<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 4, 1999
------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from________________to_____________
Commission File Number 1-8116
------
WENDY'S INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-0785108
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 256, 4288 West Dublin-Granville Road, Dublin, Ohio 43017-0256
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) 614-764-3100
------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
----- -----
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 6, 1999
- -------------------------------- -----------------------------
Common shares, $.10 stated value 121,448,000 shares
Exhibit index on page 17.
1
<PAGE> 2
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
PART I: Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statements of Income for the quarter
and year-to-date periods ended July 4, 1999 and July 5, 1998 3 - 4
Consolidated Condensed Balance Sheets as of July 4, 1999
and January 3, 1999 5 - 6
Consolidated Condensed Statements of Cash Flows for the
year-to-date periods ended July 4, 1999 and July 5, 1998 7
Notes to the Consolidated Condensed Financial Statements 8 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
PART II: Other Information
Item 4 14
Item 6 14
Signature 15
Index to Exhibits 16
Exhibit 10 17 - 33
Exhibit 99 34 - 35
</TABLE>
2
<PAGE> 3
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
13 WEEKS ENDED 14 WEEKS ENDED
JULY 4, 1999 JULY 5, 1998
------------ ------------
<S> <C> <C>
REVENUES
Retail sales .............................. $ 422,838 $ 435,473
Franchise revenues ........................ 105,712 94,491
--------- ---------
528,550 529,964
--------- ---------
COSTS AND EXPENSES
Cost of sales ............................. 262,007 271,415
Company restaurant operating
costs ................................... 90,673 95,737
Operating costs ........................... 19,327 17,961
General and administrative
expenses ................................ 48,752 46,686
Depreciation and amortization
of property and equipment ............... 24,120 24,326
Other expense (income) .................... 830 (409)
Interest, net ............................. 2,952 735
--------- ---------
448,661 456,451
--------- ---------
INCOME BEFORE INCOME TAXES .................... 79,889 73,513
INCOME TAXES .................................. 30,357 27,910
--------- ---------
NET INCOME .................................... $ 49,532 $ 45,603
========= =========
BASIC EARNINGS PER COMMON SHARE ............... $ .40 $ .35
========= =========
DILUTED EARNINGS PER COMMON SHARE ............. $ .39 $ .34
========= =========
BASIC SHARES .................................. 123,118 130,212
========= =========
DILUTED SHARES ................................ 132,449 139,155
========= =========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Condensed
Financial Statements.
3
<PAGE> 4
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
26 WEEKS ENDED 27 WEEKS ENDED
JULY 4, 1999 JULY 5, 1998
------------ ------------
<S> <C> <C>
REVENUES
Retail sales ............................ $ 812,158 $ 817,061
Franchise revenues ...................... 192,935 168,476
---------- ----------
1,005,093 985,537
---------- ----------
COSTS AND EXPENSES
Cost of sales ........................... 508,446 514,106
Company restaurant operating
costs ................................. 177,415 186,943
Operating costs ......................... 37,529 32,512
General and administrative
expenses .............................. 95,800 89,854
Depreciation and amortization
of property and equipment ............. 47,643 49,080
Other expense (income) .................. 2,054 (418)
Interest, net ........................... 4,699 553
---------- ----------
873,586 872,630
---------- ----------
INCOME BEFORE INCOME TAXES .................. 131,507 112,907
INCOME TAXES ................................ 49,972 43,470
---------- ----------
NET INCOME .................................. $ 81,535 $ 69,437
========== ==========
BASIC EARNINGS PER COMMON SHARE ............. $ .66 $ .53
========== ==========
DILUTED EARNINGS PER COMMON SHARE ........... $ .64 $ .52
========== ==========
BASIC SHARES ................................ 123,590 131,168
========== ==========
DILUTED SHARES .............................. 132,751 140,054
========== ==========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Condensed
Financial Statements.
4
<PAGE> 5
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
JULY 4, 1999 JANUARY 3, 1999
------------ ---------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............ $ 245,159 $ 160,743
Accounts receivable, net ............. 71,749 74,737
Notes receivable, net ................ 7,116 19,952
Deferred income taxes ................ 19,592 23,177
Inventories and other ................ 35,181 35,085
----------- -----------
378,797 313,694
----------- -----------
PROPERTY AND EQUIPMENT ................... 1,820,054 1,783,212
Accumulated depreciation and
amortization ....................... (522,754) (502,418)
----------- -----------
1,297,300 1,280,794
----------- -----------
NOTES RECEIVABLE, NET .................... 40,224 126,366
GOODWILL, NET ............................ 49,740 50,723
DEFERRED INCOME TAXES .................... 14,340 15,090
OTHER ASSETS ............................. 41,725 51,280
----------- -----------
$ 1,822,126 $ 1,837,947
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Condensed
Financial Statements.
5
<PAGE> 6
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
JULY 4, 1999 JANUARY 3, 1999
------------ ---------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................... $ 73,056 $ 101,100
Accrued expenses:
Salaries and wages .......................... 23,969 30,432
Taxes ....................................... 37,848 31,105
Insurance ................................... 34,261 34,944
Other ....................................... 30,123 46,432
Current portion of long-term
obligations ................................. 5,712 5,399
----------- -----------
204,969 249,412
----------- -----------
LONG-TERM OBLIGATIONS
Term debt ...................................... 205,025 205,371
Capital leases ................................. 41,490 40,676
----------- -----------
246,515 246,047
----------- -----------
DEFERRED INCOME TAXES .............................. 59,093 60,707
OTHER LONG-TERM LIABILITIES ........................ 14,654 13,714
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF WENDY'S
FINANCING I, HOLDING SOLELY WENDY'S
CONVERTIBLE DEBENTURES .......................... 200,000 200,000
SHAREHOLDERS' EQUITY
Preferred stock, authorized: 250,000 shares
Common stock, $.10 stated value per share
Authorized: 200,000,000 shares
Issued and Exchangeable:
134,432,000 and 133,415,000 shares,
respectively ............................... 11,898 11,796
Capital in excess of stated value .............. 389,924 370,288
Retained earnings .............................. 998,300 931,603
Accumulated other comprehensive expense ........ (23,082) (33,355)
----------- -----------
1,377,040 1,280,332
Treasury stock at cost: 11,928,000 and 9,410,000
shares, respectively ......................... (280,145) (212,265)
----------- -----------
1,096,895 1,068,067
----------- -----------
$ 1,822,126 $ 1,837,947
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the Consolidated Condensed
Financial Statements.
6
<PAGE> 7
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
26 WEEKS ENDED 27 WEEKS ENDED
JULY 4, 1999 JULY 5, 1998
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES .................................. $ 113,561 $ 81,140
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from asset dispositions ............ 58,828 46,416
Capital expenditures ........................ (114,050) (106,151)
Acquisition of franchises ................... (1,726) (4,807)
Payments on notes receivable ................ 99,363 13,439
Other investing activities .................. (1,260) (4,664)
--------- ---------
Net cash used in investing activities ..... 41,155 (55,767)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock ...... 15,594 9,126
Repurchase of common shares ................. (67,880) (132,184)
Principal payments on long-term
obligations ............................... (3,176) (3,335)
Dividends paid on common and
exchangeable shares ....................... (14,838) (15,810)
--------- ---------
Net cash used in financing activities ..... (70,300) (142,203)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................ 84,416 (116,830)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ..................................... 160,743 234,262
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...... $ 245,159 $ 117,432
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Capitalized lease obligations incurred ...... $ 1,695 $ 1,391
Notes receivable from restaurant dispositions -- 9,813
Acquisition of franchises:
Fair value of assets acquired, net ........ 1,726 4,887
Cash paid ................................. 1,726 4,807
Liabilities assumed ....................... -- 80
</TABLE>
The accompanying Notes are an integral part of the Consolidated Condensed
Financial Statements.
7
<PAGE> 8
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. MANAGEMENT'S STATEMENT
- ------------------------------
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring
in nature) necessary to present fairly the condensed financial position of
Wendy's International, Inc. and Subsidiaries (the Company) at July 4, 1999
and January 3, 1999 and the condensed results of operations and
comprehensive income (see Note 3) for the 13 and 26 weeks ended July 4,
1999 and 14 and 27 weeks ended July 5, 1998, and cash flows for the 26
weeks ended July 4, 1999 and 27 weeks ended July 5, 1998. The Notes to the
audited Consolidated Financial Statements which are contained in the
Appendix to the Company's 1999 Proxy Statement should be read in
conjunction with these Consolidated Condensed Financial Statements.
NOTE 2. NET INCOME PER SHARE
- ----------------------------
Basic earnings per common share is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding during each period. Diluted computations include
dilutive common share equivalents and assumed conversion of company
obligated mandatorily redeemable preferred securities and the elimination
of related expenses, net of income taxes.
The computations of basic and diluted earnings per common share are shown
below:
<TABLE>
<CAPTION>
13 WEEKS 14 WEEKS 26 WEEKS 27 WEEKS
ENDED ENDED ENDED ENDED
JULY 4, 1999 JULY 5, 1998 JULY 4, 1999 JULY 5, 1998
------------ ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Income for computation of basic earnings
per share .............................. $ 49,532 $ 45,603 $ 81,535 $ 69,437
Interest savings (net of taxes) on assumed
conversions ............................ 1,573 1,652 3,145 3,187
-------- -------- -------- --------
Income for computation of diluted
earnings per share ..................... $ 51,105 $ 47,255 $ 84,680 $ 72,624
======== ======== ======== ========
Weighted average shares for computation
of basic earnings per share ............ 123,118 130,212 123,590 131,168
Incremental shares on assumed exercise
of stock options ....................... 1,758 1,370 1,588 1,313
Assumed conversions ...................... 7,573 7,573 7,573 7,573
-------- -------- -------- --------
Weighted average shares for computation
of diluted earnings per share .......... 132,449 139,155 132,751 140,054
======== ======== ======== ========
Basic earnings per share ................. $ .40 $ .35 $ .66 $ .53
======== ======== ======== ========
Diluted earnings per share ............... $ .39 $ .34 $ .64 $ .52
======== ======== ======== ========
</TABLE>
8
<PAGE> 9
NOTE 3. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
- ------- ---------------------------------------------------------
The components of other comprehensive income (expense) and total comprehensive
income (expense) are shown below:
<TABLE>
<CAPTION>
13 WEEKS ENDED 14 WEEKS ENDED 26 WEEKS ENDED 27 WEEKS ENDED
JULY 4, 1999 JULY 5, 1998 JULY 4, 1999 JULY 5, 1998
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Net income ................................ $ 49,532 $ 45,603 $ 81,535 $ 69,437
Other comprehensive income (expense):
Translation adjustments ................... 4,749 (9,570) 10,675 (5,818)
Other (net of taxes of $128, $150, $320 and
$205, respectively) ..................... 161 188 (402) 257
-------- -------- -------- --------
Total other comprehensive income .......... 4,910 (9,382) 10,273 (5,561)
-------- -------- -------- --------
Comprehensive income ...................... $ 54,442 $ 36,221 $ 91,808 $ 63,876
======== ======== ======== ========
</TABLE>
NOTE 4. SEGMENT REPORTING
- -------------------------
The Company operates exclusively in the food-service industry and has determined
that its reportable segments are those that are based on the Company's methods
of internal reporting and management structure. The Company's reportable
segments are: Domestic Wendy's, Tim Hortons and International Wendy's.
International Wendy's is comprised of Wendy's of Canada and other Wendy's
operations outside the United States. There were no material amounts of revenues
or transfers among reportable segments.
The table below presents information about reportable segments:
<TABLE>
<CAPTION>
DOMESTIC WENDY'S TIM HORTONS INTERNATIONAL WENDY'S TOTAL
---------------- ----------- --------------------- -----
(In thousands)
<S> <C> <C> <C> <C>
13 WEEKS ENDED JULY 4, 1999
- ---------------------------
Revenues $379,132 $115,964 $33,454 $528,550
Income before income taxes 81,773 22,468 1,442 105,683
Capital expenditures 41,005 14,913 3,282 59,200
14 WEEKS ENDED JULY 5, 1998
- ---------------------------
Revenues $385,131 $107,321 $37,512 $529,964
Income before income taxes 75,427 17,673 2,758 95,858
Capital expenditures 30,654 17,312 1,585 49,551
26 WEEKS ENDED JULY 4, 1999
- ---------------------------
Revenues $722,004 $222,118 $60,971 $1,005,093
Income before income taxes 137,209 39,900 1,260 178,369
Capital expenditures 72,485 34,455 7,110 114,050
27 WEEKS ENDED JULY 5, 1998
- ---------------------------
Revenues $719,919 $196,802 $68,816 $985,537
Income before income taxes 119,321 31,473 1,996 152,790
Capital expenditures 67,116 32,970 6,065 106,151
</TABLE>
A reconciliation of reportable segment income before income taxes to
consolidated income before income taxes follows:
<TABLE>
<CAPTION>
13 WEEKS ENDED 14 WEEKS ENDED 26 WEEKS ENDED 27 WEEKS ENDED
JULY 4, 1999 JULY 5, 1998 JULY 4, 1999 JULY 5, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income before income taxes $105,683 $ 95,858 $ 178,369 $ 152,790
Corporate charges (25,794) (22,345) (46,862) (39,883)
-------- -------- --------- ---------
Consolidated income before income taxes $ 79,889 $ 73,513 $ 131,507 $ 112,907
======== ======== ========= =========
</TABLE>
Corporate charges include certain overhead costs and net interest expense.
9
<PAGE> 10
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
In the second quarter of 1999, the Company's net income increased 8.6% to $49.5
million from $45.6 million in 1998, and diluted earnings per common share (EPS)
increased 15% to $.39. The current quarter includes 13 weeks of operations
versus 14 weeks in 1998. Excluding the additional week in 1998, net income
increased 20% and EPS increased 26%. In the second quarter 1999, pretax asset
gains were $8.2 million versus $4.3 million in the second quarter 1998.
Year-to-date 1999 net income was $81.5 million versus $69.4 million in 1998, a
17% increase. EPS was $.64 in 1999, a 23% increase over $.52 for 1998. The
year-to-date results include 26 weeks of operations in 1999 versus 27 weeks in
1998. In both periods, average restaurant sales increased significantly in 1999
for Wendy's and Tim Hortons (Hortons) restaurants, and, in both periods, the
domestic Wendy's operating margin improved.
RETAIL SALES
- ------------
Average restaurant sales increased 10.4% for the second quarter 1999 and 11.7%
year-to-date in Wendy's domestic company restaurants. Average same-store sales
in Wendy's domestic company restaurants increased approximately 8.3% in the
second quarter and 9.0% year-to-date. Average domestic Wendy's transaction
counts were up 7.3% and 7.8% for the second quarter and year-to-date 1999,
respectively. Domestic selling prices increased .4% in the second quarter and
.3% year-to-date 1999. Hortons warehouse sales increased 13.6% in the second
quarter and 16.1% year-to-date as Hortons continued to develop new stores and
average same-store sales increased 10.9% and 10.5% for the second quarter and
year-to-date, respectively.
Average sales per domestic Wendy's restaurant, adjusted to eliminate the impact
of the extra week in second quarter 1998, for the quarters and year-to-date
periods ended July 4, 1999 and July 5, 1998 were as follows:
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
-------------- ------------
% %
1999 1998 Increase 1999 1998 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Company ...... $329,900 $298,900 10.4 $634,050 $567,500 11.7
Franchise .... 282,350 264,650 6.7 542,050 503,250 7.7
Total Domestic 291,750 272,150 7.2 560,300 517,700 8.2
</TABLE>
The number of systemwide restaurants open as of July 4, 1999 and July 5, 1998
was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Company ............. 1,043 1,048
Franchise ........... 4,359 4,183
----- -----
Total Wendy's........ 5,402 5,231
===== =====
Total Hortons........ 1,721 1,585
===== =====
Total System 7,123 6,816
===== =====
</TABLE>
COST OF SALES AND RESTAURANT OPERATING COSTS
- --------------------------------------------
The domestic Wendy's company operating margin increased in the second quarter
1999 to 17.7% versus 16.6% for 1998 and was 16.8% in 1999 versus 15.0% for the
year-to-date comparison. This was primarily due to strong sales growth at
company stores and store-level productivity initiatives. Wendy's domestic
restaurant operating costs, as a percent of retail sales, decreased over 1998,
primarily reflecting the leverage benefit of higher average sales, lower utility
and insurance costs, and in the year-to-date period, lower advertising costs.
10
<PAGE> 11
Domestic Wendy's cost of sales, as a percent of sales, decreased .2% in the
second quarter 1999 versus 1998 and decreased .5% year-to-date. This reflected
lower overall store labor costs (as a percent of sales), even with an increase
of more than 5% in the hourly wage rate, lower paper costs and the leveraging
benefit of higher average sales. However, food costs were higher with increased
beef and chicken costs. Hortons warehouse cost of sales remained relatively
constant as a percent of warehouse sales and total cost of sales increased in
line with retail sales.
FRANCHISE REVENUES
- ------------------
Domestic Wendy's royalties, before reserve provisions, increased $2.5 million in
the second quarter 1999 to $42.6 million. An average of 217 more Wendy's
domestic franchise restaurants were open in 1999 and average sales of Wendy's
domestic franchise restaurants increased 6.7% in the second quarter 1999 over
1998. This was partly offset by one less week of operations in 1999. For the
year-to-date comparison, domestic royalties before reserves increased $8.1
million to $81.4 million in 1999. This reflected an average of 230 more
franchise restaurants and average sales increases of 7.7%, offset by one less
week of operations in 1999. Average same-store sales at Hortons Canadian
restaurants increased 10.9% for the second quarter 1999 and 10.5% for the first
half of 1999 resulting in increased royalty income partly offset by one less
week of operations. Hortons opened 32 stores and 58 stores in the second quarter
and year-to-date 1999, respectively. Franchise reserves of $1.1 million and
$561,000 were provided in the first half of 1999 and 1998, respectively.
Asset gains increased $3.9 million in the second quarter 1999 including $4.5
million more pretax gains from franchising Wendy's restaurants, and $.6 million
in fees related to franchisees refinancing $47 million of notes receivable owned
by the Company. This was offset by $1.2 million less gains from the sale of
rental properties. Asset gains increased $5.6 million year-to-date 1999
including $4.5 million more pretax gains from franchising Wendy's restaurants,
and $1.8 million in fees relating to refinancing $82 million in notes
receivable. This was offset by $.7 million less gains from the sale of rental
property.
Rental income for the quarter increased $4.7 million to $34.4 million in 1999
and increased $8.0 million in the first half of 1999 to $63.2 million. This was
primarily a result of more Hortons franchise leased properties and the increased
average sales at Hortons resulting in $2.7 million increased rental income in
the second quarter and $5.2 million in the first half of 1999. This also
reflects one less week of operations in 1999. Franchise fees increased $1.4
million in the first half of 1999 to $15.7 million. This primarily represented
increased Hortons franchise fees of $1.8 million as a result of more store
openings.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses for the second quarter of 1999 were $48.8
million versus $46.7 million in 1998, or 9.2% and 8.8% of total revenues,
respectively. Year-to-date general and administrative costs were $95.8 million
and 9.5% of total revenues compared with $89.9 million and 9.1% of total
revenues. The higher percentage for 1999 reflects lower retail sales from fewer
Wendy's company stores as a result of stores franchised and closed during 1998.
The increase also reflects more performance-based bonus expense, due to strong
sales, in 1999 and increases in professional services for information technology
initiatives.
INTEREST, NET
- -------------
Interest, net increased $2.2 million to $3.0 million in the second quarter 1999
and increased $4.1 million to $4.7 million in the year-to-date comparison
primarily reflecting a decrease in interest income as there were significantly
lower levels of notes receivable and lower average levels of cash and cash
equivalents due to the share repurchase program.
OTHER COMPREHENSIVE INCOME
--------------------------
Other comprehensive income increased primarily due to favorable movement in the
Canadian exchange rate since year-end 1998 (See Note 3).
11
<PAGE> 12
FINANCIAL CONDITION
-------------------
The Company's financial condition continues to be very strong at the end of the
second quarter of 1999. The long-term debt to equity and debt to total
capitalization ratios were 22% and 18%, respectively, at July 4, 1999. The
Company has initiated a program to maximize return on assets over the long term
by redeploying assets to opportunities that have higher potential returns. The
Company closed or franchised underperforming restaurants during 1998. The salad
bar removals were completed during 1998. Progress has been made in implementing
information technology systems in 1999. A total of $143 million in notes
receivable has been refinanced in 1998 and 1999. The Company plans on continuing
the strategy of improving return on assets. Capital generated from asset
reductions is expected to be used for such programs as share repurchase, new
restaurant development and potential acquisitions. During the quarter, cash of
$52.6 million was used to repurchase 1.9 million common shares. A total of $278
million in cash has been used to purchase 11.8 million shares since the
repurchase program was announced in February 1998. Capital expenditures amounted
to $109 million for 1999 compared with $106 million for 1998.
OUTLOOK
-------
The Company continues to employ its operating strategies as outlined in the
Appendix to the Company's 1999 Proxy Statement. As was expected, competition
in the quick-service restaurant industry has been intense and is expected to
remain so in the future. The Company faced an extremely competitive
environment, including discounting in domestic and international markets and
higher domestic labor rates. These conditions may continue. Emphasis continues
to be on solid restaurant operations, store-level productivity initiatives,
new products, effective marketing, new restaurant development and the overall
financial health of the entire system. The Company believes that its success
depends on providing quality products and everyday value, not in discounting
products.
The Company currently anticipates that up to 560 new Wendy's and Hortons
restaurants could be opened systemwide (both company and franchise) during
1999. This is subject to the continued ability of the Company and its
franchisees to complete permitting and to overcome other regulatory
requirements for the completion of stores in progress, and to obtain financing
for new restaurant development. Year-to-date 1999, there were 188 new
restaurants opened. Cash flow from operations, cash and investments on hand
and possible asset sales should adequately provide for projected cash
requirements. If additional cash is needed for future acquisitions of
restaurants from franchisees, repurchase of common shares, or for other
corporate purposes, the Company believes it would be able to obtain additional
cash through existing revolving credit agreements, potential bank borrowings
or the issuance of securities.
YEAR 2000
---------
The year 2000 issue concerns the ability of date sensitive information
technology systems and non-information technology systems with embedded
technology applications to properly recognize the year 2000 in calculating and
processing information. The Company has undertaken several actions to identify
potential issues, set priorities, develop and implement remediation plans, test
and develop and, to the extent needed, implement contingency plans.
The Company has completed an assessment of year 2000 issues with respect to what
it has identified as significant priorities. The Company has initiated a plan to
install a new enterprise-wide information system which will include new software
that is expected to be substantially year 2000 compliant. This system is
expected to be substantially implemented during 1999. The Company has also
implemented a plan to remediate existing store management systems. This plan is
expected to be completed during 1999. The Company has made an assessment that
other existing software will need to be modified since it will either not be
replaced by the new information systems or replacement will not occur prior to
year 2000. Internal resources and third party consultants are being utilized to
identify, correct and test these systems for year 2000 compliance. Substantially
all mainframe systems modified have been tested and put into production. It is
expected that substantially all testing and implementation of other high
priority information systems will be completed by the end of the third fiscal
quarter of 1999. The Company is currently addressing potential year 2000 issues
on lower priority systems and expects that these systems will be year 2000
compliant by the end of 1999.
12
<PAGE> 13
The modifications to existing software are expected to cost approximately $4
million, of which $2.4 million has been expensed through 1998 and $657,000 has
been expensed year-to-date in 1999. The remainder will be expensed in fiscal
1999. The new information system is estimated to cost approximately $50 million
to $60 million, a substantial portion of which will be capitalized. All costs
are expected to be funded by cash flows from operations.
The Company has initiated communications with various third parties with which
it has significant relationships to determine their readiness with respect to
the year 2000 issue. These third parties include food and paper suppliers,
restaurant equipment suppliers, banks and other entities. Based on responses
received from most of these third parties, it appears that year 2000 issues are
being addressed. The Company intends to pursue responses from the remaining
third parties with which it has significant relationships and to discuss any
material year 2000 concerns that are identified. The Company intends to develop
contingency plans for third parties that the Company believes have material year
2000 concerns. Although the Company has not been informed of material year 2000
issues by third parties with which it has material relationships/or franchisees,
there is no assurance that these entities will be year 2000 compliant on a
timely basis. The Company is continuing to evaluate risks and remedial actions
with respect to third parties as year 2000-related information changes.
Unanticipated failures or significant delays in furnishing products or services
by third parties or general public infrastructure service providers, or the
inability of franchisees to perform sales reporting and financial management
functions or to make timely payments to the Company or suppliers, could have a
material adverse effect on results of operations, financial condition and/or
liquidity. The Company has contingency plans in place for certain of these
eventualities (such as the ability to shift quickly to other food suppliers in
the event one supplier experiences unanticipated year 2000 issues) and, to the
extent possible, intends to develop other contingency plans as needed.
The Company has also been communicating with and providing information to its
franchisees regarding the potential business risks associated with the year 2000
issue. Among other things, these communications encourage franchisees to address
year 2000 issues and provide information that could be useful in assessing
potential year 2000 issues. The Company intends to continue providing
information to franchisees with respect to such issues.
The Company anticipates timely completion of its program to address year 2000
issues. However, if the new information systems are not implemented on a timely
basis, modifications to existing systems cannot be accomplished on a timely
basis, information technology resources do not remain available, or other
unanticipated events occur, there would be adverse financial and operational
effects on the Company. The amount of these effects cannot be ascertained at
this time. The Company has contingency plans in place for certain of these
eventualities and intends to develop other contingency plans as needed.
RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------
In June 1998, Financial Accounting Standard Number 133 - "Accounting for
Derivative Instruments and Hedging Activities" was issued. The statement is
effective for all quarters of fiscal years beginning after June 15, 2000. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivatives as either assets or liabilities in the financial statements at fair
value. Currently this statement would not impact the Company's financial
statements.
SAFE HARBOR STATEMENT
---------------------
Certain information contained in this Form 10-Q, particularly information
regarding future economic performance and finances, plans and objectives of
management, is forward looking. In some cases, information regarding certain
important factors that could cause actual results to differ materially from any
such forward-looking statement appears together with such statement. In
addition, the following factors, in addition to other possible factors not
listed, could affect the Company's actual results and cause such results to
differ materially from those expressed in forward-looking statements. These
factors include: competition within the quick-service restaurant industry, which
remains extremely intense, both domestically and internationally, with many
competitors pursuing heavy price discounting; changes in
13
<PAGE> 14
economic conditions; changes in consumer perceptions of food safety; harsh
weather, particularly in the first and fourth quarters; changes in consumer
tastes; labor and benefit costs; legal claims; risks inherent to international
development (including currency fluctuations); the continued ability of the
Company and its franchisees to obtain suitable locations and financing for new
restaurant development; governmental initiatives such as minimum wage rates,
taxes and possible franchise legislation; the ability of the Company to
successfully complete transactions designed to improve its return on investment;
unanticipated issues related to year 2000 compliance efforts of the Company or
various third parties; and other factors set forth in Exhibit 99 attached
hereto.
14
<PAGE> 15
PART II: OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders.
(a) The Annual Meeting of the Company's shareholders was held on May 4, 1999.
(b) The following table sets forth the name of each director elected at the
meeting and the number of votes for or withheld from each director:
Director For Withheld
-------- --- --------
Thekla R. Shackelford 93,545,713 1,143,070
Ronald E. Musick 93,549,035 1,139,750
W. Clay Hamner 93,545,650 1,143,136
Gordon F. Teter 93,552,151 1,136,634
Frederick R. Reed 93,549,969 1,138,815
The following directors did not stand for reelection at the meeting (the year in
which each director's term expires is indicated in parenthesis): Fielden B.
Nutter, Sr. (2000), James V. Pickett (2000), Thomas F. Keller (2000), Ronald V.
Joyce (2000), Andrew G. McCaughey (2000), R. David Thomas (2001), Ernest S.
Hayeck (2001), Janet Hill (2001), True H. Knowles (2001) and Paul D. House
(2001).
(c) The following table sets forth the brief description of each other matter
voted on at the Annual Meeting and the number of votes cast for, against or
abstaining from, as well as broker nonvotes on each matter:
<TABLE>
<CAPTION>
Broker
For Against Abstain Nonvotes
--- ------- ------- --------
<S> <C> <C> <C> <C>
Ratify the selection of
PricewaterhouseCoopers LLP as
independent public accountants
of the Company 94,583,471 138,594 365,313 None
Approve the performance goals of
the Amended and Restated Senior
Executive Earnings Maximization
Plan 88,726,198 5,485,265 875,901 None
</TABLE>
Item 6. Exhibits and reports on Form 8-K.
(a) Index to Exhibits on Page 16.
(b) No report on Form 8-K was filed during the quarter ended July 4, 1999.
15
<PAGE> 16
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WENDY'S INTERNATIONAL, INC.
---------------------------
(Registrant)
Date: 08/18/99 /s/ Lawrence A. Laudick
------------- --------------------------
Lawrence A. Laudick
Senior Vice President,
General Controller and
Assistant Secretary
16
<PAGE> 17
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10 Sample Key Executive
Agreement between the
Company, The TDL Group
Ltd. and Mr. House
27 Financial Data Schedule
99 Safe Harbor Under
the Private Securities
Litigation Reform Act of 1995
17
<PAGE> 1
Exhibit 10
EMPLOYMENT AGREEMENT
Between
WENDY'S INTERNATIONAL, INC.
And
THE TDL GROUP LTD.
And
---------------------
This Agreement is made and entered into as of _____________, _____, by
and between WENDY'S INTERNATIONAL, INC., an Ohio corporation ("WENDY'S"), The
TDL Group Ltd., an Ontario corporation, and ____________________ (the
"EXECUTIVE"), who are the parties to this Agreement.
RECITALS
--------
(1) WENDY'S is engaged, through subsidiaries, in the business of
owning, operating and franchising Tim Hortons retail outlets and carrying on
ancillary activities incident thereto.
(2) The EXECUTIVE possesses unique skills, knowledge and experience
relating to WENDY'S business.
(3) The EXECUTIVE is currently employed by The TDL Group Ltd., and
desires to continue to be employed by such company or another direct or indirect
subsidiary of WENDY'S (the "EMPLOYER").
(4) WENDY'S desires to be assured of the continued services of the
EXECUTIVE and to afford him the job security this Agreement provides without,
however, increasing the compensation he would otherwise obtain were it not for
the occurrence of events foreseen by this Agreement, and the EXECUTIVE desires
to be assured that, in the event of a material change in WENDY'S management,
occasioned by a substantial change in the control of WENDY'S, the terms,
conditions and environment of his employment will not be unreasonably affected.
(5) This Agreement is intended to be in addition to any other
agreements the parties may have entered into prior to the date hereof, or may
enter into prior to a CHANGE IN CONTROL as defined herein, regarding the
EXECUTIVE'S employment.
<PAGE> 2
(6) WENDY'S desires to be assured of the objectivity of the EXECUTIVE
in evaluating a potential offer the effect of which would be a change of control
of WENDY'S, and advising whether or not he believes a potential change of
control is in the best interests of WENDY'S and its shareholders. WENDY'S
further desires to be assured of the dedication of the EXECUTIVE to maximizing
the value to be received by the shareholders of WENDY'S in the circumstances of
negotiating or otherwise responding to a proposed change of control, and to be
assured of the continuity of services of the EXECUTIVE during such time as a
proposed change of control is under negotiation or otherwise pending.
CONSIDERATION
--------------
In consideration of their mutual covenants expressed herein, the
parties, intending to be legally bound hereby, agree as follows:
SECTION 1. EXECUTIVE'S RIGHTS TO CONTINUED EMPLOYMENT IN THE EVENT OF A
CHANGE IN CONTROL OF WENDY'S.
For purposes of this Agreement a "CHANGE IN CONTROL" shall mean the
occurrence of:
(a) An acquisition (other than directly from WENDY'S) of any common
stock or other voting securities of WENDY'S entitled to vote generally for the
election of directors (the "Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or more of the then outstanding
shares of WENDY'S common stock or the combined voting power of WENDY'S then
outstanding Voting Securities; provided, however, in determining whether a
CHANGE IN CONTROL has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a CHANGE IN CONTROL. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) WENDY'S or (B) any corporation or other Person
of which a majority of its voting power or its voting equity securities or
equity interest is owned, directly or indirectly, by WENDY'S (for purposes of
this definition, a "Subsidiary") (ii) WENDY'S or its Subsidiaries, or (iii) any
Person in connection with a "Non-Control Transaction" (as hereinafter defined);
(b) The individuals who, as of March ___, 1999 are members of the Board
of WENDY'S (the "Incumbent Board"), cease for any reason to constitute at least
seventy percent (70%) of the members of the Board; PROVIDED, HOWEVER, that if
the election, or nomination for election by WENDY'S common stockholders, of any
new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Plan, be considered as a
member of the
2
<PAGE> 3
Incumbent Board; PROVIDED FURTHER, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with or into
WENDY'S or in which securities of WENDY'S are issued, unless such
merger, consolidation or reorganization is a "Non-Control Transaction."
A "Non-Control Transaction" shall mean a merger, consolidation or
reorganization with or into WENDY'S or in which securities of WENDY'S
are issued where:
(A) the stockholders of WENDY'S, immediately before
such merger, consolidation or reorganization, own directly or
indirectly immediately following such merger, consolidation or
reorganization, at least seventy percent (70%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving WENDY'S") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or
reorganization,
(B) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least two-thirds of the members of the board of
directors of the Surviving WENDY'S, or a corporation
beneficially directly or indirectly owning a majority of the
Voting Securities of the Surviving WENDY'S, and
(C) no Person other than (i) WENDY'S, (ii) any
Subsidiary, (iii) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to such
merger, consolidation or reorganization, was maintained by
WENDY'S or any Subsidiary, or (iv) any Person who, immediately
prior to such merger, consolidation or reorganization had
Beneficial Ownership of thirty percent (30%) or more of the
then outstanding Voting Securities or common stock of WENDY'S,
has Beneficial Ownership of thirty percent (30%) or more of
the combined voting power of the Surviving WENDY'S then
outstanding voting securities or its common stock;
(ii) A complete liquidation or dissolution of WENDY'S; or
3
<PAGE> 4
(iii) The sale or other disposition of all or substantially
all of the assets of WENDY'S to any Person (other than a transfer to a
Subsidiary).
Notwithstanding the foregoing, a CHANGE IN CONTROL shall not be deemed
to occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding common stock
or Voting Securities as a result of the acquisition of common stock or Voting
Securities by WENDY'S which, by reducing the number of shares of common stock or
Voting Securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a CHANGE IN CONTROL
would occur (but for the operation of this sentence) as a result of the
acquisition of common stock or Voting Securities by WENDY'S, and after such
share acquisition by WENDY'S, the Subject Person becomes the Beneficial Owner of
any additional common stock or Voting Securities which increases the percentage
of the then outstanding Voting Securities Beneficially Owned by the Subject
Person, then a CHANGE IN CONTROL shall occur.
If the EXECUTIVE'S employment is terminated by WENDY'S or the EMPLOYER
without CAUSE prior to the date of a CHANGE IN CONTROL but the EXECUTIVE
reasonably demonstrates that the termination (A) was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a CHANGE IN CONTROL or (B) otherwise arose in connection with, or in
anticipation of, a CHANGE IN CONTROL which has been threatened or proposed, such
termination shall be deemed to have occurred after a CHANGE IN CONTROL for
purposes of this Agreement provided a CHANGE IN CONTROL shall actually have
occurred.
Notwithstanding anything in this Agreement to the contrary, if WENDY'S
ceases to own directly or indirectly at least 50% of the total voting power
exercisable by all of the shareholders of the EMPLOYER which are ordinarily
entitled to vote prior to a CHANGE IN CONTROL, this Agreement shall terminate
and be of no further force or effect.
1.1 From and after the date of occurrence of a CHANGE IN CONTROL, the
EMPLOYER shall cause the EXECUTIVE to be employed, and the EXECUTIVE
shall accept employment, with the duties, nature and place of such
employment as described in Section 2 of this Agreement. Solely for
purposes of this Agreement, the term of such employment, referred to
hereinafter as the "EMPLOYMENT TERM," shall commence on the date when
the CHANGE IN CONTROL shall have occurred and shall end on the earlier
of:
(a) the fifth anniversary of the first to occur of:
(i) the date when the occurrence of an event described in
subparagraph (a) of Section 1 hereof shall be disclosed in a
Schedule 13D or other such similar or successor form
4
<PAGE> 5
promulgated by the Securities and Exchange Commission, filed
with the Securities and Exchange Commission of Washington,
D.C., and the duplicate of which is actually received by
WENDY'S, or
(ii) the date on which a transaction described in subparagraph
(c) of Section 1 of this Agreement (other than a Non-Control
Transaction) shall be consummated, or
(iii) the first date on which at least thirty percent (30%) of
the members of the Board of Directors of WENDY'S are not
INCUMBENT DIRECTORS; or
(b) the date when the EMPLOYMENT TERM shall be terminated by
the EMPLOYER for CAUSE or by the EXECUTIVE without GOOD REASON
(as such terms are defined in Section 4 of this Agreement); or
(c) the death of the EXECUTIVE.
Section 2. DUTIES, NATURE AND PLACE OF EMPLOYMENT. During the
EMPLOYMENT TERM, the EXECUTIVE shall provide WENDY'S and the EMPLOYER with such
executive, financial, administrative, and consulting services in managing and
directing WENDY'S business or the EMPLOYER'S business as may be required by the
EXECUTIVE'S job description, as attached hereto, or as amended by the agreement
of the parties hereafter, or reasonably requested and directed from time to time
by action of the EMPLOYER'S Board of Directors. The EXECUTIVE shall at all times
faithfully, industriously and to the best of his ability and talent perform all
of the duties that may be required or requested of him pursuant to the express
terms and conditions of this Agreement. Such duties shall be performed in
Oakville, Ontario and, on a temporary basis, at such other place or places as
the interests, needs, business and opportunities of WENDY'S and of its
subsidiaries shall reasonably require.
Section 3. REMUNERATION DURING THE EMPLOYMENT TERM. During the
EMPLOYMENT TERM, the EXECUTIVE shall receive from the EMPLOYER, as a minimum,
the salary, benefits and perquisites being paid to or afforded him immediately
prior to the date of occurrence of the CHANGE IN CONTROL provided that such
salary shall be increased as of the EXECUTIVE'S established annual salary review
date in each calendar year by a percentage at least as great as the annual
increase in the All Items Consumer Price Index for Canada, 1992=100 (or any
successor index thereto). Such salary shall be paid to the EXECUTIVE on the same
days of each month as the EMPLOYER pays its other employees. The EXECUTIVE shall
also receive an annual bonus each year at least equal to the same annual bonus
he received in the twelve months preceding the CHANGE IN CONTROL; provided,
however, that if the bonus plan in which the EXECUTIVE participated during the
twelve months preceding the CHANGE IN CONTROL is not the same as the bonus plan
in which the EXECUTIVE is
5
<PAGE> 6
participating following the CHANGE IN CONTROL, with respect to the twelve month
period preceding the CHANGE IN CONTROL, the EXECUTIVE will be deemed to have
received a bonus equal to that received by the EXECUTIVE'S predecessor in his
position, (or, where there was not a predecessor in the same position, equal to
the average of the bonuses received by bonus plan participants in comparable
positions to the EXECUTIVE'S then current position). The EXECUTIVE shall also
be entitled to all rights afforded him under the terms of any outstanding stock
options granted him by WENDY'S and all incentive compensation and deferred
compensation programs maintained by the EMPLOYER in which the EXECUTIVE was
entitled to participate immediately preceding the CHANGE IN CONTROL, or
successors to such programs.
3.1 During the EMPLOYMENT TERM, the EMPLOYER'S Board of Directors shall
review annually the performance of the EXECUTIVE, the results of
operations and financial condition of the EMPLOYER, together with
prevailing economic conditions and other factors, and consider and act
upon:
(a) whether to pay the EXECUTIVE an increase in salary above
the aforesaid minimum annual salary, and
(b) whether to pay the EXECUTIVE a bonus in excess of the
minimum bonus required aforesaid; PROVIDED, HOWEVER, if the
EMPLOYER pays a bonus to any of its other full-time exempt
employees, the EMPLOYER shall pay the EXECUTIVE a bonus
computed on the same basis as the bonus paid to such other
employees if the bonus so computed is in excess of the minimum
bonus required to be paid the EXECUTIVE pursuant to this
Section 3.
3.2 During the EMPLOYMENT TERM, the EMPLOYER shall cause the EXECUTIVE,
his spouse and dependent children to be enrolled in and covered by
group life, hospitalization, major medical and disability income
insurance coverages under insurance plans and executive physical
examination plans not less favorable to the EXECUTIVE than the plans of
such description in effect immediately prior to the date of occurrence
of the CHANGE IN CONTROL.
3.3 During the EMPLOYMENT TERM, the EMPLOYER shall cause the EXECUTIVE
to be a participant in one or more retirement income (pension) plans
which afford participation and benefits to the EXECUTIVE on a basis not
less favorable to the EXECUTIVE than the plans of such description in
effect immediately prior to the date of occurrence of the CHANGE IN
CONTROL; PROVIDED, HOWEVER, that if the EMPLOYER extends to any
executive officer of the EMPLOYER one or more retirement income
(pension) plans affording participation and benefits more favorable
than those required by the preceding sentence, then the EMPLOYER shall
cause the EXECUTIVE to be a participant in the latter plan(s).
6
<PAGE> 7
3.4 During the EMPLOYMENT TERM, the EMPLOYER shall cause reimbursement
to be paid promptly to the EXECUTIVE for all expenses reasonably
incurred by him in connection with performing his duties pursuant
hereto.
3.5 During the EMPLOYMENT TERM, in the event that the insurance and
physical examination plan benefits required by paragraph 3.2, above, or
the retirement income (pension) plan benefits required by paragraph
3.3, above, are not actually available to the EXECUTIVE under the terms
of the plan(s) or applicable law, then the EMPLOYER shall make
available to the EXECUTIVE an equivalent benefit, or an amount of cash
consideration sufficient to fund or purchase an equivalent benefit,
computed as if he had received a full year of service (for vesting and
benefit purposes) for each of his years of service with WENDY'S or any
affiliate or subsidiary, including any years for which he is entitled
to payment under Section 3 during the EMPLOYMENT TERM.
Section 4. TERMINATION OF EMPLOYMENT OF THE EXECUTIVE DURING THE
EMPLOYMENT TERM. The EXECUTIVE'S employment hereunder may be terminated during
the EMPLOYMENT TERM under the following circumstances:
4.1 CAUSE. The EMPLOYER may terminate the EXECUTIVE'S employment under
this Agreement for "CAUSE." A termination for CAUSE is a termination by
reason of the Board's good faith determination that the EXECUTIVE (a)
willfully and continually failed to substantially perform his duties
with the EMPLOYER (other than a failure resulting from the EXECUTIVE'S
incapacity due to physical or mental illness) after a written demand
for substantial performance is delivered to the EXECUTIVE by the Board
of Directors which specifically identifies the manner in which the
Board of Directors believes that the EXECUTIVE has not substantially
performed his duties and such failure substantially to perform
continues for at least fourteen (14) days, or (b) has willfully engaged
in conduct which is demonstrably and materially injurious to the
EMPLOYER or WENDY'S, monetarily or otherwise, or (c) has otherwise
materially breached this Agreement (including, without limitation, a
voluntary termination of the EXECUTIVE'S employment by the EXECUTIVE
during the EMPLOYMENT TERM). No act, nor failure to act, on the
EXECUTIVE'S part, shall be considered "willful" unless he has acted, or
failed to act, with an absence of good faith and without a reasonable
belief that his action or failure to act was in the best interest of
the EMPLOYER and WENDY'S. Notwithstanding the foregoing, the
EXECUTIVE'S employment shall not be deemed to have been terminated for
CAUSE unless and until (1) there shall have been delivered to the
EXECUTIVE a copy of a written notice setting forth that the EXECUTIVE
was guilty of conduct set forth above in clause (a), (b) or (c) of the
first sentence of this Section 4.1 and specifying the particulars
thereof in detail, and (2) the
7
<PAGE> 8
EXECUTIVE shall have been provided an opportunity to be heard by the
Board of Directors of the EMPLOYER (with the assistance of EXECUTIVE'S
counsel).
4.2 (a) GOOD REASON. The EXECUTIVE may terminate his employment for
"GOOD REASON." For purposes of this Agreement, GOOD REASON shall mean
the occurrence after a CHANGE IN CONTROL of any of the events or
conditions described in Subsections (1) through (6) hereof without the
EXECUTIVE'S express written consent:
(1) a change in the EXECUTIVE'S status, title, position or
responsibilities (including reporting responsibilities) which,
in the EXECUTIVE'S reasonable judgment, does not represent a
promotion from his status, title, position or responsibilities
as in effect immediately prior thereto; the assignment to the
EXECUTIVE of any duties or responsibilities which, in the
EXECUTIVE'S reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of
the EXECUTIVE from or failure to reappoint or reelect him to
any of such positions, except in connection with the
termination of his employment for DISABILITY, CAUSE, as a
result of his death or by the EXECUTIVE other than for GOOD
REASON;
(2) a reduction by the EMPLOYER in the EXECUTIVE'S base salary
as in effect immediately prior to the CHANGE IN CONTROL or as
the same may be increased from time to time, or a failure to
increase EXECUTIVE'S annual base salary as of his established
annual salary review date in any calendar year by a percentage
at least as great as the annual increase in the All Items
Consumer Price Index for Canada, 1992=100 (or any successor
index thereto);
(3) the EMPLOYER requiring the EXECUTIVE to be based at any
place outside a 50 kilometer radius from the EXECUTIVE'S
business office location immediately prior to the CHANGE IN
CONTROL, except for reasonably required travel on the
EMPLOYER'S or WENDY'S (or its successor's) business (or the
business of any successor to WENDY'S as the controlling voting
shareholder of the EMPLOYER) which is not materially greater
than such travel requirements prior to the CHANGE IN CONTROL;
(4) the failure by the EMPLOYER to continue to provide the
EXECUTIVE with the compensation and benefits substantially
similar (in terms of benefit levels and/or reward
opportunities) to those provided for under this Agreement and
those provided to him under any of the employee benefit plans
in which the EXECUTIVE becomes a participant, or the taking of
any action by the EMPLOYER which would directly or indirectly
materially reduce any of such benefits or deprive the
8
<PAGE> 9
EXECUTIVE of any material fringe benefit enjoyed by him at the
time of the CHANGE IN CONTROL;
(5) any material breach by WENDY'S or the EMPLOYER of any
provision of this Agreement; and
(6) the failure of WENDY'S or the EMPLOYER to notify the
EXECUTIVE within the 30-day period specified in Section 16
hereof that WENDY'S or the EMPLOYER has obtained a
satisfactory agreement from a successor or assign of WENDY'S
or the EMPLOYER to assume and agree to perform this Agreement,
as contemplated in such Section 16.
(b) The EXECUTIVE'S right to terminate his employment pursuant to this
Section 4.2 shall not be affected by his incapacity due to physical or
mental illness.
4.3 NOTICE OF TERMINATION. Any purported termination by the EMPLOYER or
by the EXECUTIVE shall be communicated by written NOTICE OF TERMINATION
to the other. For purposes of this Agreement, a "NOTICE OF TERMINATION"
shall mean a notice which indicates the specific termination provision
in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination
of the EXECUTIVE'S employment under the provision so indicated. If the
EXECUTIVE'S employment is terminated by the EMPLOYER for any reason,
NOTICE OF TERMINATION must be given at least 30 days prior to the
EXECUTIVE'S TERMINATION DATE (as defined below). For purposes of this
Agreement, no such purported termination shall be effective without
such NOTICE OF TERMINATION.
4.4 TERMINATION DATE, ETC. "TERMINATION DATE" shall mean if the
EXECUTIVE'S employment is terminated for any reason other than due to
death, the date specified in the Notice of Termination.
Section 5. COMPENSATION UPON TERMINATION. Upon termination of the
EXECUTIVE'S employment during the EMPLOYMENT TERM, the EXECUTIVE shall be
entitled to the following benefits:
5.1 If the EXECUTIVE'S employment shall be terminated by the EMPLOYER
for CAUSE or by the EXECUTIVE other than for GOOD REASON, the EMPLOYER
shall pay the EXECUTIVE his full base salary and accrued vacation pay
through the TERMINATION DATE, plus any benefits or awards which
pursuant to the terms of any compensation or benefit plan have been
earned or become payable, but which have not yet been paid to the
EXECUTIVE and WENDY'S and the EMPLOYER shall have no further
obligations to the EXECUTIVE under this Agreement. The EXECUTIVE'S
benefits thereafter
9
<PAGE> 10
shall be determined in accordance with the EMPLOYER'S employee benefit
plans and other applicable programs and practices then in effect.
5.2 If the EXECUTIVE'S employment terminates by reason of the
EXECUTIVE'S death, the EMPLOYER shall pay the EXECUTIVE'S beneficiaries
his full base salary and accrued vacation pay through the TERMINATION
DATE, plus any benefits or awards which pursuant to the terms of any
compensation or benefit plan have been earned or become payable, but
which have not yet been paid to the EXECUTIVE and a pro rata portion of
any bonus or incentive award that the EXECUTIVE would have been
entitled to receive in respect of the calendar year in which the
EXECUTIVE'S TERMINATION DATE occurs had he continued in employment
until the end of such calendar year, payable at the same time that such
bonuses or awards are payable to other employees of the EMPLOYER. In
the case of the EXECUTIVE'S death, the EXECUTIVE'S beneficiaries'
benefits shall be determined in accordance with the EMPLOYER'S employee
benefit plans and other applicable programs and practices then in
effect.
5.3 If the EXECUTIVE'S employment by the EMPLOYER shall be terminated
(i) by the EMPLOYER other than for CAUSE or death, or (ii) by the
EXECUTIVE for GOOD REASON, then the EXECUTIVE shall be entitled to the
benefits provided below:
(a) the EMPLOYER shall pay the EXECUTIVE his full base salary and
accrued vacation pay through the TERMINATION DATE, plus the maximum
benefits or awards which pursuant to the terms of any of the EMPLOYER'S
compensation or benefit plans have been earned or become payable as if
all objectives including the completion of the award cycle thereunder
had been met, but which have not yet been paid to the EXECUTIVE, and a
pro rata portion of any bonus or incentive award that the EXECUTIVE
would have been entitled to receive in respect of the calendar year in
which the EXECUTIVE'S TERMINATION DATE occurs had he continued in
employment until the end of such calendar year, calculated (i) if the
EXECUTIVE is participating in the Tim Hortons Earnings Maximization
Plan ("THEMP") with the bonus pool being determined (A) as if the
target level two (2) entry point had been achieved by WENDY'S and the
EMPLOYER for such year, (B) if actual performance is measurable against
the targeted performance over a period of less than one year, based on
the actual WENDY'S and the EMPLOYER'S performance up to the EXECUTIVE'S
TERMINATION DATE (or if the TERMINATION DATE occurs in the year in
which a CHANGE IN CONTROL occurs, up to the date of the CHANGE IN
CONTROL, if later), or (C) at the level established in the preceding
year, whichever is greater, and as if the EXECUTIVE'S percentage
interest in the plan's bonus pool had been equal to his percentage
interest in the pool in the preceding year (or if he was not a
participant in the bonus pool in the preceding year, the EXECUTIVE will
be deemed to have had a percentage interest equal to
10
<PAGE> 11
the percentage interest of the EXECUTIVE'S predecessor in his position,
or, where there was not a predecessor in the same position, equal to
the average of the percentage interests of bonus plan participants in
comparable positions to the Executive's then current position) and/or
(ii) if the EXECUTIVE is not participating in the THEMP, as if all
performance targets under the applicable plan had been fully met at the
highest level by WENDY'S, by the EMPLOYER and/or by the EXECUTIVE, and,
if applicable, the EXECUTIVE'S percentage interest in any bonus pool
had been at least equal to his percentage interest in the preceding
year (or if he was not a participant in the plan in the preceding year,
the EXECUTIVE will be deemed to have had a percentage interest equal to
the percentage interest of the EXECUTIVE'S predecessor in his position,
or, where there was not a predecessor in the same position, equal to
the average of the percentage interests of bonus plan participants in
comparable positions to the Executive's then current position);
PROVIDED, HOWEVER, that the bonus payment provided for in this Section
5.3(a) shall be reduced (but not below zero) by the amount, if any,
payable to the EXECUTIVE in respect of the year in which the
EXECUTIVE'S TERMINATION DATE occurs under the provisions of THEMP or
any other bonus or incentive plan, as applicable.
(b) as severance pay and in lieu of any further salary for periods
subsequent to the TERMINATION DATE, the EMPLOYER shall pay to the
EXECUTIVE in a single payment an amount in cash equal to three times
the sum of (A) the EXECUTIVE'S base salary at the rate in effect at the
time Notice of Termination is given and (B) one third of the sum of the
annual bonuses paid or payable to the EXECUTIVE in respect of the three
calendar years preceding the calendar year in which the EXECUTIVE'S
TERMINATION DATE occurs; PROVIDED, HOWEVER, that if the EXECUTIVE had
not been a participant in each of those three calendar years in the
annual bonus plan in which he was participating as of his TERMINATION
DATE, then with respect to any calendar year during the relevant
three-year period for which the EXECUTIVE was not so participating, the
EXECUTIVE will be deemed to have received a bonus equal to that
received by the EXECUTIVE'S predecessor in his position, (or, where
there was not a predecessor in the same position, equal to the average
of the bonuses received by bonus plan participants in comparable
positions to the Executive's then current position).
(c) as additional severance, the EMPLOYER shall pay to the EXECUTIVE in
a single payment an amount equal to the present value of the employer
contributions the EXECUTIVE would have accrued under the EMPLOYER'S
registered pension plan and supplemental plan, if any, if he had
remained an employee for three years following the TERMINATION DATE.
For purposes of this determination, the base salary of the EXECUTIVE
over this period shall be equal to his base salary in effect at the
TERMINATION DATE, and the employee contribution rate of the EXECUTIVE
under the registered pension plan shall be equal to the contribution
rate in effect at the TERMINATION DATE.
11
<PAGE> 12
Present values shall be determined using a discount rate equal to the
interest rate recommended by the Canadian Institute of Actuaries for
the computation of transfer values from a registered pension plan.
(d) for the three years following the TERMINATION DATE, the EMPLOYER
shall at its expense continue on behalf of the EXECUTIVE and his
dependents and beneficiaries the life insurance, disability, medical,
dental and hospitalization benefits which were being provided to the
EXECUTIVE at the time NOTICE OF TERMINATION is given. The benefits
provided in this Section 5.3(d) shall be no less favorable to the
EXECUTIVE, in terms of amounts and deductibles and costs to him, than
the coverage provided the EXECUTIVE under the EMPLOYER'S plans
providing such benefits at the time NOTICE OF TERMINATION is given (or,
if the EXECUTIVE'S employment is terminated after a CHANGE IN CONTROL,
at the time of the CHANGE IN CONTROL if more favorable to the
EXECUTIVE). The EMPLOYER'S obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that the EXECUTIVE
obtains any such benefits pursuant to a subsequent employer's benefit
plans, in which case the EMPLOYER may reduce the coverage of any
benefits it is required to provide the EXECUTIVE hereunder as long as
the aggregate coverage of the combined benefit plans is no less
favorable to the EXECUTIVE in terms of amounts and deductibles and
costs to him, than the coverage which would be provided hereunder by
the EMPLOYER to the EXECUTIVE at the time the NOTICE OF TERMINATION is
given (or, if the EXECUTIVE'S employment is terminated after a CHANGE
IN CONTROL, at the time of the CHANGE IN CONTROL if more favorable to
the EXECUTIVE). This paragraph (d) shall not be interpreted so as to
limit any benefits to which the EXECUTIVE or his dependents may be
entitled under any of the EMPLOYER'S employee benefit plans, programs
or practices following the EXECUTIVE'S termination of employment.
(e) the EMPLOYER shall offer to sell to the EXECUTIVE at book value the
automobile provided to the EXECUTIVE at the time of the EXECUTIVE'S
termination of employment.
5.4 The amounts provided for in Sections 5.1, 5.2 and 5.3(a), (b) and
(c) shall be paid within five days after the EXECUTIVE'S TERMINATION
DATE.
5.5 The EXECUTIVE shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount
of any compensation or benefits provided to the EXECUTIVE in any
subsequent employment.
SECTION 6. EFFECT OF A CHANGE IN CONTROL. Upon the occurrence of any
CHANGE IN CONTROL, (a) any options to purchase shares of common stock of
12
<PAGE> 13
WENDY'S and any stock appreciation rights granted by WENDY'S to the EXECUTIVE
which are not yet fully vested and exercisable shall become fully vested and
exercisable, and (b) any restrictions remaining at that time on any stock
awarded to the EXECUTIVE by WENDY'S shall lapse.
Section 7. FEES AND EXPENSES. The EMPLOYER shall pay all reasonable
legal fees and related expenses (including the costs of experts, evidence and
counsel) incurred in good faith by the EXECUTIVE as they become due as a result
of (a) the termination of the EXECUTIVE'S employment by the EMPLOYER or by the
EXECUTIVE for GOOD REASON (including all such fees and expenses, if any,
incurred in contesting, defending or disputing the basis for any such
termination of employment), (b) the EXECUTIVE'S hearing before the Board of
Directors of the EMPLOYER as contemplated in Section 4.1 of this Agreement, or
(c) the EXECUTIVE seeking to obtain or enforce any right or benefit provided by
this Agreement or by any other plan or arrangement maintained by the EMPLOYER
under which the EXECUTIVE is or may be entitled to receive benefits.
Section 8. BENEFITS PROTECTION TRUST. The EMPLOYER shall establish a
BENEFITS PROTECTION TRUST for the benefit of the EXECUTIVE and other executives
with employment agreements with an independent corporate trustee. Such BENEFITS
PROTECTION TRUST shall be established pursuant to a separate TRUST AGREEMENT.
The terms and conditions of the BENEFITS PROTECTION TRUST shall be governed, in
all respects, by the TRUST AGREEMENT. Prior to a CHANGE IN CONTROL, the EMPLOYER
shall transfer to the BENEFITS PROTECTION TRUST assets at least equal to (after
payment of any applicable withholding taxes) the sum of (a) the present value of
all benefits that would be payable to the EXECUTIVE and all the other executives
with employment agreements if they were all terminated by the EMPLOYER without
CAUSE immediately following a CHANGE IN CONTROL and (b) the estimated amount
needed to pay for any legal fees the EXECUTIVE and the other executives may
incur in enforcing their rights under their employment agreements. In lieu of
transferring assets to the BENEFITS PROTECTION TRUST in the amounts specified
above, the EMPLOYER may, in its sole discretion, pay to the BENEFITS PROTECTION
TRUST such amount as the trustee of the trust considers necessary in order to
obtain from the principal banker of the EMPLOYER an unconditional irrevocable
letter of credit payable to the trustee in an amount equal to the amounts
specified in clauses (a) and (b) above. The trustee shall not call for payment
from the bank under the letter of credit so long as the EMPLOYER is not in
default in making payments to executives under the employment agreements. The
letter of credit shall contain such other reasonable terms as the trustee
considers advisable for the purpose of protecting the benefits payable under the
employment agreements. All payments required under this Agreement on account of
the EXECUTIVE'S termination of employment by the EMPLOYER without CAUSE
following a CHANGE IN CONTROL shall be paid from the BENEFITS PROTECTION TRUST
to the extent not otherwise paid by the EMPLOYER.
13
<PAGE> 14
Section 9. PROTECTION OF BUSINESS. Notwithstanding anything to the
contrary in this Agreement:
9.1 At all times during the EMPLOYMENT TERM while the EXECUTIVE is
employed by the EMPLOYER, the EXECUTIVE will not participate as a
partner, joint venturer, officer, director, employee, or
representative, or have any direct financial interest in, any business
or enterprise conducting a quick service restaurant business in the
United States or Canada, other than a business or enterprise engaged in
operating restaurants under a franchise granted by the EMPLOYER,
WENDY'S or any of its subsidiaries; provided, that the ownership by
EXECUTIVE of securities of a public corporation shall not be a
violation of this subparagraph so long as (a) the EXECUTIVE does not
own, directly or indirectly, more than five percent (5%) of any class
of the securities of such corporation, and (b) the value of such
securities does not exceed ten percent (10%) of the net worth of the
EXECUTIVE; and provided further that ownership by EXECUTIVE of
securities of WENDY'S or any successor to WENDY'S by merger or other
form of transaction contemplated by subparagraph (b) or (c) of Section
1 hereof shall not be a violation of this subparagraph.
9.2 The EXECUTIVE will not at any time (during or after the expiration
of the EMPLOYMENT TERM) divulge, disclose, reveal or communicate to any
person, firm, corporation, partnership, joint venture or other entity,
directly or indirectly, any trade secrets or other information which
the EXECUTIVE may have obtained during the course of his employment by
the EMPLOYER in respect of any matters affecting or relating to the
fast food restaurant or Tim Hortons businesses of the EMPLOYER and
WENDY'S or its subsidiaries, including, without limitation, any of
their plans, policies, business practices, finances, recipes, methods
of operation, franchises or other information known to the EXECUTIVE to
be considered by the EMPLOYER, WENDY'S or its subsidiaries to be
confidential information.
9.3 The restrictions on competition and other restrictions imposed upon
the EXECUTIVE by this Section 9 may be enforced by the EMPLOYER,
WENDY'S or any of its subsidiaries by an action for an injunction, it
being agreed (in view of the general practical impossibility of
determining by computation or legal proof the exact amount of damages,
if any, resulting to the EMPLOYER, WENDY'S or any of its subsidiaries
from a violation by the EXECUTIVE of the provisions of this Section 9)
that there would be no adequate remedy at law for any breach by the
EXECUTIVE of any such restriction.
Section 10. NOTICES AND PAYMENTS. All payments required or permitted to
be made under the provisions of this Agreement, and all notices and other
communications required or permitted to be given or delivered under this
Agreement to WENDY'S, to the EMPLOYER or to the EXECUTIVE, which notices or
communications must be in
14
<PAGE> 15
writing, shall be deemed to have been given if delivered by hand, or mailed by
first class mail, addressed as follows:
10.1 if to WENDY'S, to:
Chief Executive Officer
WENDY'S INTERNATIONAL, INC.
4288 West Dublin-Granville Road
P. O. Box 256
Dublin, Ohio 43017 USA
With a copy (except as to payments) to:
General Counsel
WENDY'S INTERNATIONAL, INC.
4288 West Dublin-Granville Road
P. O. Box 256
Dublin, Ohio 43017 USA
10.2 if to the EMPLOYER, to:
General Counsel
The TDL Group Ltd.
874 Sinclair Road
Oakville, Ontario L6K 2Y1 CANADA
10.3 if to EXECUTIVE, to:
--------------------------
--------------------------
--------------------------
--------------------------
WENDY'S, the EMPLOYER or the EXECUTIVE may, by notice given to the
other from time to time, designate a different address for making payments
required to be made, and for the giving of notices or other communications
required or permitted to be given, to the party designating such new address.
Any payment, notice or other communication required or permitted to be given in
accordance with this Agreement shall be deemed to have been given if and when
placed in the U.S. or Canadian Mail (as applicable), addressed and mailed as
provided above.
Section 11. PAYROLL TAXES. Any payment required or permitted to be
made or given to the EXECUTIVE pursuant to this Agreement shall be subject to
the withholding and other requirements of applicable laws, and to the deduction
requirements of any benefit plan maintained by the EMPLOYER in which the
EXECUTIVE is a participant,
15
<PAGE> 16
and to all reporting, filing and other requirements in respect of such payments,
and the EMPLOYER or WENDY'S, as applicable, shall promptly satisfy all such
requirements.
Section 12. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario.
Section 13. DUPLICATE ORIGINALS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be a duplicate original,
but all of which, taken together, shall constitute a single instrument.
Section 14. CAPTIONS. The captions contained in this Agreement are
included only for convenience of reference and do not define, limit, explain or
modify this Agreement or its interpretation, construction or meaning.
Section 15. SEVERABILITY. If any provision of this Agreement or the
application of any provision to any person or any circumstances shall be
determined to be invalid or unenforceable, then such determination shall not
affect any other provision of this Agreement or the application of said
provision to any other person or circumstance, all of which other provisions
shall remain in full force and effect. It is the intention of WENDY'S, the
EMPLOYER and the EXECUTIVE that if any provision of this Agreement is
susceptible of two or more constructions, one of which would render the
provision enforceable and other or others of which would render the provision
unenforceable, then the provision shall have the meaning which renders it
enforceable.
Section 16. NUMBER AND GENDER. When used in this Agreement, the number
and gender of each pronoun shall be construed to be such number and gender as
the context, circumstances or its antecedent may require.
Section 17. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns (including successive,
as well as immediate, successors and assigns) of WENDY'S and the EMPLOYER;
provided, however, that the obligations of this Agreement may not be transferred
by WENDY'S or the EMPLOYER; provided, however, that if WENDY'S or the EMPLOYER
transfers to any other person substantially all of its business and assets by
merger, consolidation, sale of assets or otherwise, WENDY'S or the EMPLOYER, as
applicable, must transfer its obligations hereunder to such other person and
such other person must accept such transfer and assume the obligations of the
EMPLOYER, and of WENDY'S if applicable, imposed hereby. WENDY'S or the EMPLOYER
shall notify the EXECUTIVE in writing within the thirty-day period following any
transfer of business and assets that the transferee has accepted the transfer
and assumption of the EMPLOYER'S, and of WENDY'S if applicable, obligations
under this Agreement. This Agreement shall inure to the benefit of and be
binding upon the heirs and assigns (including successive, as well as immediate,
assigns) of the EXECUTIVE; provided, however, that the rights of the EXECUTIVE
under this Agreement may be assigned only to his personal representative or by
will or pursuant to applicable laws of descent and distribution.
16
<PAGE> 17
Section 18. ARBITRATION. Any dispute arising under or in connection
with this Agreement shall be submitted to arbitration by the American
Arbitration Association in Columbus, Ohio, and the determination of the American
Arbitration Association shall be final and absolute. The arbitrator shall be
governed by the duly promulgated commercial arbitration rules of the American
Arbitration Association and the pertinent provisions of the laws of the State of
Ohio relating to arbitration. During the pendency of such arbitration
proceedings, the EXECUTIVE shall be entitled to the full benefits provided by
the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed to be effective as of the date first above written.
WENDY'S:
Wendy's International, Inc.
By_________________________________
EMPLOYER:
The TDL Group Ltd.
By_________________________________
Its________________________________
EXECUTIVE:
---------------------------------
an individual
17
<PAGE> 1
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
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, 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. Wendy's International, Inc.
(the "Company") desires to take advantage of the "safe harbor" provisions of the
Act.
Certain information in this Form 10-Q, particularly information regarding future
economic performance and finances, and plans, expectations and objectives of
management, is forward looking. 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, effectiveness of advertising and
marketing programs, and new product development by the Company and its
competitors 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 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.
<PAGE> 2
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, 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.
DISPOSITION OF RESTAURANTS. The disposition of company-operated restaurants to
new or existing franchisees is part of the Company's strategy to develop the
overall health of the system by acquiring restaurants from, and disposing of
restaurants to, franchisees where prudent. The expectation of gains from future
dispositions of restaurants depends in part on the ability of the Company to
complete disposition transactions on acceptable terms.
TRANSACTIONS TO IMPROVE RETURN ON INVESTMENT. The sale of real estate previously
leased to franchisees is generally part of the program to improve the Company's
return on invested capital. There are various reasons why the program might be
unsuccessful, including changes in economic, credit market, real estate market
or other conditions, and the ability of the Company to complete sale
transactions on acceptable terms and at or near the prices estimated as
attainable by the Company.
YEAR 2000. The Company anticipates timely completion of its program to address
year 2000 issues. However, if the new information systems are not implemented on
a timely basis, modifications to existing systems cannot be accomplished on a
timely basis, information technology resources do not remain available, or other
unanticipated events occur, there would be adverse financial and operational
effects on the Company. The amount of these effects cannot be ascertained at
this time.
Although the Company has not been informed of material year 2000 issues by third
parties with which it has a material relationship or franchisees, there is no
assurance that these entities will be year 2000 compliant on a timely basis.
Unanticipated failures or significant delays in furnishing products or services
by third parties or general public infrastructure service providers, or the
inability of franchisees to perform sales reporting and financial management
functions or to make timely payments to the Company or suppliers, could have a
material adverse effect on results of operations, financial condition and/or
liquidity.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation to
publicly release any revisions to the forward-looking statements contained in
this Form 10-Q, or to update them to reflect events or circumstances occurring
after the date this Form 10-Q was first furnished to shareholders, or to reflect
the occurrence of unanticipated events.
<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> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> APR-05-1999
<PERIOD-END> JUL-04-1999
<CASH> 245,159
<SECURITIES> 0
<RECEIVABLES> 78,865
<ALLOWANCES> 0
<INVENTORY> 35,181
<CURRENT-ASSETS> 378,797
<PP&E> 1,820,054
<DEPRECIATION> 522,754
<TOTAL-ASSETS> 1,822,126
<CURRENT-LIABILITIES> 204,969
<BONDS> 405,025
0
0
<COMMON> 11,898
<OTHER-SE> 1,084,997
<TOTAL-LIABILITY-AND-EQUITY> 1,822,126
<SALES> 422,838
<TOTAL-REVENUES> 528,550
<CGS> 262,007
<TOTAL-COSTS> 372,007
<OTHER-EXPENSES> 73,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,952
<INCOME-PRETAX> 79,889
<INCOME-TAX> 30,357
<INCOME-CONTINUING> 49,532
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,532
<EPS-BASIC> $.40
<EPS-DILUTED> $.39
</TABLE>
