type of unit 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 and/or building from Hortons, the
license agreement generally requires between 3% and 6% of weekly
gross sales for royalties plus a monthly rental which is the
greater of a base monthly rental payment or a percentage
(usually 10%) rental payment based on monthly gross sales. For
franchisees who do not lease land and/or building from Hortons,
the license agreement generally requires 4.5% to 7.5% of weekly
gross 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 transfer
to a new franchisee.
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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.
Since 1993, a systemwide vote has been 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 2 1/2% goes toward national
advertising and 1 1/2% toward local and regional advertising
during 1997, 1996, and 1995. These minimum requirements will
revert back to 2% for national and 2% for local and regional
advertising unless a new systemwide vote in 1997 approves
reallocation for 1998.
In 1996, 1995, and 1994, approximately $101 million, $105
million, and $101 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 Hortons advertising fund, known as the Ad
Fund. During 1996, 1995 and 1994, approximately $25 million, $21
million and $17 million, respectively, was spent by the Ad Fund.
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PERSONNEL
As of December 29, 1996, the Company employed approximately
49,000 people, of whom approximately 47,000 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
<PAGE> 6
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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 food 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 5,200 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 29, 1996, the Company and its franchisees operated
4,933 Wendy's restaurants in the locations listed under Item 2
on page 7 of this Form 10-K. Of the 1,315 company-operated
Wendy's restaurants, the Company owned the land and building for
597 restaurants, owned the building and held long-term land
leases for 300 restaurants, and held leases covering land and
building for 418 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. The Company also owned land and buildings for, or leased,
462 Wendy's restaurant locations which were leased or subleased
to franchisees. Surplus land and buildings are generally held
for sale.
At December 29, 1996, there were 1,384 Hortons units, of which
all but 65 were franchise operated. Of the 1,319 franchised
units, 231 were owned by Hortons and leased to franchisees, 673
were leased by Hortons and in turn subleased to a franchisee,
with the remainder either owned or leased directly by the
franchisee.
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.
6
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DOMESTIC WENDY'S
STATE COMPANY FRANCHISE
Alabama - 89
Alaska - 8
Arizona 48 18
Arkansas - 42
California 16 181
Colorado 39 56
Connecticut - 27
Delaware - 18
Florida 147 167
Georgia 45 160
Idaho - 18
Illinois 89 114
Indiana - 137
Iowa - 35
Kansas 15 43
Kentucky 2 95
Louisiana 54 19
Maine 2 9
Maryland - 93
Massachusetts 45 16
Michigan 34 155
Minnesota 27 21
Mississippi 21 43
Missouri 17 63
Montana - 15
Nebraska - 31
Nevada - 36
New Hampshire 2 16
New Jersey 4 75
New Mexico - 23
New York 52 113
North Carolina 30 149
North Dakota - 6
Ohio 173 199
Oklahoma - 41
Oregon 16 34
Pennsylvania 113 89
Rhode Island - 9
South Carolina - 83
South Dakota - 8
Tennessee - 156
Texas 85 197
Utah - 34
Vermont - 3
Virginia 57 108
Washington 44 14
West Virginia 14 43
Wisconsin - 50
Wyoming - 12
District of Columbia - 7
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1,191 3,178
===== =====
INTERNATIONAL WENDY'S
COUNTRY/TERRITORY COMPANY FRANCHISE
Argentina - 5
Aruba - 3
Bahamas - 4
Canada 115 114
Cayman Islands - 1
China - 2
Dominican Republic - 5
El Salvador - 5
Greece - 11
Guam - 3
Guatemala - 7
Hawaii - 5
Honduras - 6
Hong Kong - 11
Hungary - 1
Iceland - 1
Indonesia - 36
Italy - 2
Japan - 67
Kuwait - 3
Mexico - 5
New Zealand - 9
Philippines - 37
Puerto Rico - 24
Saipan - 1
Saudi Arabia - 14
South Korea - 21
Switzerland - 4
Taiwan - 14
Thailand - 3
Turkey - 6
United Arab Emirates - 2
United Kingdom 9 5
Virgin Islands - 3
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124 440
===== =====
TIM HORTONS
DOMESTIC CANADA
COMPANY FRANCHISE COMPANY FRANCHISE
7 15 58 1,304
= == == =====
7
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ITEM 3. LEGAL PROCEEDINGS
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, alleged 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 sought 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. The complaint was dismissed with prejudice by
a stipulation filed on March 7, 1997, pursuant to a settlement
agreement entered into between the parties on March 3, 1997. 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 December 31, 1995.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
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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>
1996 High Low Close
-----------------------------------------------------------
<S> <C> <C> <C>
First Quarter $22 1/2 $17 1/8 $18 1/8
Second Quarter 20 16 3/4 18 5/8
Third Quarter 22 1/4 16 3/4 21 1/2
Fourth Quarter 23 18 1/4 20 7/8
<CAPTION>
1995 High Low Close
-----------------------------------------------------------
<S> <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>
At March 3, 1997, the Company had approximately 82,000
shareholders of record.
DIVIDENDS DECLARED PER SHARE
<TABLE>
<CAPTION>
QUARTER 1996 1995
-----------------------------------------------------------
<S> <C> <C>
First $.06 $.06
Second .06 .06
Third .06 .06
Fourth .06 .06
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992*
<S> <C> <C> <C> <C> <C>
OPERATIONS (In millions)
Systemwide sales - Wendy's $4,784 4,495 4,227 3,924 3,613
Systemwide sales - Hortons $ 646 541 440 377 341
Retail sales $1,567 1,462 1,366 1,289 1,207
Revenues $1,897 1,746 1,592 1,482 1,381
Gross profit** $ 486 445 389 343 310
Income before income taxes $ 255 165 150 118 104
Net income $ 156 110 97 81 66
Capital expenditures $ 307 218 172 137 140
FINANCIAL POSITION (In millions)
Total assets $1,781 1,509 1,215 1,100 1,013
Property and equipment, net $1,208 1,007 865 787 745
Long-term obligations $ 242 337 145 201 234
Company-obligated mandatorily
redeemable preferred securities $ 200
Shareholders' equity $1,057 819 702 624 553
PER SHARE DATA
Net income - fully diluted $ 1.19 .88 .79 .67 .56
Dividends $ .24 .24 .24 .24 .24
Market price at year end $20.88 21.25 14.38 17.38 12.63
<FN>
* Fiscal year 1992 includes 53 weeks.
** Total revenues less cost of sales, company restaurant operating costs, and operating costs.
</TABLE>
9
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1996 Overview
Wendy's International, Inc. (the company) achieved record net
income and earnings per share in 1996. Fully diluted earnings
per share increased 35% to $1.19 in 1996, compared with $.88 per
share in 1995, and $.79 in 1994. The company also reported a 42%
increase in net income to $155.9 million in 1996, compared with
$110.1 million in 1995, and $97.4 million in 1994. The 1995 and
1994 net income included compensation expense paid to the sole
shareholder of Tim Hortons (Hortons), which occurred while
Hortons was a private company. During 1995, there were also
significant charges, including legal, accounting and
professional fees, environmental and other reserves, and other
costs related to the acquisition. All these expenses are
included as "special charges" in the Consolidated Statement of
Income.
Systemwide sales, which include all company-operated and
franchised Wendy's and Hortons, reached $5.430 billion in 1996,
compared with $5.036 billion in 1995, and $4.667 billion in
1994. Average net sales for both Wendy's and Hortons restaurants
increased again in 1996. This marked the tenth consecutive year
that domestic company-operated Wendy's average sales increased
over the prior year. The company and its franchisees opened a
total of 343 Wendy's and 200 new Hortons restaurants. There were
184 restaurants under construction at year-end 1996.
RETAIL SALES
Retail sales increased 7.2% to $1.567 billion in 1996 from
$1.462 billion in 1995 which compared with a 7.0% increase over
1994. Retail sales include sales from company-operated
restaurants, bakery sales, and warehouse sales of dry goods and
supplies to Hortons' franchisees. The largest component of
retail sales was from Wendy's domestic company-operated
restaurants which reflected increases in average unit net sales
of 3.4% in 1996 and 1.3% in 1995. This also includes the
addition of 15, 37, and 26 average Wendy's company-operated
domestic restaurants open in 1996, 1995, and 1994, respectively.
The bakery and warehouse sales increased 9.3% in 1996 and 22.6%
in 1995, in line with the increase in the number of franchised
restaurants serviced.
The improvement in average Wendy's company domestic restaurant
sales was a result of the ongoing quality plus value strategy,
the addition of the Spicy Chicken Sandwich and 5-piece Crispy
Chicken Nuggets to the permanent menu, solid restaurant
operations, and effective marketing campaigns. The average
number of transactions in domestic company-operated Wendy's
increased approximately 1.1% in 1996 compared with a .4%
increase in 1995, and 1.2% in 1994. Domestic selling prices
increased only .7% during the year, while 1995 increased only
.2% and no price change was reflected in 1994. This is
consistent with the company's continued emphasis on its everyday
value strategy in the extremely intense competitive environment.
The following chart reflects average net sales per domestic
Wendy's restaurant for the last three years:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Company $1,049,000 $1,014,000 $1,001,000
Franchise $ 978,000 $ 974,000 $ 982,000
Total domestic $ 998,000 $ 986,000 $ 988,000
</TABLE>
FRANCHISE REVENUES
Royalty income from franchisees, rental income from leased
properties, franchise fees, and gains from restaurant
dispositions are included in franchise revenues. 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 include initial equipment packages
for Hortons' franchisees.
Royalties, before reserves, increased $11.6 million or 8.3% in
1996, and $10.4 million or 8.0% in 1995. An average of 177 more
franchise domestic Wendy's restaurants were open in 1996 and an
average of 263 more were open in 1995. Hortons' royalties
increased 17.7% in 1996 and 23.7% in 1995, primarily reflecting
the increase in the number of franchise restaurants open coupled
with positive same store sales growth of approximately 5% in
1996 and 5% in 1995.
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 from restaurants leased increased $12.7 million in
1996 compared with an increase of $11.6 million in 1995. These
increases reflect the additional number of restaurants being
leased to franchisees. At the end of 1996, 1,366 restaurants
were leased to franchisees, versus 1,219 in 1995, and 1,033 in
1994. Of these, Hortons leased 904 to franchisees in 1996, 815
in 1995, and 682 in 1994.
Pretax gains from franchising Wendy's restaurants amounted to
$63.2 million in 1996 for 179 restaurants, compared with $37.8
million in 1995 for 120 restaurants, and $11.6 million for 49
restaurants in 1994. Additionally, pretax gains resulting from
sale of properties which were previously leased by franchisees
from Wendy's amounted to $3.4 million in 1996, $3.8 million in
1995, and $2.4 million in 1994. Franchise fees were $35.1
million in 1996, $40.6 million in 1995, and $32.6 million in
1994.
10
<PAGE> 11
COST OF SALES AND RESTAURANT OPERATING COSTS
Domestic Wendy's cost of sales increased to 60.1% of retail
sales in 1996 from 58.7% in 1995, and 58.0% in 1994. Domestic
food costs, as a percent of retail sales, were 30.0% in 1996,
29.1% in 1995, and 29.3% in 1994. This reflected unfavorable
delivered prices primarily for chicken and bacon during 1996.
Also chicken products were extremely popular in 1996, and a
higher portion of sales came from these products. For 1995, the
improvement in food costs reflected favorable purchase prices
for beef and chicken offset by higher produce prices.
Labor costs for Wendy's domestic restaurants were 26.0% of
retail sales in 1996, compared with 25.6% in 1995, and 24.8% in
1994. The percentages reflect increases in restaurant labor due
to inflation in the restaurant labor wage rate. This continues
to be driven by demand throughout the industry for quality labor
to provide quality service to customers. In the latter part of
1996, labor rates were also impacted by minimum wage increases.
The company continues to control labor costs by adherence to its
labor guidelines. Sales per labor hour increased to $25.81 in
1996 reflecting a 1.7% increase in productivity following a .9%
increase in 1995.
Cost of sales for the Wendy's bakery and Hortons' warehouse
operations increased $12.3 million in 1996, and $23.7 million in
1995, reflecting additional sales to franchisees due to the
increased number of restaurants serviced.
Wendy's domestic company restaurant operating costs increased
$20.1 million in 1996, $12.6 million in 1995, and $11.4 million
in 1994. Domestic restaurant operating costs as a percent of
retail sales were 26.6% in 1996, 26.2% in 1995, and 26.3% in
1994. Rent, salaries and benefits, maintenance, and expenditures
related to food safety were higher in 1996. As a percent of
sales, costs were consistent in 1995 and 1994.
DOMESTIC COMPANY OPERATING MARGIN
The domestic company operating margin for Wendy's was 13.3% in
1996, 15.1% in 1995, and 15.7% in 1994. The decline in 1996
reflected several factors, including the adverse impact of
weather on sales the first third of the year, and the higher
cost of key products, particularly chicken. During the year, the
company successfully promoted chicken products such as the Spicy
Chicken Sandwich and 5-piece Crispy Chicken Nuggets, which when
combined with higher prices from suppliers, resulted in food
costs being a higher percent of sales. The decline of the
operating margin in 1995 reflected average sales increases from
domestic Wendy's restaurants of 1.3% which were not sufficient
to provide leverage on costs as a percent of retail sales.
Increasing labor rates also contributed to margin declines in
both years, with a minimum wage rate increase effective in the
fourth quarter of 1996. The company elected to absorb the cost
increases to maintain a value position, and selling prices were
only increased .7% in 1996 and .2% in 1995. However, in each
quarter of 1996 the operating margin difference improved
relative to 1995, and in the fourth quarter was only .5% lower
than 1995. The following chart details the domestic company
operating margin.
<TABLE>
<CAPTION>
1996 1995 1994
% OF SALES % OF SALES % OF SALES
<S> <C> <C> <C>
Retail sales 100.0% 100.0% 100.0%
Cost of sales 60.1 58.7 58.0
Company restaurant operating costs 26.6 26.2 26.3
---------------------------------------------------------------------------
Domestic company operating margin 13.3% 15.1% 15.7%
---------------------------------------------------------------------------
</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 ensure a successful
Hortons franchise opening, 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.
There were 815 total restaurants leased by the company and then
subleased to franchisees in 1996 versus 692 in 1995, and 568 in
1994. Rental expense increased $4.6 million in 1996 and $3.1
million in 1995 reflecting the growth in the number of
properties being leased to franchisees. In 1996, the higher rent
expense was offset by lower cost of equipment and related
expenses reflecting fewer new store openings by Hortons'
franchisees during 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $136.5 million or 7.2%
of revenues in 1996 compared with $136.4 million or 7.8% in
1995, and $120.6 million or 7.6% in 1994. Salaries and related
benefits, the largest component of general and administrative
expenses, increased $7.6 million in 1996 and $7.7 million in
1995. This primarily reflects annual merit-based compensation
increases and administrative position additions to support
growth in the Wendy's and Hortons concepts. Salaries and other
general and administrative expenses in 1996 and 1995 also
reflect investments in the international division to further
develop Wendy's outside of the United States and Canadian
markets.
In 1996, reserves originally provided for environmental issues
related to Hortons were reduced $6.6 million to reflect current
estimates. In 1995 and 1994, there were accruals for a Hortons
benefit plan, provided by the previous owner, amounting to $3.4
million and $2.2 million, respectively, for which no similar
expense applies in 1996 and future years. After adjusting for
these items, general and administrative expenses, as a percent
of revenues, were approximately the same for the last three
years.
11
<PAGE> 12
SPECIAL CHARGES
Special charges for 1995 and 1994 included the profit sharing
contributions made to the sole shareholder of Hortons, which
occurred while Hortons was a private company, therefore these
costs no longer apply. In addition, 1995 special charges also
included professional fees incurred to effectuate the Hortons
transaction, reserves for environmental issues and
contingencies, and costs related to organizing Canadian
operations to blend the Wendy's and Hortons concepts.
INTEREST
Net interest expense decreased in 1996 primarily as a result of
higher interest income of $16.2 million compared with $10.2
million in 1995, and $9.0 million in 1994. Interest income
increased in 1996 compared with 1995 primarily as a result of an
increase in notes receivable taken for restaurant dispositions.
Interest expense was $23.0 million in 1996, which includes
distributions on the company-obligated mandatorily redeemable
preferred securities, $20.5 million in 1995, and $22.2 million
in 1994. Interest expense was reduced in 1995 due to debt
retirements but increased in 1996 reflecting additional
borrowings in December 1995 and September 1996.
INCOME TAXES
The effective income tax rate for 1996 was 38.8% compared with
33.3% for 1995, and 35.2% for 1994. 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. The increase in 1996 also reflects the
income generated by Hortons, which has a higher tax rate than
domestic operations.
FINANCIAL POSITION
OVERVIEW
Total assets increased $272.3 million or 18.0% over 1995
primarily due to additions to property and equipment for
restaurant development, and as a result of the acquisition of
restaurants which have been subsequently leased to franchisees.
Additionally, notes receivable from restaurant dispositions
during 1996 were $103.4 million, an increase of $39.8 million
over 1995. Total cash and short-term investments amounted to
$223.8 million at year-end 1996 compared with $213.8 million at
year-end 1995. Return on average assets was 17.6% in 1996
compared with 13.6% in 1995, reflecting the improvement in net
income in 1996 and the nonrecurring special charges in 1995.
Common shareholders' equity increased 29.1% in 1996, and totaled
over $1 billion for the first time. On a per share basis, equity
increased to $8.16 per share in 1996 from $6.81 per share in
1995. The company's return on average equity increased to 16.6%
in 1996 from 14.5% in 1995, reflecting the nonrecurring special
charges in 1995. Long-term debt decreased during the year as the
$100 million, 7% convertible debentures previously outstanding
were all converted to common shares in April 1996. In September
1996, the company raised $200 million by issuing
company-obligated mandatorily redeemable preferred securities.
These securities have characteristics of both traditional debt
and traditional preferred securities, and are classified between
long-term liabilities and common shareholders' equity on the
company's balance sheet.
The company tries to maintain a strong balance sheet to ensure
that system growth can proceed and also to ensure that it can
take advantage of special opportunities, such as adding Hortons
to the Wendy's system. Total assets are approximately
two-and-one-half times liabilities and the debt-to-equity ratio
is 23% at year-end 1996 compared with 41% in 1995. Standard &
Poors and Moody's have given the company debt ratings of BBB+
and Baa-l, respectively.
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 29, DECEMBER 31,
(in millions) 1996 1995
<S> <C> <C>
Accounts receivable, net $ 4.3 $ 7.4
Notes receivable, net .5 .6
Other assets 2.4 2.5
Accrued expenses, other 1.5 .3
---------------------------------------------------------
$ 8.7 $10.8
---------------------------------------------------------
</TABLE>
The reduction in reserve balances reflects continued
strengthening of the financial condition of the Wendy's and
Hortons' franchise communities.
CASH FLOW
Cash provided by operating activities increased 15.2% to $189.9
million in 1996, compared with $164.9 million in 1995, and
$168.0 million in 1994. In all three years, cash provided by
operating activities was primarily used for capital
expenditures, dividend payments, debt repayment, and
acquisitions of franchised restaurants.
Cash proceeds of $78.7 million were realized in 1996 from the
sale of Wendy's company-operated restaurants to franchisees,
while $40.4 million was provided in 1995, and $21.1 million was
provided in 1994. Over the last three years, the company used
$114.6 million to acquire Wendy's franchise restaurants and
$41.7 million to purchase competitors' concepts to be converted
to Wendy's or Hortons. The company issued $200 million in
company-obligated mandatorily redeemable preferred securities in
1996 and $200 million of long-term debt in 1995. The company
also repaid $204.0 million in long-term obligations during the
last three years.
12
<PAGE> 13
During 1996, capital expenditures amounted to $307.3 million.
New restaurant expenditures amounted to $194.2 million; $65.4
million was spent for improvements to existing restaurants; and
$47.7 million was spent for other additions. These included
Hortons' expenditures of $50.3 million for new restaurant
development, which are leased to franchisees. Current plans are
to open or have under construction about 520 new Wendy's
restaurants, of which approximately 120 to 140 will be
company-operated Wendy's sites, and 270 new Hortons in 1997.
Capital expenditures are expected to be approximately $359
million in 1997 including approximately $93 million for Hortons.
Cash flow from operations, cash and investments on hand,
possible asset sales, and cash available through existing
revolving credit agreements, and through the possible issuance
of securities should provide for the company's projected cash
requirements through 1997, including cash for capital
expenditures, future acquisitions of restaurants from
franchisees, or for other corporate purposes.
TIM HORTONS
Hortons is the second largest quick-service restaurant chain in
Canada and at year end had 1,384 restaurants open. The company
believes there are significant opportunities to expand the
Hortons concept throughout Canada and the United States. The
concept is extremely flexible and includes standard units with a
bakery, both with and without drive-through windows,
double-drive-through buildings, and various other satellites,
kiosks, and carts. In addition, combination units shared with
the Wendy's concept are utilized. Future expansion in Canada is
anticipated to be primarily through franchising, and the company
plans to open or have under construction about 195 Canadian
Hortons in 1997. Hortons will also be developed in the United
States, initially with a higher mix of company-operated units.
The company has purchased 44 Hardee's in Detroit, and agreed to
purchase 31 Rax restaurants in Ohio and West Virginia, with
approximately 60 of these to be converted to Hortons. The
company plans to build a substantial presence in these markets
to build recognition of the Hortons brand and to effectively
utilize marketing.
Since Hortons is primarily a franchise operation in Canada,
financial success depends on developing new stores and
increasing the average unit sales. This results in royalties,
rental income, and revenue from warehouse sales. In 1996, 200
new Hortons were opened and including United States market
development, the company anticipates the number of new units to
increase in future years. The average unit same store sales
increased approximately 5%, in local currency, in 1996. As a
result royalties increased 18%, rental income increased 20%, and
warehouse sales increased 12% over 1995. In total, systemwide
Hortons sales advanced 19% during the year.
WENDY'S OF CANADA
Canada is the company's largest international market. During
1996, Canadian Wendy's same store sales for company-operated
restaurants increased 1.4% in local currency, this follows a
5.6% increase in 1995. In 1996, 11 company-operated Wendy's and
17 franchised Wendy's opened in Canada, bringing the total
restaurants to 229 at year end. Included in these restaurants
are combination units of Wendy's and Hortons which have proven
successful with 41 units open at the end of 1996. In 1997, the
company plans to open 14 company and 29 franchise Wendy's
restaurants in Canada.
INTERNATIONAL
International Wendy's expansion outside of Canada accelerated in
1996 with 84 new international restaurants open. At year-end
1996, there were 335 Wendy's open outside the United States and
Canada. International growth continues to be primarily through
franchising, but real estate joint ventures and company-operated
units are also being planned. The company intends to increase
international development in 1997 and future years with plans
for opening or having under construction 130 new Wendy's in
international markets outside Canada. The primary markets are
Asia and the Pacific, Latin America and the Caribbean, and
Europe and the Middle East.
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.
MANAGEMENT'S OUTLOOK
While 1996 proved to be a challenge, particularly the first
third of the year, results were gratifying. Management believes
it has a solid foundation to leverage the company against the
still extremely competitive environment which is expected to
continue in 1997. The company intends to adhere to its long
established strategies of exceeding customer expectations,
fostering a performance-driven culture, delivering the balanced
message of brand equity plus value in outstanding advertising,
and creating a healthy restaurant system. The company believes
that its success depends on providing quality products and
everyday value, not in discounting products. Menu variety is
also an important part of customer satisfaction. Restaurants are
remodeled on a recurring basis to maintain a fresh image and
increase convenience for consumers. When combined with effective
marketing, the goal of these initiatives is to increase the
number of transactions and average sales per restaurant.
New restaurant development continues to be very important. Both
Wendy's and Hortons restaurant concepts are underpenetrated in
domestic and international markets. The company intends to grow
aggressively, but responsibly, focusing on the markets with the
best potential for sales and return on investment. Each new
company-operated unit must meet minimum operational and
financial requirements before being approved for development. A
total of 543 new restaurants were added this year, with another
184 under construction. Current plans call for 750 to 800 new
units to be open or under construction in 1997. Of these,
approximately 500 are planned to be Wendy's restaurants and 270
are planned to be Hortons. While the majority of units will
continue to be traditional sites, special sites, such as
shopping malls and universities, will contribute to this growth.
Likewise, a significant part of future growth is expected to
come from outside the United States for Wendy's and outside of
Canada for Hortons.
13
<PAGE> 14
The company will continue its strategy to develop the overall
health of the Wendy's system by acquiring restaurants from, and
selling restaurants to, franchisees where prudent. Acquired
restaurants, which may be underperforming, can be improved and
then operated profitably by the company or refranchised 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, conversions, acquisitions, or
remodeling programs. During the last three years, the company
purchased 220 franchised Wendy's, and sold 348 company-operated
restaurants to franchisees. Underperforming restaurants, whether
company or franchise operated, are monitored carefully and
revitalized where economically feasible or closed if necessary
for the financial health of the system.
The strength and vitality of the franchise community is an
essential part of the continued success of the company's system.
Various strategies have been developed to assist individual
franchisees and the overall franchise system. The aim of these
strategies is to encourage responsible new restaurant
development, add new franchisees, enhance minority
representation, increase royalty income, and maintain a high
royalty receivable collection rate. The company will continue to
maintain appropriate reserves against franchise receivables.
The company is optimistic about development of Hortons in the
United States, but this concept does not yet enjoy the superior
brand recognition it has in Canada. There is also significant
competition from established baked goods and donut outlets. The
company will adhere to the strategies discussed above, and
educate potential consumers on the virtues of Hortons.
The company adopted Financial Accounting Standard Number 121 -
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" in 1996. This regulation
requires continual monitoring of long-term assets and a
reduction in their carrying value if evidence of an impairment
is determined. The company did not record any impairments of
carrying values of assets.
Under Financial Accounting Standard Number 123 - "Accounting for
Stock-Based Compensation", the company has elected to account
for stock-based compensation 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.
See Note 6 to the Consolidated Financial Statements.
SAFE HARBOR STATEMENT
Certain information contained in this annual report,
particularly information regarding future economic performance
and finances, plans and objectives of management, is
forward-looking. In some cases, information regarding certain
important factors that could cause actual results to differ
materially from any such forward-looking statement appear
together with such statement. In addition, the following
factors, in addition to other possible factors not listed, could
affect the company's actual results and cause such results to
differ materially from those expressed in forward-looking
statements. These factors include competition within the
quick-service restaurant industry, which remains extremely
intense, both domestically and internationally, with many
competitors pursuing heavy price discounting; changes in
economic conditions; consumer perceptions of food safety; harsh
weather, particularly in the first and fourth quarters; changes
in consumer tastes; labor and benefit costs; legal claims; risks
inherent to international development; the continued ability of
the company and its franchisees to obtain suitable locations and
financing for new restaurant development; governmental
initiatives such as minimum wage rates, taxes and possible
franchise legislation; and other factors set forth in Exhibit 99
to the company's Form 10-K filed with the Securities and
Exchange Commission.
WENDY'S DOMESTIC AND INTERNATIONAL RESTAURANTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Total Wendy's Wendy's Company Operated Wendy's Franchised
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Open at beginning of year 4,667 4,411 4,168 1,311 1,264 1,224 3,356 3,147 2,944
Opened 343 333 298 89 98 76 254 235 222
Closed (77) (77) (55) (10) (14) (20) (67) (63) (35)
Acquisitions within the system 283 203 82 104 83 33 179 120 49
Dispositions within the system (283) (203) (82) (179) (120) (49) (104) (83) (33)
- ------------------------------------------------------------------------------------------------------------------------
Open at end of year 4,933 4,667 4,411 1,315 1,311 1,264 3,618 3,356 3,147
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
- -------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Years ended December 29, 1996, December 31, 1995, and January 1, 1995
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
(In thousands, except per share data) 1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Retail sales $1,566,888 $1,461,880 $1,365,723
Franchise revenues 330,256 284,400 225,864
--------------------------------------------------------------------------------------------
1,897,144 1,746,280 1,591,587
--------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 976,666 890,363 817,500
Company restaurant operating costs 379,404 351,062 332,880
Operating costs 54,710 60,216 52,461
General and administrative expenses 136,461 136,424 120,621
Depreciation and amortization of property
and equipment 88,957 80,573 74,538
Other (income) expense (683) 2,595 1,220
Special charges 49,672 28,905
Interest, net 6,812 10,230 13,169
--------------------------------------------------------------------------------------------
1,642,327 1,581,135 1,441,294
--------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 254,817 165,145 150,293
INCOME TAXES 98,869 55,075 52,861
--------------------------------------------------------------------------------------------
NET INCOME $ 155,948 $ 110,070 $ 97,432
--------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER COMMON SHARE $1.20 $.90 $.81
--------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER COMMON SHARE $1.19 $.88 $.79
--------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $.24 $.24 $.24
--------------------------------------------------------------------------------------------
PRIMARY SHARES 131,290 122,041 120,588
--------------------------------------------------------------------------------------------
FULLY DILUTED SHARES 133,785 130,230 128,718
--------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
15
<PAGE> 16
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 29, 1996, and December 31, 1995
- -----------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 218,956 $ 206,127
Short-term investments 4,795 7,682
Accounts receivable, net 53,250 49,555
Notes receivable, net 11,003 12,272
Deferred income taxes 15,760 18,389
Inventories and other 33,199 27,254
- -----------------------------------------------------------------------------------------------
336,963 321,279
- -----------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 1,207,944 1,006,744
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 51,636 42,927
DEFERRED INCOME TAXES 12,938 19,233
OTHER ASSETS 171,953 118,978
- -----------------------------------------------------------------------------------------------
$1,781,434 $1,509,161
- -----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and drafts payable $ 108,629 $ 108,182
Accrued expenses
Salaries and wages 24,741 23,158
Taxes 18,502 20,828
Insurance 30,337 29,320
Other 18,874 21,691
Due to officer 63,221
Current portion of long-term obligations 6,681 29,469
- -----------------------------------------------------------------------------------------------
207,764 295,869
- -----------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS
Term debt 197,622 297,029
Capital leases 44,206 40,200
- -----------------------------------------------------------------------------------------------
241,828 337,229
- -----------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 62,956 47,853
OTHER LONG-TERM LIABILITIES 12,114 9,431
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY WENDY'S FINANCING I, HOLDING
SOLELY WENDY'S CONVERTIBLE DEBENTURES 200,000
SHAREHOLDERS' EQUITY
Preferred stock, authorized: 250,000 shares
Common stock, $.10 stated value, authorized: 200,000,000 shares
Issued: 113,148,000 and 103,993,000 shares, respectively 11,315 10,399
Capital in excess of stated value 312,570 199,804
Retained earnings 740,311 614,799
Unrealized loss on investments (969) (1,504)
Translation adjustments (4,743) (3,007)
- -----------------------------------------------------------------------------------------------
1,058,484 820,491
Treasury stock at cost: 129,000 shares (1,712) (1,712)
- -----------------------------------------------------------------------------------------------
1,056,772 818,779
- -----------------------------------------------------------------------------------------------
$1,781,434 $1,509,161
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
16
<PAGE> 17
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 29, 1996, December 31, 1995, and January 1, 1995
- ------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 155,948 $ 110,070 $ 97,432
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 94,981 84,452 80,194
Deferred income taxes 23,394 (4,393) (2,082)
Net gain from restaurant dispositions (63,190) (37,810) (11,588)
Net (gain) loss on other asset dispositions (124) 760 (68)
Net reserves for receivables and other contingencies (8,855) 15,424 1,403
Changes in operating assets and liabilities net of effects
of acquisitions and dispositions of restaurants
Accounts and notes receivable (3,443) (11,091) (12,673)
Inventories and other (6,476) (1,245) (616)
Accounts and drafts payable and accrued expenses (6,956) 7,370 11,215
Increase in other assets (571) (3,243) (82)
Other changes, net 5,220 4,603 4,860
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 189,928 164,897 167,995
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from restaurant dispositions 78,716 40,412 21,065
Proceeds from other asset dispositions 30,951 19,139 18,621
Capital expenditures (307,284) (217,532) (172,427)
Acquisition of franchises (59,119) (42,746) (12,761)
Proceeds from marketable securities 4,111 14,509 20,694
Other investing activities (9,364) (1,519) (1,884)
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (261,989) (187,737) (126,692)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of trust preferred securities 200,000
Proceeds from issuance of term debt 285,410 10,488
Proceeds from issuance of common stock 12,192 20,653 7,360
Principal payments on long-term obligations (29,434) (169,017) (5,581)
Dividends paid on common stock (30,436) (24,565) (25,071)
(Payment) loan due officer, net (63,221) (5,057) 22,005
Other financing activities (4,084) 1,428 (2,284)
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 85,017 108,852 6,917
- ------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (127) 476 (279)
- ------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 12,829 86,488 47,941
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 206,127 119,639 71,698
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 218,956 $ 206,127 $ 119,639
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 30,556 $ 19,939 $ 21,478
- ------------------------------------------------------------------------------------------------------
Interest received 15,676 10,040 8,512
- ------------------------------------------------------------------------------------------------------
Income taxes paid 71,840 53,364 55,614
- ------------------------------------------------------------------------------------------------------
Debt converted to common stock 98,714 84
- ------------------------------------------------------------------------------------------------------
Capital lease obligations incurred 6,156 7,717
- ------------------------------------------------------------------------------------------------------
Acquisition of franchises
- ------------------------------------------------------------------------------------------------------
Fair value of assets acquired, net 64,803 67,291 15,859
- ------------------------------------------------------------------------------------------------------
Cash paid 59,119 42,746 12,761
- ------------------------------------------------------------------------------------------------------
Liabilities assumed 5,684 24,850 3,098
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
17
<PAGE> 18
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 29, 1996, December 31, 1995, and January 1, 1995
- --------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK AT STATED VALUE
Balance at beginning of period $ 10,399 $ 10,179 $ 10,082
Exercise of options 103 220 97
Conversion of subordinated debentures 813
- --------------------------------------------------------------------------------------
Balance at end of period 11,315 10,399 10,179
- --------------------------------------------------------------------------------------
CAPITAL IN EXCESS OF STATED VALUE
Balance at beginning of period 199,804 171,888 162,122
Exercise of options, including tax benefits 14,865 27,832 9,766
Conversion of subordinated debentures 97,901 84
- --------------------------------------------------------------------------------------
Balance at end of period 312,570 199,804 171,888
- --------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 614,799 529,294 456,933
Net income 155,948 110,070 97,432
Dividends paid (30,436) (24,565) (25,071)
- --------------------------------------------------------------------------------------
Balance at end of period 740,311 614,799 529,294
- --------------------------------------------------------------------------------------
UNREALIZED LOSS ON INVESTMENTS (969) (1,504) (723)
- --------------------------------------------------------------------------------------
TRANSLATION ADJUSTMENTS (4,743) (3,007) (3,787)
- --------------------------------------------------------------------------------------
PENSION LIABILITY ADJUSTMENT (3,212)
- --------------------------------------------------------------------------------------
TREASURY STOCK AT COST (1,712) (1,712) (1,712)
- --------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY $ 1,056,772 $ 818,779 $ 701,927
- --------------------------------------------------------------------------------------
COMMON SHARES
Balance issued at beginning of period 103,993 101,787 100,823
Exercise of options 1,031 2,200 964
Conversion of subordinated debentures 8,124 6
- --------------------------------------------------------------------------------------
Balance issued at end of period 113,148 103,993 101,787
- --------------------------------------------------------------------------------------
TREASURY SHARES (129) (129) (129)
- --------------------------------------------------------------------------------------
COMMON SHARES ISSUED AND OUTSTANDING 113,019 103,864 101,658
- --------------------------------------------------------------------------------------
COMMON SHARES ISSUABLE UPON
CONVERSION OF EXCHANGEABLE SHARES 16,450 16,450 16,450
- --------------------------------------------------------------------------------------
COMMON SHARES ISSUED, ISSUABLE, AND OUTSTANDING 129,469 120,314 118,108
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to 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 1996 the company and its
franchise owners operated 4,933 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 1,384
restaurants under the name "Tim Hortons" in Canada with 22 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.
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. The most significant of these estimates are related to reserves for
receivables, workers' compensation insurance, income taxes, and contingencies.
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.
In 1995, special charges included the profit sharing contribution made to
the sole shareholder of Hortons (prior to acquisition) of $29.6 million, and
legal, accounting, and other professional fees of $4.0 million to effectuate the
Hortons transaction. Also, reserves of $13.5 million for environmental issues
and contigencies, and miscellaneous costs to organize Canadian operations to
blend the Wendy's and Hortons concepts were included.
Due to officer of $63.2 million as of December 31, 1995, primarily
represents profit sharing contributions and demand notes payable to the former
sole shareholder of Hortons.
INVENTORIES
Inventories, amounting to $17.0 million and $16.4 million at December 29,
1996, and December 31, 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.
Property and equipment, at cost, at each year end consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
In thousands) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Land $ 319,284 $ 288,029
Buildings 532,682 471,599
Leasehold improvements 333,239 251,176
Restaurant equipment 420,288 383,701
Other equipment 70,142 65,643
Capital leases 74,267 67,420
- --------------------------------------------------------
1,749,902 1,527,568
- --------------------------------------------------------
Accumulated depreciation
and amortization (541,958) (520,824)
- --------------------------------------------------------
$1,207,944 $1,006,744
- --------------------------------------------------------
</TABLE>
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 $19.2
million and $16.6 million at December 29, 1996, and December 31, 1995,
respectively.
OTHER ASSETS
Included in other assets is the long-term portion of notes receivable
amounting to $121.3 million and $72.6 million at December 29, 1996, and December
31, 1995, respectively. The carrying amount of notes receivable currently
approximates fair value.
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.
19
<PAGE> 20
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The company capitalizes internally developed software costs which are
amortized over a seven-year period.
ADVERTISING COSTS
The company expenses 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 of franchise royalties and other franchise-related receivables
and commitments (see Note 9).
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. These
franchise expenses are included in general and administrative expenses.
FOREIGN OPERATIONS
At December 29, 1996, the company and its franchise owners operated 229
Wendy's restaurants and 1,362 Tim Hortons restaurants in Canada. Additionally,
335 Wendy's restaurants were operated by the company and its 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 common share is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding and dilutive common share equivalents during each period, including
the company-obligated mandatorily redeemable preferred securities. 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.
NOTE 2 TERM DEBT
Term debt at each year end consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(In thousands) 1996 1995
- ---------------------------------------------------------
<S> <C> <C>
Notes, unsecured, and
Mortgages Payable with a
weighted average interest
rate of 6.5%, due in
installments through 2010 $ 4,432 $ 27,351
Industrial Development
Revenue Bonds, with a
weighted average interest
rate of 11.3%, due in
installments through 2002 591 761
6.35% Notes, due December 15, 2005 96,524 96,251
7% Debentures, due December 15, 2025 96,464 96,429
7% Convertible Subordinated
Debentures, due April 1, 2006 99,915
- ---------------------------------------------------------
198,011 320,707
Current portion (389) (23,678)
- ---------------------------------------------------------
$197,622 $297,029
- ---------------------------------------------------------
</TABLE>
The industrial development revenue bonds were issued to provide funds for
the acquisition, construction, and improvement of various restaurants.
The 7% convertible debentures were redeemed by the company in April 1996.
The conversion price was $12.30 per common share and resulted in the entire
balance being converted to common stock amounting to 8,124,000 shares.
The 6.35% notes and 7% debentures are unsecured and unsubordinated. They
are not redeemable by the company prior to maturity.
In 1995, 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, realized 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 $191 million at December 29, 1996, and $394 million at
December 31, 1995.
20
<PAGE> 21
The combined aggregate amounts of future maturities for all term debt are
as follows:
<TABLE>
<CAPTION>
- -----------------------------------
(In thousands)
- -----------------------------------
<S> <C>
1997 $ 389
1998 371
1999 314
2000 284
2001 139
Later years 196,514
- -----------------------------------
$198,011
- -----------------------------------
</TABLE>
The company has unused contractual lines of credit aggregating $200 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) 1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Total interest charges $ 20,257 $ 20,456 $ 22,176
Distributions on trust
preferred securities 2,772
Interest income (16,217) (10,226) (9,007)
- ----------------------------------------------------------
$ 6,812 $ 10,230 $ 13,169
- ----------------------------------------------------------
</TABLE>
NOTE 3 COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
In September 1996, Wendy's Financing I (the trust) issued $200,000,000 of
$2.50 Term Convertible Securities, Series A (the trust preferred securities).
Wendy's Financing I, a statutory business trust, is a wholly-owned consolidated
subsidiary of the company with its sole asset being $202 million aggregate
principal amount of 5% Convertible Subordinated Debentures due September 15,
2026, of Wendy's (the trust debenture).
The trust preferred securities are non-voting (except in limited
circumstances), pay quarterly distributions at an annual rate of 5%, carry a
liquidation value of $50 per share and are convertible into the company's common
shares at any time prior to the close of business on September 15, 2026, at the
option of the holder. The trust preferred securities are convertible into common
shares at the rate of 1.8932 common shares for each trust preferred security
(equivalent to a conversion price of $26.41 per common share). The company has
executed a guarantee with regard to the trust preferred securities. The
guarantee, when taken together with the company's obligations under the trust
debenture, the indenture pursuant to which the trust debenture was issued, and
the applicable trust document, provides a full and unconditional guarantee of
the trust's obligations under the trust preferred securities.
Based on the quoted market price, fair value of the trust preferred
securities was approximately $208 million at December 29, 1996.
NOTE 4 LEASES
The company occupies land and buildings and uses equipment under terms of
numerous lease agreements expiring on various dates through 2086. 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) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Buildings $ 74,268 $ 67,420
Accumulated amortization (35,188) (33,967)
- --------------------------------------------------------
$ 39,080 $ 33,453
- --------------------------------------------------------
</TABLE>
At December 29, 1996, 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
- --------------------------------------------------------
<S> <C> <C>
1997 $ 10,370 $ 46,319
1998 9,577 44,753
1999 8,010 41,233
2000 6,370 37,102
2001 5,554 33,501
Later years 46,327 225,220
- --------------------------------------------------------
Total minimum lease payments 86,208 $428,128
- --------------------------------------------------------
Amount representing interest (35,710)
- --------------------------------------------
Present value of net minimum
lease payments 50,498
Current portion (6,292)
- --------------------------------------------
$ 44,206
- --------------------------------------------
</TABLE>
21
<PAGE> 22
Total minimum lease payments have not been reduced by minimum sublease
rentals of $2.6 million under capital leases, and $230.4 million under operating
leases due in the future under noncancelable subleases.
Rent expense for each year is included in company restaurant operating
costs and amounted to:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $50,806 $45,142 $41,348
Contingent rents 12,817 9,709 8,589
- --------------------------------------------------------
$63,623 $54,851 $49,937
- --------------------------------------------------------
</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, included in other
assets, consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Total minimum lease receipts $ 33,531 $ 37,206
Estimated residual value 4,615 4,618
Amount representing
unearned interest (17,727) (19,579)
Current portion, included
in accounts receivable (931) (979)
- --------------------------------------------------------
$ 19,488 $ 21,266
- --------------------------------------------------------
</TABLE>
At each year end assets leased under operating leases consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Land $116,181 $ 97,581
Building 234,870 184,394
Equipment 27,626 29,659
- --------------------------------------------------------
378,677 311,634
Accumulated amortization (73,308) (72,184)
- --------------------------------------------------------
$305,369 $239,450
- --------------------------------------------------------
</TABLE>
At December 29, 1996, future minimum lease receipts were as follows:
<TABLE>
<CAPTION>
Financing Operating
(In thousands) Leases Leases
- --------------------------------------------------------
<S> <C> <C>
1997 $ 2,942 $ 33,323
1998 2,955 31,864
1999 2,829 29,788
2000 2,743 27,532
2001 2,570 24,455
Later years 19,492 69,549
- --------------------------------------------------------
$33,531 $216,511
- --------------------------------------------------------
</TABLE>
Rental income for each year is included in franchise revenues and amounted
to:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
Minimum rents $35,267 $28,612 $23,140
Contingent rents 39,622 33,542 27,462
- ---------------------------------------------------------
$74,889 $62,154 $50,602
- ---------------------------------------------------------
</TABLE>
22
<PAGE> 23
NOTE 5 INCOME TAXES
The provision for income taxes at each year end consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $50,658 $ 51,641 $49,802
State and local 4,290 3,864 4,403
Foreign 20,527 3,963 738
- --------------------------------------------------------
75,475 59,468 54,943
- --------------------------------------------------------
Deferred
Federal 14,235 7,724 (1,418)
State and local 1,258 (476) (213)
Foreign 7,901 (11,641) (451)
- --------------------------------------------------------
23,394 (4,393) (2,082)
- --------------------------------------------------------
$98,869 $ 55,075 $52,861
- --------------------------------------------------------
</TABLE>
The temporary differences which give rise to deferred tax assets and
liabilities at each year end consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Lease transactions $ 4,049 $ 3,996
Reserves not currently
deductible 13,597 18,896
Foreign operations 12,464 14,748
All other 2,696 2,390
- --------------------------------------------------------
32,806 40,030
- --------------------------------------------------------
Valuation allowance (2,585) (1,466)
- --------------------------------------------------------
$30,221 $38,564
- --------------------------------------------------------
Deferred tax liabilities
Lease transactions $ 7,615 $ 8,264
Property and equipment
basis differences 34,886 30,049
Installment sales 18,215 7,540
All other 3,763 2,942
- --------------------------------------------------------
$64,479 $48,795
- --------------------------------------------------------
</TABLE>
Deferred tax assets for foreign operations have been established primarily
for net operating loss carryovers and excess capital allowances. In 1996 and
1995, the deferred tax assets related to non-Canadian foreign operations are
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 in 1995, primarily
due to the realization of Canadian tax benefits.
A reconciliation of the statutory U.S. Federal income tax rate of 35
percent to the company's effective tax rate for each year is shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Income taxes at
statutory rate $89,186 $57,801 $52,602
Effect of foreign
operations 6,090 (2,993) (853)
State and local taxes,
net of federal benefit 3,606 2,209 2,737
Canadian restructuring
benefit (3,936) (279)
Other (13) 1,994 (1,346)
- --------------------------------------------------------
Income taxes at
effective rate $98,869 $55,075 $52,861
- --------------------------------------------------------
</TABLE>
23
<PAGE> 24
NOTE 6 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 compensation committee 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.
Pro forma disclosures are provided for 1995 and 1996 as if the company adopted
the cost recognition requirements under Financial Accounting Standard Number 123
(SFAS 123) - "Accounting for Stock-Based Compensation."
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 5.2 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 1, 1996, August 3, 1995, and August
9, 1994, approximately 896,000 options, 785,000 options, and 865,000 options
were granted to eligible employees at an exercise price of $17.38 per share,
$18.31 per share, and $15.38 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 1, 1996, August 3, 1995, and August 9, 1994, approximately 1.4
million options, 1.3 million options, and 1.3 million options were granted under
the 1990 Plan at an exercise price of $17.38 per share, $18.31 per share, and
$15.38 per share, respectively.
The following is a summary of stock option activity for the last three
years:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Shares Under Weighted Average
(Shares in thousands) Option Price Per Share
- ----------------------------------------------------------
<S> <C> <C>
Balance at January 2, 1994 8,541 $ 9.90
Granted 2,500 15.68
Exercised (964) 7.64
Canceled (423) 12.17
-------------------------------------------------------
Balance at January 1, 1995 9,654 11.52
Granted 2,262 18.28
Exercised (2,200) 9.39
Canceled (414) 14.78
-------------------------------------------------------
Balance at December 31, 1995 9,302 13.52
Granted 2,994 17.77
Exercised (1,031) 11.82
Canceled (518) 16.16
-------------------------------------------------------
Balance at December 29, 1996 10,747 $14.74
- ----------------------------------------------------------
</TABLE>
Options exercisable to purchase common shares totaled
5.1 million, 4.2 million, and 4.6 million at December 29,
1996, December 31, 1995, and January 1, 1995, respectively.
Shares reserved under the plans at each year end were 12.0
million in 1996, 12.5 million in 1995, and 14.1 million in
1994.
The fair value of each option granted during 1996 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of 1.3%, (2) expected volatility of 25%, (3)
risk-free interest rate of 6.1%, and (4) expected life of four years.
The weighted average fair value of options granted during 1996 and 1995 was
$4.70, and $4.49, respectively.
24
<PAGE> 25
The following tables summarize stock options outstanding and exercisable at
December 29, 1996:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(Shares in thousands) Options Outstanding
- ----------------------------------------------------------
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise
Prices Outstanding Life Price
- ----------------------------------------------------------
<S> <C> <C> <C>
$ 5 - $13 2,771 4.2 $ 8.43
13 - 16 2,749 7.2 14.96
16 - 18 2,441 9.5 17.36
18 - 21 2,786 8.6 18.51
- ----------------------------------------------------------
$ 5 - $21 10,747 7.3 $14.74
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(Shares in thousands) Options Exercisable
- ----------------------------------------------------------
Weighted
Range of Average
Exercise Options Exercise
Prices Exercisable Price
- ----------------------------------------------------------
<S> <C> <C>
$ 5 - $13 2,770 $ 8.43
13 - 16 1,608 14.86
16 - 18 33 17.17
18 - 21 676 18.27
- ----------------------------------------------------------
$ 5 - $21 5,087 $11.83
- ----------------------------------------------------------
</TABLE>
Had compensation expense been recognized for 1996 and 1995 grants for
stock-based compensation plans in accordance with provisions of SFAS 123, the
company would have recorded net income and earnings per share as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
(In thousands, except per share data) 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Net income $153,489 $109,359
Primary earnings per common share $ 1.18 $ .90
Fully diluted earnings per common share $ 1.17 $ .88
- ----------------------------------------------------------------
</TABLE>
The impact of applying SFAS 123 in this pro forma disclosure is not
indicative of future amounts. SFAS 123 does not apply to grants prior to 1995,
and additional grants in future years are anticipated.
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.
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.
NOTE 7 ACQUISITIONS
During 1996, the company acquired 41 Wendy's restaurants in the New York
market for cash of $20.6 million and 52 Wendy's restaurants primarily in the
South Carolina market for cash of $27.5 million. Eleven other restaurants were
acquired for $11.0 million during 1996.
In addition, the company acquired 40 Roy Rogers restaurants in the New York
area for $17.7 million. These sites will be converted to Wendy's restaurants and
at year-end 1996 ten of these have been converted. Additionally, 44 Hardee's
restaurants in the Detroit market were acquired for $24.0 million. Of these
sites, approximately 30 will be converted to Tim Hortons restaurants and ten to
Wendy's restaurants.
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. The exchangeable shares may be exchanged at any time
until December 29, 2005, at which time they must be exchanged. Tim Hortons is
the leading franchisor of bakery and coffee shops in Canada. The transaction was
accounted for as a pooling of interests. In connection with the acquisition,
$4.0 million in professional fees to effectuate the transaction were incurred.
Additionally during 1995, the company acquired 33 Wendy's 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 Wendy's 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.
25
<PAGE> 26
NOTE 8 DISPOSITIONS
The company franchised 178 domestic and one Canadian restaurant during
1996. Additionally, 118 domestic and two Canadian restaurants were franchised
during 1995, and 49 domestic restaurants were franchised in 1994. These
transactions resulted in pretax gains of approximately $63.2 million, $37.8
million, and $11.6 million in 1996, 1995, and 1994, respectively, and are
included in franchise revenues.
Notes receivable related to dispositions were $103.4 million at December
29, 1996, and $63.6 million at December 31, 1995, and are included in notes
receivable and other assets.
NOTE 9 COMMITMENTS AND CONTINGENCIES
At December 29, 1996, and December 31, 1995, the company's reserves
established for doubtful royalty receivables were $2.0 million and $3.6 million,
respectively. Reserves related to possible losses on notes receivable, real
estate, guarantees, claims, and contingencies involving franchisees totaled $6.7
million at December 29, 1996, and $7.2 million at December 31, 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 $18.0 million over the next two 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.
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 the company's self-insurance or other insurance programs. It is the opinion
of the company that the ultimate resolution of 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
originally estimated such amounts, representing assessment, cleanup, and
remediation costs, to be approximately $11.7 million at year-end 1995. At
December 29, 1996, the company estimates these obligations to be approximately
$5.1 million.
NOTE 10 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. 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) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $(38,120) $(34,811)
Nonvested $ (4,394) $(4,035)
Projected benefit obligation $(45,197) $(41,763)
Fair value of plan assets 48,705 41,354
Unrecognized net transition asset (192)
Unrecognized net loss 355 6,579
Unrecognized prior service costs 3,466 142
- --------------------------------------------------------
Prepaid pension cost $ 7,329 $ 6,120
- --------------------------------------------------------
</TABLE>
In determining the present value of benefit obligations, discount rates of
7.25% and 7.0% were used in 1996 and 1995, respectively. The expected long-term
rate of return on assets used was 8.5% in 1996 and 1995. The assumed rate of
increase in compensation levels was 8.0% for 1996 and 1995. Plan assets as of
December 29, 1996, consisted of debt and equity instruments and cash
equivalents.
Net periodic pension cost for each year consisted of the following:
26
<PAGE> 27
<TABLE>
<CAPTION>
- --------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4,478 $ 3,756 $ 3,761
Interest cost on
projected benefit
obligation 3,105 2,903 2,432
Return on plan assets (5,161) (8,580) 564
Net amortization 1,930 5,533 (3,139)
- --------------------------------------------------------
$ 4,352 $ 3,612 $ 3,618
- --------------------------------------------------------
</TABLE>
The company provided for profit sharing and supplemental retirement
benefits of $4.3 million, $3.6 million, and $2.8 million for 1996, 1995, and
1994, respectively.
The company had an agreement with the former Chairman of the Board which,
as a result of his death in 1996, required the company to expense $1.3 million
under this agreement in the third quarter of 1996.
NOTE 11 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. Since 1993, the
domestic system has agreed to increase national advertising spending from 2% to
2.5% of net sales. During 1996, 1995, and 1994, the company contributed $31.8
million, $30.3 million, and $29.0 million, respectively, to WNAP. These
contributions were recognized in company restaurant operating cost. At December
29, 1996, and December 31, 1995, the company's payable to WNAP amounted to $2.5
million and $2.3 million, respectively.
Total advertising expenses of the company amounted to $62.2 million, $62.1
million, and $58.2 million in 1996, 1995, and 1994, respectively.
NOTE 12 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>
- --------------------------------------------------------------------------------
(in thousands) United States International Corporate Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
REVENUES $1,514,819 $ 382,325 $1,897,144
INCOME BEFORE
INCOME TAXES 255,791 64,804 $ (65,778) 254,817
Identifiable
ASSETS* 1,193,276 209,245 29,012 1,431,533
- --------------------------------------------------------------------------------
1995
Revenues $1,402,918 $ 343,362 $1,746,280
Income before
income taxes 240,765 48,921 $ (124,541) 165,145
Identifiable
assets* 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
Indentifiable
assets* 811,017 127,794 27,151 966,016
- --------------------------------------------------------------------------------
</TABLE>
*Excludes cash and equivalents, deferred income taxes, certain other current
assets, and investments.
NOTE 13 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth
(In thousands, except per share data) 1996 1995 1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $409,883 $398,008 $491,911 $437,370 $506,575 $451,542 $488,775 $459,360
Gross profit* 87,964 87,939 135,937 115,990 132,204 117,975 130,259 122,735
Net income 19,454 15,636 49,304 40,039 46,941 36,237 40,249 18,158
Primary earnings per common share .16 .13 .38 .33 .36 .30 .30 .15
Fully diluted earnings per
common share .16 .13 .38 .32 .36 .29 .30 .15
- -----------------------------------------------------------------------------------------------------------------------------
*Total revenues less cost of sales, company restaurants operating costs, and
operating costs.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
27
<PAGE> 28
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 64 Senior Chairman of the Board and Founder, Director 1969
Gordon F. Teter 53 Chairman of the Board, Chief Executive Officer and
President, Director 1987
John K. Casey 64 Vice Chairman and Chief Financial Officer, Director 1981
John T. Schuessler 46 President and Chief Operating Officer U.S. Operations 1983
John W. Wright 49 President and Chief Operating Officer
International Division 1993
Frederick R. Reed 48 Executive Vice President, General Counsel and Secretary,
Director 1996
Ronald E. Musick 56 Executive Vice President, Director 1986
Charles W. Rath 60 Executive Vice President 1987
George Condos 43 Executive Vice President 1982
Edward L. Austin 39 Senior Vice President 1990
Lawrence A. Laudick 49 Vice President, General Controller & 1976
Assistant Secretary
Stephen D. Farrar 46 Senior Vice President 1984
John F. Brownley 54 Senior Vice President and Treasurer 1981
Jack C. Whiting 47 Senior Vice President 1987
Robert G. Zoeller 52 Senior Vice President 1991
Joyce L. Eufemi 50 Senior Vice President 1993
Brion G. Grube 45 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, Condos, Schuessler, Wright,
Reed, 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. 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. He became Chairman in 1997.
Mr. Reed joined Wendy's in 1996 as Executive Vice President, General
Counsel and Secretary. Prior to that he was a senior partner with
Vorys, Sater, Seymour and Pease. Mr. Reed has been a member of
Wendy's Board of Directors since his election in 1995.
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. He was named President and Chief
Operating Officer U.S. Operations in 1997.
28
<PAGE> 29
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. He was named Chief Operating
Officer International Division in 1997.
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 1996, Mr. Austin
had held the position of Division Vice President for the New Orleans
Division since 1994 and for the Los Angeles Division since 1990.
Ms. Eufemi joined Wendy's in 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
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 5, 1997.
However, no information set forth in the Definitive Proxy Statement
regarding the Report of the Compensation Committee on Executive
Compensation (pages 9-15) or the performance graphs (pages 15-16)
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
29, 1996, December 31, 1995, and January 1, 1995.
Consolidated Balance Sheet - December 29, 1996, and
December 31, 1995.
Consolidated Statement of Cash Flows - Years ended
December 29, 1996, December 31, 1995, and January 1, 1995.
Consolidated Statement of Shareholders' Equity - Years
ended December 29, 1996, December 31, 1995, and January 1,
1995.
Notes to the Consolidated Financial Statements.
29
<PAGE> 30
(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,
Reed, Schuessler, Teter, Wright, Mrs. Chesnut and Mrs.
McGinnis.
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.
Deferred Compensation Agreement between the Company and
R. David Thomas.
Employment Agreement between The TDL Group Ltd. (a
subsidiary of the Company) and Ronald Vaughn Joyce.
Amendment to Employment Agreement between The TDL Group
Ltd. and Ronald Vaughn Joyce.
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
29, 1996. The Form 8-K filed December 16, 1996, announced
(under Item 5) that the Company's Founder, Dave Thomas, was
scheduled to undergo coronary bypass surgery. A copy of a
press release issued December 16, 1996, was attached.
(c) Exhibits filed with this report are listed in the Index to
Exhibits.
(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.
30
<PAGE> 31
- -------------------------------------------------------------------------------
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/ FREDERICK R. REED 3/28/97
-------------------------------
Frederick R. Reed
Executive Vice President,
General Counsel and Secretary
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> <C> <C>
/s/ R. DAVID THOMAS* 3/28/97 /s/ RONALD V. JOYCE* 3/28/97
------------------------------------------- -------------------------------------------
R. David Thomas, Senior Ronald V. Joyce, Director
Chairman of the Board and
Founder, Director
/s/ JOHN K. CASEY* 3/28/97 /s/ GORDON F. TETER* 3/28/97
------------------------------------------- -------------------------------------------
John K. Casey, Vice Chairman Gordon F. Teter, Chairman of the Board,
and Chief Financial Officer, Chief Executive Officer and
Director President, Director
/s/ FREDERICK R. REED 3/28/97 /s/ RONALD E. MUSICK* 3/28/97
------------------------------------------- -------------------------------------------
Frederick R. Reed, Executive Vice President, Ronald E. Musick, Executive Vice
General Counsel and Secretary, Director President, Director
/s/ LAWRENCE A. LAUDICK* 3/28/97 /s/ W. CLAY HAMNER* 3/28/97
------------------------------------------- -------------------------------------------
Lawrence A. Laudick, Vice W. Clay Hamner, Director
President, General Controller
and Assistant Secretary
/s/ ERNEST S. HAYECK* 3/28/97 /s/ JANET HILL* 3/28/97
------------------------------------------- -------------------------------------------
Ernest S. Hayeck, Director Janet Hill, Director
/s/ THOMAS F. KELLER* 3/28/97 /s/ TRUE H. KNOWLES* 3/28/97
------------------------------------------- -------------------------------------------
Thomas F. Keller, Director True H. Knowles, Director
/s/ ANDREW G. McCAUGHEY* 3/28/97 /s/ FIELDEN B. NUTTER, SR.* 3/28/97
------------------------------------------- -------------------------------------------
Andrew G. McCaughey, Director Fielden B. Nutter, Sr., Director
/s/ JAMES V. PICKETT* 3/28/97 /s/ THEKLA R. SHACKELFORD* 3/28/97
------------------------------------------- -------------------------------------------
James V. Pickett, Director Thekla R. Shackelford, Director
*By /s/ FREDERICK R. REED 3/28/97
-------------------------------------------
Frederick R. Reed
Attorney-in-Fact
</TABLE>
31
<PAGE> 32
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 Items 14(a) and 14(d) 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 29, 1996, and December 31, 1995, and the consolidated
results of their operations and their cash flows for the years ended
December 29, 1996, December 31, 1995, and January 1, 1995, 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 19, 1997
- -------------------------------------------------------------------------------
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-8 (File Nos. 2-67253, 2-98696, 33-18177, 2-82823, 33-36602,
33-36603, 333-9261 and 33-57913) of our report dated February 19,
1997 on our audits of the consolidated financial statements and
financial statement schedule of Wendy's International, Inc. and
Subsidiaries as of December 29, 1996 and December 31, 1995, and for
the years ended December 29, 1996, December 31, 1995, and January 1,
1995, which report is included in this Annual Report on Form 10-K.
Columbus, Ohio COOPERS & LYBRAND L.L.P.
March 29, 1997
32
<PAGE> 33
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT (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 29, 1996:
Reserve for royalty receivables $ 3,579 $(1,294) $ (241) $ 2,044
Reserve for possible franchise-
related losses & contingencies 7,231 1,011 (1,612) 6,630
------- ------- ------- -------
$10,810 $ (283) $(1,853) $ 8,674
------- ------- ------- -------
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
------- ------- ------- -------
</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 Sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------- ------- -------
<S> <C> <C> <C>
Deducted from accounts receivable $ 4,339 $ 7,363 $ 7,122
Deducted from notes receivable 480 642 755
Deducted from other assets 2,355 2,516 2,273
Included in accrued expenses - other 1,500 289 644
------- ------- -------
$ 8,674 $10,810 $10,794
------- ------- -------
</TABLE>
33
<PAGE> 34
- -------------------------------------------------------------------------------
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 Ontario Inc., 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 Incorporated by reference to Exhibit 2.6 of
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-Q for the quarter
ended March 31, 1996.
</TABLE>
34
<PAGE> 35
<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 for subordinated debt securities Incorporated herein by reference from
between the Company and NBD Bank, Exhibit 4(a) of Form 10-Q for the quarter
as trustee ended September 29, 1996.
(c) First Supplemental Indenture between the Incorporated herein by reference from
Company and NBD Bank Exhibit 4(b) of Form 10-Q for the quarter
ended September 29, 1996.
(d) Amended and Restated Declaration of Trust Incorporated herein by reference from
of Wendy's Financing I Exhibit 4(c) of Form 10-Q for the quarter
ended September 29, 1996.
(e) Certificate P-1 Evidencing Trust Preferred Incorporated herein by reference from
Securities of Wendy's Financing I Exhibit 4(d) of Form 10-Q for the quarter
ended September 29, 1996.
(f) Certificate P-2 Evidencing Trust Preferred Incorporated herein by reference from
Securities of Wendy's Financing I Exhibit 4(e) of Form 10-Q for the quarter
ended September 29, 1996.
(g) Preferred Securities Guarantee Agreement Incorporated herein by reference from
for the benefit of the holders of Trust Exhibit 4(f) of Form 10-Q for the quarter
Preferred Securities of Wendy's Financing I ended September 29, 1996.
(h) 5% Convertible Subordinated Debenture Incorporated herein by reference from
of the Company Exhibit 4(g) of Form 10-Q for the quarter
ended September 29, 1996.
(i) 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.
(j) 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, Reed, Schuessler, Teter, Wright,
Mrs. Chesnut and Mrs. McGinnis
(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.
<FN>
* 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.
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C>
(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) Deferred Compensation Agreement Incorporated herein by reference from
between the Company and R. David Thomas Exhibit 10(a) of Form 10-Q for the quarter
ended June 30, 1996.
(g) Employment Agreement between The Incorporated herein by reference from
TDL Group Ltd. (a subsidiary of the Exhibit 10(f) of Form 10-K for the year
Company) and Ronald Vaughn Joyce ended December 31, 1995.
(h) Amendment to Employment Agreement Incorporated herein by reference from
between The TDL Group Ltd. (a subsidiary Exhibit 10 of Form 10-Q for the quarter
of the Company) and Ronald Vaughn Joyce ended March 31, 1996.
(i) Senior Executive Earnings Incorporated herein by reference from the
Maximization Plan Company's Definitive Proxy Statement,
dated March 11, 1994.
(j) Description of Earnings Maximization Plan Incorporated herein by reference from
Exhibit 10(f) of Form 10-K for the year
ended January 3, 1993.
(k) Description of Management Incentive Plan Incorporated herein by reference from
Exhibit 10(i) of Form 10-K for the year
ended December 31, 1995.
(l) Supplemental Executive Retirement Plan, Incorporated herein by reference from
as amended Exhibit 10(j) of Form 10-K for the year
ended December 31, 1995.
(m) 1978 Non-Qualified Stock Option Plan, Incorporated herein by reference from
as amended the Company's Definitive Proxy
Statement, dated March 11, 1994.
(n) 1982 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 11, 1994.
(o) 1984 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 11, 1994.
(p) 1987 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 11, 1994.
(q) 1990 Stock Option Plan, as amended Incorporated herein by reference from
the Company's Definitive Proxy
Statement, dated March 5, 1997.
(r) Wendy's WeShare Stock Option Plan, Incorporated herein by reference from
as amended Exhibit 10(p) of Form 10-K for the year
ended December 31, 1995.
11 Computation of Net Income Per Share 37
21 Subsidiaries of the Registrant 38
23 Consent of Coopers & Lybrand L.L.P. Incorporated by reference to page 32
of this Form 10-K.
24 Powers of Attorney 39-53
99 Safe harbor under the Private Securities 54
Litigation Reform Act of 1995
</TABLE>
36
<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 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average number of
common shares outstanding................ 110,011 102,484 101,172
Net shares issuable pursuant to employee
stock option plans, less shares assumed
repurchased at the average market price.. 2,749 3,107 2,966
Shares issuable upon conversion of
company-obligated mandatorily redeemable
preferred securities..................... 2,080
Shares issuable upon conversion of
exchangeable shares...................... 16,450 16,450 16,450
-------- -------- --------
Number of shares for computation of
primary earnings per share............... 131,290 122,041 120,588
-------- -------- --------
Net income.................................. $155,948 $110,070 $ 97,432
Add distributions savings on assumed conversion
of company-obligated mandatorily redeemable
preferred securities, net of tax......... 1,745
-------- -------- --------
Net income available to common shareholders. $157,693 $110,070 $ 97,432
-------- -------- --------
Primary earnings per common share........... $1.20 $.90 $.81
======== ======== ========
</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 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average number of
common shares outstanding................ 110,011 102,484 101,172
Add net additional shares issuable pursuant
to employee stock option plans at the higher
of the period-end or average market price 2,850 3,173 2,966
Shares issuable upon conversion of
company-obligated mandatorily
redeemable preferred securities.......... 2,080
Add additional shares issuable
assuming conversion of
subordinated debentures.................. 2,394 8,123 8,130
Shares issuable upon conversion of
exchangeable shares...................... 16,450 16,450 16,450
-------- -------- --------
Number of shares for computation of
fully diluted earnings per common share.. 133,785 130,230 128,718
-------- -------- --------
Net income.................................. $155,948 $110,070 $ 97,432
Add distributions savings on assumed conversion
of company-obligated mandatorily redeemable
preferred securities, net of tax......... 1,745
Add interest savings on assumed dilutive
conversion of subordinated
debentures, net of tax................... 1,014 4,727 4,615
-------- -------- --------
Net income for computation of
fully diluted earnings per common share.. $158,707 $114,797 $102,047
-------- -------- --------
Fully diluted earnings per common share..... $1.19 $.88 $.79
======== ======== ========
</TABLE>
37
<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
Markdel, Inc. U.S. Delaware
Findel Corp. U.S. Delaware
Domark Investments, Inc. U.S. Delaware
Wendy's Financing I U.S. Delaware
</TABLE>
38
<PAGE> 1
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
Frederick R. Reed 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
28th day of March, 1997.
/s/ R. David Thomas
--------------------------------
R. David Thomas, Senior Chairman of
the Board & Founder, Director
39
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Ronald V. Joyce
--------------------------------
Ronald V. Joyce, Senior Chairman and
Co-Founder The TDL Group Ltd., Director
40
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ John K. Casey
--------------------------------
John K. Casey, Vice Chairman and Chief
Financial Officer, Director
41
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Gordon F. Teter
--------------------------------
Gordon F. Teter, Chairman of the Board,
Chief Executive Officer and President, Director
42
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Ronald E. Musick
--------------------------------
Ronald E. Musick,
Executive Vice President, Director
43
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Lawrence A. Laudick
--------------------------------
Lawrence A. Laudick
Vice President, General Controller &
Assistant Secretary
44
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ W. Clay Hamner
--------------------------------
W. Clay Hamner, Director
45
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Ernest Hayeck
--------------------------------
Ernest Hayeck, Director
46
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Janet Hill
--------------------------------
Janet Hill, Director
47
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Thomas F. Keller
--------------------------------
Thomas F. Keller, Director
48
<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
Frederick R. Reed 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
28th day of March, 1997.
/s/ True H. Knowles
--------------------------------
True H. Knowles, Director
49
<PAGE> 12
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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Andrew G. McCaughey
--------------------------------
Andrew G. McCaughey, Director
50
<PAGE> 13
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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Fielden B. Nutter, Sr.
--------------------------------
Fielden B. Nutter, Sr., Director
51
<PAGE> 14
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
Frederick R. Reed 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
28th day of March, 1997.
/s/ James V. Pickett
--------------------------------
James V. Pickett, Director
52
<PAGE> 15
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
Frederick R. Reed 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
28th day of March, 1997.
/s/ Thekla R. Shackelford
--------------------------------
Thekla R. Shackelford, Director
53
<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-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 218,956
<SECURITIES> 4,795
<RECEIVABLES> 64,253
<ALLOWANCES> 8,674
<INVENTORY> 33,199
<CURRENT-ASSETS> 336,963
<PP&E> 1,749,902
<DEPRECIATION> 541,958
<TOTAL-ASSETS> 1,781,434
<CURRENT-LIABILITIES> 207,764
<BONDS> 397,622
0
0
<COMMON> 11,315
<OTHER-SE> 1,045,457
<TOTAL-LIABILITY-AND-EQUITY> 1,781,434
<SALES> 1,566,888
<TOTAL-REVENUES> 1,897,144
<CGS> 976,666
<TOTAL-COSTS> 1,410,780
<OTHER-EXPENSES> 224,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,812
<INCOME-PRETAX> 254,817
<INCOME-TAX> 98,869
<INCOME-CONTINUING> 155,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155,948
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.19
</TABLE>
<PAGE> 1
Exhibit 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "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 1996 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. 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. Changes in these laws and
regulations, particularly increases in applicable minimum wages, may adversely
affect financial results. 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.
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,
uncertain or differing interpretations of rights and obligations in connection
with international franchise agreements and the collection of royalties from
international franchisees, 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.
54
