<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
WENDY'S INTERNATIONAL, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
[WENDY'S LOGO] [TIM HORTON'S LOGO]
WENDY'S INTERNATIONAL, INC.
Notice of 1999
Annual Meeting of Shareholders
Proxy Statement and Appendix
[FOOD AND STORE PHOTOS]
<PAGE> 3
<TABLE>
<C> <S>
CONTENTS
Notice of Annual Meeting of Shareholders
1 Proxy Statement
1 Voting Securities and Principal Holders Thereof
3 Election of Directors
6 Committees of Directors
7 Compensation of Management
7 Summary Compensation Table
8 Options Granted in Last Fiscal Year
9 Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
9 Report of the Compensation Committee on Executive
Compensation
13 Comparison of Five-Year Total Return for Wendy's
International, Inc., Specified Peer Groups and the S&P 500
Index
15 Executive Agreements
17 Certain Transactions Involving Management
18 Selection of Independent Public Accountants
18 Approval of Performance Goals of the Amended and Restated
Senior Executive Earnings Maximization Plan
21 Other Matters
A-1 Annex -- Wendy's International, Inc. Amended and Restated
Senior Executive Earnings Maximization Plan
Appendix
AA-1 Management's Review and Outlook
AA-9 Consolidated Statements of Income
AA-10 Consolidated Balance Sheets
AA-11 Consolidated Statements of Cash Flows
AA-12 Consolidated Statements of Shareholders' Equity
AA-13 Consolidated Statements of Comprehensive Income
AA-14 Notes to the Consolidated Financial Statements
AA-25 Management's Statement of Responsibility for Financial
Statements, Report of Independent Accountants
AA-26 Officers and Directors
AA-27 Market for Common Stock and Related Stockholder Matters
AA-27 Selected Financial Data
AA-28 Safe Harbor Statement
Map to Wendy's Annual Meeting
</TABLE>
<PAGE> 4
WENDY'S INTERNATIONAL, INC.
P.O. Box 256
Dublin, Ohio 43017-0256
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Wendy's International, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of Wendy's
International, Inc. (the "Company") will be held at the AMC Lennox Towne Center
Theatres, 777 Kinnear Road, Columbus, Ohio 43212, on Tuesday, May 4, 1999, at
10:00 a.m., local time, for the following purposes, all of which are more
completely set forth in the accompanying Proxy Statement:
1. To elect five Directors, each for a term of three years.
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
public accountants of the Company for the current year.
3. To approve the performance goals of the Amended and Restated Senior
Executive Earnings Maximization Plan.
4. To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on March 8, 1999, are
entitled to notice of and to vote at the Annual Meeting of Shareholders.
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
You are urged to date, sign and promptly return the enclosed Proxy so that your
shares may be voted in accordance with your wishes and so that the presence of a
quorum may be assured. The prompt return of your signed Proxy, regardless of the
number of shares you hold, will aid the Company in reducing the expense of
additional Proxy solicitation. The giving of such Proxy does not affect your
right to vote in person in the event you attend the meeting. You are cordially
invited to attend the meeting, and we request that you indicate your plans in
this respect in the space provided on the enclosed form of Proxy.
/s/ Frederick R. Reed
FREDERICK R. REED
Secretary
Dublin, Ohio
March 10, 1999
<PAGE> 5
WENDY'S INTERNATIONAL, INC.
P.O. Box 256
Dublin, Ohio 43017-0256
(614) 764-3100
- --------------------------------------------------------------------------------
PROXY STATEMENT
The enclosed Proxy, for use at the Annual Meeting of Shareholders to be held on
Tuesday, May 4, 1999, and any adjournments thereof, is being solicited on behalf
of the Board of Directors of the Company. Without affecting any vote previously
taken, the Proxy may be revoked by the shareholder by giving notice of
revocation to the Company in writing or in open meeting. Unless otherwise
specified, all properly executed Proxies received by the Board of Directors will
be voted "FOR" the election as Directors of the nominees listed below under
"ELECTION OF DIRECTORS", "FOR" the ratification of the selection of independent
public accountants and "FOR" the approval of the performance goals of the
Amended and Restated Senior Executive Earnings Maximization Plan.
Solicitation of Proxies may be made by mail, personal interview, telephone and
telegraph by Officers, Directors and regular employees of the Company. In
addition, the Company has retained, at an estimated cost of $10,000 plus
reasonable expenses, Georgeson & Co., a firm specializing in proxy solicitation.
All costs of solicitation will be borne by the Company. This Proxy Statement,
including the Notice of Meeting, was first mailed to shareholders on March 15,
1999.
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING RIGHTS
The total number of outstanding shares entitled to vote at the meeting is
124,063,534, and only shareholders of record at the close of business on March
8, 1999, are entitled to notice of and to vote at said meeting or any
adjournments thereof. Each shareholder is entitled to one vote for each share
held and has cumulative voting rights in the election of Directors. A
shareholder wishing to exercise cumulative voting must so notify the President,
a Vice President or the Secretary of the Company in writing not less than 48
hours before the meeting. If cumulative voting is requested and if an
announcement of such request is made upon the convening of the meeting by the
Chairman or Secretary or by or on behalf of the shareholder requesting
cumulative voting, each shareholder will have a number of votes equal to the
number of Directors to be elected multiplied by the number of
shares owned by such shareholder and will be entitled to distribute his votes
among the nominees as the shareholder sees fit. If cumulative voting is
requested, as described above, the enclosed Proxy would grant discretionary
authority to the Proxies named therein to cumulate votes and to distribute the
votes among the candidates.
1
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information (based upon filings with the
Securities and Exchange Commission) with respect to the persons known to the
Company to own beneficially more than five percent of the outstanding common
shares of the Company as of February 22, 1999:
<TABLE>
<CAPTION>
(2) NAME AND (3) AMOUNT AND
(1) TITLE OF ADDRESS OF NATURE OF BENEFICIAL
CLASS BENEFICIAL OWNER OWNERSHIP (a) (4) PERCENT OF CLASS
- ------------ ---------------- -------------------- --------------------
<S> <C> <C> <C>
Common shares Ronald V. Joyce 15,526,631 12.3%
10 Blue Ridge Mountain Estates
Calgary, Alberta T2M 4N4
Canada
Common shares Barrow, Hanley, Mewhinney & 11,453,300 9.1%
Strauss, Inc.
One McKinney Plaza
3232 McKinney Ave.,
15th Floor
Dallas, Texas, 75204-2429
</TABLE>
- ---------
(a) Includes options exercisable within 60 days following February 22, 1999.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of February 22, 1999, certain information
with respect to the Company's common shares owned beneficially by each Director,
by each nominee for election as a Director of the Company, by the Executive
Officers named in the Summary Compensation Table set forth on page 7 of this
Proxy Statement and by all Directors and Executive Officers as a group:
<TABLE>
<CAPTION>
(3) AMOUNT AND
NATURE OF BENEFICIAL
(1) TITLE OF CLASS (2) NAME OF BENEFICIAL OWNER OWNERSHIP (a)(b) (4) PERCENT OF CLASS
------------------ ---------------------------- -------------------- --------------------
<S> <C> <C> <C>
(All of these are R. David Thomas 5,763,601 4.6%
common shares.) Ronald V. Joyce 15,526,631 12.3%
Gordon F. Teter 517,910 .4%
Frederick R. Reed 69,453 .1%
Ronald E. Musick 257,478 .2%
Paul D. House 101,251 .1%
W. Clay Hamner 3,236 --
Ernest S. Hayeck 3,600 --
Janet Hill 4,300 --
Thomas F. Keller 4,069 --
True H. Knowles 1,625 --
Andrew G. McCaughey 3,625 --
Fielden B. Nutter, Sr. 41,547 --
James V. Pickett 55,570 --
Thekla R. Shackelford 17,234 --
John T. Schuessler 96,591 .1%
George Condos 36,453 --
All Directors and 23,633,440 18.7%
Executive Officers as a group
(31 persons)
</TABLE>
- ---------
(a) The amounts reflected in this table include common shares in which there is
shared voting and investment power.
(b) Includes options exercisable within 60 days following February 22, 1999.
2
<PAGE> 7
The information with respect to beneficial ownership is based upon information
furnished by each Director, nominee or Executive Officer, or information
contained in filings made with the Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and Executive Officers to file reports of ownership and changes of
ownership with the Securities and Exchange Commission and the New York Stock
Exchange. The Company assists its Directors and Executive Officers in completing
and filing those reports. The Company believes that during the last completed
fiscal year all filing requirements applicable to its Directors and Executive
Officers were complied with, except that one report, disclosing one transaction,
was filed late by the Company on behalf of Mr. Pickett.
- --------------------------------------------------------------------------------
ELECTION OF DIRECTORS
The Board of Directors has designated the following nominees for election as
Directors of the Company with their terms to expire in 2002:
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS AND THEIR PRINCIPAL OCCUPATIONS AGE SINCE
- ----------------------------------------- --- --------
<S> <C> <C>
Thekla R. Shackelford (1)................................ 64 1984
Owner/President, School Selection Consulting
Columbus, Ohio
Ronald E. Musick......................................... 58 1987(2)
Executive Vice President
W. Clay Hamner (3)....................................... 53 1987
Chairman and Chief Executive Officer,
Montrose Capital Corporation
Durham, North Carolina
Gordon F. Teter (3)...................................... 55 1990
Chairman of the Board, Chief Executive Officer and
President
Frederick R. Reed (3).................................... 50 1995
Chief Financial Officer and Secretary
</TABLE>
The following Directors will continue to serve after the 1999 Annual Meeting:
<TABLE>
<S> <C> <C>
TERMS EXPIRING IN 2000
- -----------------------
Fielden B. Nutter, Sr. (3)............................... 74 1980
President, F.B. Nutter Leasing Co.
Pompano Beach, Florida
James V. Pickett (1)(3).................................. 57 1982
Chairman, The Pickett Realty Advisors Inc.;
Vice Chairman, Banc One Capital Markets Corporation
Dublin, Ohio
Thomas F. Keller (1)(3).................................. 67 1991
R.J. Reynolds Professor of Business Administration,
Fuqua School of Business, Duke University
Durham, North Carolina
</TABLE>
3
<PAGE> 8
<TABLE>
<S> <C> <C>
Ronald V. Joyce (3)...................................... 68 1996
Senior Chairman and Co-Founder,
The TDL Group Ltd.
Oakville, Ontario, Canada
Andrew G. McCaughey (3).................................. 76 1997
Former Chairman and Chief Executive Officer,
Scott's Hospitality Inc.
Toronto, Ontario, Canada
TERMS EXPIRING IN 2001
- -----------------------
R. David Thomas (1)...................................... 66 1969
Senior Chairman of the Board and Founder
Ernest S. Hayeck (3)..................................... 74 1993
Retired Judge, Trial Court of Massachusetts
Janet Hill (1)(3)........................................ 51 1994
Vice President, Alexander & Associates, Inc.
Washington, D.C.
True H. Knowles (1)(3)................................... 61 1997
Retired President and Chief Operating Officer,
Dr Pepper Company, and Retired Executive Vice President
Dr Pepper/Seven-Up Companies, Inc.
Dallas, Texas
Paul D. House (3)........................................ 55 1998
President and Chief Operating Officer,
The TDL Group Ltd.
Oakville, Ontario, Canada
</TABLE>
- ---------
(1) Mrs. Shackelford serves as a director of Bank One Corporation and Fiserv
Inc.; Mr. Pickett serves as a director of Metatec Corporation and Karrington
Health, Inc.; Mr. Keller serves as a director of Ladd Furniture Company,
Hatteras Income Securities, Inc., Nations Funds, Inc., Nations Fund Trust,
Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc., Nations Balanced Target Maturity Fund Inc., Mentor
Funds Trust, DIMON International, American Business Products and Biogen
Inc.; Mr. Thomas serves as a director of MarineMax, Inc.; Mrs. Hill serves
as a director of The Progressive Corporation, First Union Bank of Virginia,
Maryland and D.C. and Dean Foods Company; and Mr. Knowles serves as a
director of Cott Corporation.
(2) Mr. Musick was also a Director of the Company from 1970 to 1981.
(3) Montrose Capital Corporation is a private investment company. Mr. Hamner was
also Chairman and Chief Executive Officer of The Pantry, Inc. from July 11,
1994 until August 19, 1996. The Pantry, Inc. is a convenience store chain.
Mr. Hamner is also Chairman and Chief Executive Officer of Swifty Serve, a
convenience store chain with 520 stores operating in Georgia, Alabama,
Florida and Mississippi.
Mr. Teter became President and Chief Operating Officer of the Company on
February 18, 1991. He added the title of Chief Executive Officer on January
1, 1995. He assumed his current position with the Company on February 19,
1997.
Mr. Reed was a partner of Vorys, Sater, Seymour and Pease LLP from January
1, 1980 to August 31, 1996. He was Executive Vice President, General Counsel
and Secretary of the Company from September 3, 1996 to April 1, 1997. He was
Chief Financial Officer, General Counsel and Secretary from April 1, 1997 to
August 31, 1998, at which time he assumed his current position.
4
<PAGE> 9
Mr. Nutter was also Chairman and Chief Executive Officer of John Henry Rock
Drills, Inc. from September 1, 1993 to March 31, 1997. F.B. Nutter Leasing
Co. is a real estate leasing and management company. John Henry Rock Drills,
Inc. manufactured hydraulic rock drills.
Mr. Pickett has served as President and Chief Executive Officer of various
companies generally known as The Pickett Companies since 1969. The Pickett
Companies are involved in real estate development, ownership and management.
The Pickett Realty Advisors Inc. is one of the companies which comprises The
Pickett Companies. Mr. Pickett became the Managing Director of the real
estate investment group of Banc One Capital Corporation on February 1, 1993.
He became Vice Chairman of Banc One Capital Corporation on January 1, 1997.
Banc One Capital Corporation was the predecessor to Banc One Capital Markets
Corporation.
Mr. Keller was also Dean of the Fuqua School of Business at Duke University
until he retired from that position on May 31, 1996.
Mr. Joyce was Chairman and Chief Executive Officer of The TDL Group Ltd.
until December 29, 1995, when that company became an indirect subsidiary of
the Company.
Mr. McCaughey was Chairman and Chief Executive Officer of Scott's
Hospitality Inc. from April 30, 1989 to September 3, 1992. Scott's
Hospitality Inc. operated restaurants and hotels, and was also involved with
the school bus and retail photography industries. Scott's Hospitality Inc.
had been a Canadian franchisee operating both Wendy's and Tim Hortons
restaurants since 1987. The successor company to Scott's Hospitality Inc.
presently operates 11 franchised Wendy's and 18 franchised Tim Hortons
restaurants.
Judge Hayeck was a Trial Court Justice for the State of Massachusetts from
January 27, 1970 until he retired on January 26, 1993. Judge Hayeck was
awarded the American Bar Association Franklin N. Flaschner Judicial Award in
1992. He is also a faculty member of the National Judicial College.
Mrs. Hill provides corporate planning, advice and analysis to directors,
executives and managers in the areas of human resource planning, corporate
responsibility, corporate communications and government consultation.
Alexander & Associates, Inc. is a corporate consulting firm.
Mr. Knowles was President and Chief Operating Officer of the Dr Pepper
Company and Executive Vice President of Dr Pepper/Seven-Up Companies, Inc.,
from January, 1992 until he retired in June, 1995.
Mr. House has been the Chief Operating Officer of The TDL Group Ltd. since
January, 1992. He assumed his current position on December 29, 1995. The TDL
Group Ltd. franchises and operates Tim Hortons restaurants.
Each of the other Directors has had the same principal occupation and
employer during the past five years as set forth in this table.
Unless otherwise directed, the persons named in the Proxy will vote the Proxies
for the election of Mrs. Shackelford and Messrs. Musick, Hamner, Teter and Reed
as Directors of the Company, each to serve for a term of three years and until
their successors are elected and qualified. While it is contemplated that all
nominees will stand for election, in the event any person nominated fails to
stand for election, the Proxies will be voted for such other person or persons
as may be designated by the Directors. Management has no reason to believe that
any of the above-mentioned persons will not stand for election or serve as a
Director.
Under Ohio law and the Company's Regulations, the five nominees receiving the
greatest number of votes will be elected as Directors. Shares as to which the
authority to vote is withheld and broker non-votes are not counted toward the
election of Directors or toward the election of the individual nominees
specified on the Proxy.
5
<PAGE> 10
- --------------------------------------------------------------------------------
COMMITTEES OF DIRECTORS
A total of nine meetings of the Board of Directors of the Company were held
during 1998. No Director attended less than 75 percent of the aggregate of (1)
the total number of meetings of the Board of Directors, and (2) the total number
of meetings held by all committees of the Board of Directors on which that
Director served during the period each served as a Director, with the exception
of Mr. Pickett, who attended 73% of such meetings.
The Board of Directors has an Audit Committee, a Board Membership Committee and
a Compensation Committee.
The members of the Audit Committee are Messrs. Keller (Chairman), Hayeck,
Hamner, McCaughey and Pickett. The Committee met five times during 1998. Its
function is to review the accounting and financial reporting practices of the
Company and the adequacy of the Company's system of internal control, to review
the scope and adequacy of internal audit activities and the work of the
Company's independent public accountants, and to recommend to the Directors a
firm of accountants to serve as the Company's independent public accountants.
The members of the Board Membership Committee are Messrs. Pickett (Chairman),
Hamner, Reed, Thomas and Mrs. Shackelford. The Committee met once during 1998.
Its function is to recommend candidates for membership to the Board of
Directors. The Board Membership Committee will consider nominees recommended by
shareholders for the 2000 Annual Meeting of Shareholders, provided that the
names of such nominees are submitted in writing, not later than November 15,
1999, to James V. Pickett, P.O. Box 256, Dublin, Ohio 43017-0256. Each such
submission must include a statement of the qualifications of the nominee, a
consent signed by the nominee evidencing a willingness to serve as a Director,
if elected, and a commitment by the nominee to meet personally with the
Committee members.
The members of the Compensation Committee are Messrs. Nutter (Chairman),
Knowles, Mrs. Shackelford and Mrs. Hill. The Compensation Committee met four
times during 1998. The Compensation Committee's function is to examine the
levels and methods of compensation employed by the Company with respect to the
individuals named or to be named in the Company's proxy statement, to review and
evaluate alternative and additional compensation programs for these individuals,
and to make recommendations to the Board of Directors on such matters. The
Compensation Committee has the authority to make all decisions regarding the
individuals to whom options are to be granted under the Company's stock option
plans, and the timing, pricing, number of options to be granted and the other
terms of such grants (the Compensation Committee does not have the authority to
amend the terms of the stock option plans or to adopt new stock option plans).
In addition, the Compensation Committee has the authority to adopt one or more
cash bonus plans which will qualify compensation paid thereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and to implement and administer such
plans.
In addition to the three committees set forth above, the Board of Directors has
an Executive Committee and a Finance Committee.
Directors who are not employees of the Company or its subsidiaries are paid
$7,000 quarterly, plus $1,500 for each Board meeting and $1,000 for each
qualified committee meeting attended, including telephonic meetings, for all
services, plus expenses. If more than one qualified meeting is held on the same
day, a separate fee is paid for each such meeting. Meetings of the Audit and
Compensation Committees are qualified meetings, together with meetings of any
special committees established from time to time.
Directors who are not employees of the Company or its subsidiaries also receive
grants of stock options under Part II of the Company's 1990 Stock Option Plan.
Each Director who is not an employee of the Company receives an annual grant of
options to purchase 2,500 common shares. The option exercise price is 100% of
the fair market value of the Company's common shares on the date of grant.
Options are granted on the date on which the regularly scheduled Board meeting
is held during the Company's third fiscal quarter. Each option is granted for a
period of 10 years. Twenty-five percent of the options
6
<PAGE> 11
granted each year become exercisable on each of the first four anniversaries of
the grant date for such options.
- --------------------------------------------------------------------------------
COMPENSATION OF MANAGEMENT
The following table summarizes compensation awarded or paid to, or earned by,
each of the named Executive Officers during each of the Company's last three
fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
NAME AND SECURITIES ALL OTHER
PRINCIPAL SALARY UNDERLYING COMPENSATION
POSITION YEAR ($)(1) BONUS ($) OPTIONS (#) ($)(2)
--------- ---- ------- --------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Gordon F. Teter, 1998 812,885 616,790 184,628 748,518
Chairman of the Board, 1997 786,692 1,141,866 181,061 682,384
Chief Executive Officer 1996 680,854 1,364,545 181,506 504,817
and President (3)
R. David Thomas, 1998 892,378(4) 308,395 105,771 25,195
Senior Chairman of the 1997 868,813(4) 570,933 103,840 78,363
Board and Founder 1996 790,341(4) 682,273 105,638 105,258
Frederick R. Reed, 1998 334,663 276,621 51,871 78,512
Chief Financial Officer 1997 313,673 376,849 50,315 41,933
and Secretary (5) 1996 121,385 104,333 101,100 860
John T. Schuessler, 1998 277,581 233,098 32,583 28,341
President and Chief 1997 268,846 321,312 32,009 27,678
Operating Officer, 1996 244,392 308,228 32,837 22,463
U.S. Operations (6)
George Condos, 1998 273,292 231,973 32,587 12,033
Executive Vice President 1997 269,488 321,312 32,057 11,831
1996 246,985 308,436 33,055 11,031
</TABLE>
- ---------
(1) 1997 salary included 27 biweekly pay periods. 1998 and 1996 each contained
26 biweekly pay periods.
(2) The amounts shown in this column for each named Executive Officer consist of
(i) aggregate contributions or other allocations to the Company's Profit
Sharing and Savings Plan of $2,337, $2,224 and $2,277 made in 1998, 1997 and
1996, respectively (except that Mr. Reed did not receive contributions or
allocations in 1998, 1997 or 1996); and (ii) executive health insurance
premiums paid by the Company for coverage for the named Executive Officers,
and the amount allocated to the account of each of the named Executive
Officers under the Company's Supplemental Executive Retirement Plan
("SERP"), as follows:
<TABLE>
<CAPTION>
HEALTH INSURANCE PREMIUMS SERP ALLOCATIONS
------------------------------------ ------------------------------
NAME 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Mr. Teter............. $3,173 $3,173 $2,579 $429,052 $384,227 $280,143
Mr. Thomas............ $5,229 $5,229 $4,251 $ 17,629 $ 70,910 $ 78,730
Mr. Reed.............. $3,173 $3,173 $ 860 $ 75,339 $ 38,760 $ 0
Mr. Schuessler........ $3,173 $3,173 $2,579 $ 22,831 $ 22,281 $ 17,607
Mr. Condos............ $3,173 $3,173 $2,579 $ 6,523 $ 6,434 $ 6,175
</TABLE>
In addition, the amount shown in this column for Mr. Thomas in 1996 includes
a $20,000 allocation under a Deferred Compensation Agreement between the
Company and Mr. Thomas; and the amounts shown in this column for Mr. Teter
include allocations of $313,956, $292,760 and
7
<PAGE> 12
$219,818 for 1998, 1997 and 1996, respectively, under an Agreement between
the Company and Mr. Teter (which is described beginning on page 16).
(3) Mr. Teter was President, Chief Executive Officer and Chief Operating Officer
until February 19, 1997.
(4) The amounts shown in this column for Mr. Thomas include payments made to Mr.
Thomas for services rendered as the principal spokesman in the Company's
television and radio commercials (the "Advertising Payments") in the amounts
of $269,786, $261,659 and $230,341 in 1998, 1997 and 1996, respectively. Mr.
Thomas was paid for these services at the minimum rate permitted by
applicable union contract provisions. The Advertising Payments were not
acted on by the Compensation Committee since they were not made for services
rendered by Mr. Thomas in his capacity as an Executive Officer. The
Advertising Payments are therefore not included in the compensation data set
forth in the section of this Proxy Statement entitled "REPORT OF THE
COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION" (which begins on page 9).
(5) Mr. Reed has been a director of the Company since February 23, 1995. He
became Executive Vice President, General Counsel and Secretary of the
Company on September 3, 1996. He became Chief Financial Officer, General
Counsel and Secretary on April 1, 1997, and assumed his current position on
August 31, 1998. Amounts shown for Mr. Reed during 1996 include compensation
paid to Mr. Reed as an outside director prior to becoming an officer.
(6) Mr. Schuessler was an Executive Vice President until February 19, 1997, when
he assumed his current position.
The following table sets forth information concerning individual grants of stock
options made during the last fiscal year to each of the named Executive
Officers.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE PRESENT
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE)(2) DATE $(3)
---- -------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Gordon F. Teter................ 184,628 7.3% $22.3438 7/29/08 $1,191,995
R. David Thomas................ 105,771 4.2% $22.3438 7/29/08 $ 682,879
Frederick R. Reed.............. 51,871 2.1% $22.3438 7/29/08 $ 334,890
John T. Schuessler............. 32,583 1.3% $22.3438 7/29/08 $ 210,362
George Condos.................. 32,587 1.3% $22.3438 7/29/08 $ 210,388
</TABLE>
- ---------
(1) 25% of the options listed in this column become exercisable on July 30,
1999. An additional 25% becomes exercisable on each successive July 30.
These exercise dates may be accelerated if the Company is involved in
certain change-in-control transactions as specified in the Company's various
stock option plans. If the Executive Officer's employment is terminated for
any reason other than death, disability or retirement, the options will be
canceled as of the date of such termination. If the Executive Officer's
employment is terminated by reason of his death or disability, the options
will become immediately exercisable and may be exercised at any time during
the 12-month period after his death or date of becoming disabled, subject to
the stated term of the options. If the Executive Officer's employment is
terminated by reason of his retirement, the options may be exercised during
the 48-month period after the retirement date, subject to the stated term of
the options.
(2) The exercise price is the mean of the high and low prices at which common
shares of the Company are traded on the New York Stock Exchange on the date
of grant.
(3) All values shown are pre-tax. Values shown were calculated using the
Black-Scholes option pricing model and the following assumptions: expected
volatility .315; risk-free rate of return 4.6%;
8
<PAGE> 13
dividend yield 1.10%; and an expected time of exercise of four years. No
adjustments were made for the non-transferability of the options or for the
risk of forfeiture. The Company is not aware of any model which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors. No gain to the optionees is possible without an
increase in the market price of the Company's common shares above the market
price on the date of grant. If such increase occurs, all shareholders will
benefit commensurately. If no increase in the market price occurs, optionees
will realize no value from stock options.
The following table sets forth information regarding each individual exercise of
stock options made during the last fiscal year by each of the named Executive
Officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-END
AT FISCAL YEAR-END (#) ($)(1)(2)
SHARES --------------------------- ---------------------------
ACQUIRED ON VALUE REALIZED
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gordon F. Teter....... 40,000 $202,500 417,233 463,316 $1,859,248 $606,297
R. David Thomas....... 0 N/A 539,904 263,854 $2,235,933 $330,228
Frederick R. Reed..... 2,500 $ 5,625 61,453 140,433 $ 35,016 $ 34,653
John T. Schuessler.... 0 N/A 68,049 83,165 $ 268,136 $109,707
George Condos......... 0 N/A 34,769 82,200 $ 129,146 $104,990
</TABLE>
- ---------
(1) All values as shown are pre-tax.
(2) Based on the fiscal year-end closing price of $21.8125 per share.
The Company has three retirement plans which apply to Executive Officers in
addition to other Officers and/or employees. The amounts of contributions or
other allocations under the Profit Sharing and Savings Plan and the Supplemental
Executive Retirement Plan for each of the named Executive Officers are set forth
in footnote 2 to the Summary Compensation Table (see page 7). The third
retirement plan is the Company's Pension Plan. Under the Pension Plan, each
participant is credited with a basic benefit of 1% of current compensation. The
participant may elect to contribute 2% of current compensation on an after-tax
basis. If the participant elects to contribute, then the Company contributes an
additional 2.5% of compensation for participants with less than five years of
service under the Pension Plan, and 3% of compensation for participants with at
least five years of service. Notwithstanding the contribution rates set forth
above, the maximum annual compensation amount for which contributions can be
made to the Pension Plan under the Internal Revenue Code is currently $160,000.
All accounts are credited with interest at an annual rate equal to the greater
of 5% or the interest rate for one-year treasury bills determined at the end of
the prior year, plus 1%. The estimated annual benefits payable upon retirement
at normal retirement age under the Pension Plan for each of the named Executive
Officers are as follows: Gordon F. Teter, $29,357; R. David Thomas, $132,217;
Frederick R. Reed, $21,194; John T. Schuessler, $67,650; and George Condos,
$86,378. The estimated annual retirement benefits assume a 7.5% interest factor
and retirement at age 65.
Notwithstanding anything to the contrary as set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following Report and
the performance graphs on pages 13 and 14 shall not be incorporated by reference
into any such filings.
- --------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation policy has been "pay for performance" since
well before the current popularity of that concept. In an effort to provide
shareholders with a better understanding of the Company's executive compensation
practices, this report provides information beyond the information required by
the proxy rules of the Securities and Exchange Commission.
9
<PAGE> 14
The Executive Officers named in the Summary Compensation Table (see page 7) have
significant years of experience in the food-service industry, including over 87
years of experience in the Wendy's system. Each of those individuals possess
talents and abilities which together make up a management team unique in the
industry. The Company and its shareholders have benefited and continue to
benefit from the skill, dedication and judgment of this team. The Committee
believes that the overall compensation levels paid to the named Executive
Officers reflect the performance of those individuals.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is based on two objectives:
Providing market-competitive compensation opportunities, and
Creating a strong link between the interests of the shareholders, the
Company's financial performance, and the total compensation of the
Company's Executive Officers.
There are three components to the Company's executive compensation program:
annual cash compensation, longer-term incentive compensation and benefits. The
annual cash compensation program is comprised of base salary and annual
incentive compensation. Base salary and annual incentive compensation
opportunities are set by periodic comparison to external rates of pay for
comparable positions within the food-service industry. The companies used for
this comparison for 1998 were comprised of the participants in the National
Chain Restaurant Compensation Association annual survey and the same companies
which comprise the "Former Peer Group Index" shown on the graph on page 13. For
1999, the companies used for this comparison are expected to be comprised of the
companies which comprise the "Peer Group Index" shown on the graph on page 14.
These companies have revenues of at least $1 billion and better reflect the
Company's scope of operations and the competitive market in the restaurant
industry for senior executive talent.
Base salary ranges are targeted at the 50th percentile of competitive data.
Individual variability is based on performance and experience. Adjustments are
normally considered annually, based upon general movement in external salary
levels, individual performance and potential, and/or changes in the position's
duties and responsibilities.
Annual incentive compensation opportunities are targeted at the 50th percentile
of competitive data. The Company had three cash bonus plans which applied to
Executive Officers for the 1998 fiscal year. Under the Senior Executive Earnings
Maximization Plan (the "SEEMP") (which Messrs. Teter and Thomas participated in
during fiscal 1998), and the Earnings Maximization Plan (the "EMP") (which other
Executive Officers participated in), participants received annual incentive
awards which were based on the extent to which the Company exceeded specified
net income goals for the year. The net income goals for the SEEMP were
established in 1994 and increased annually through 1998. The net income goals
for the EMP were established in 1991 and increased annually through 1998. An
Amended and Restated Senior Executive Earnings Maximization Plan has been
approved by the Committee for fiscal years 1999 through 2003, subject to
approval of the Company's shareholders. Under the Management Incentive Plan,
1998 incentive awards were based on the extent to which the Company achieved or
exceeded specified earnings per share and return on assets goals for the year
(excluding the effect of the non-recurring charges taken in the fourth quarter
of 1998). The awards to participants under this plan were based on the payout
percentages specified in the following table multiplied by the participant's
base salary and the targeted bonus percentage applicable to such employee's
grade (which ranged from 15% to 33% of base salary). For 1998 the Company
attained between 100.0% and 109.9% of its earnings per share goal and between
90.0% and 94.9% of its return on assets goal.
10
<PAGE> 15
MANAGEMENT INCENTIVE PLAN PAYOUT PERCENTAGES
E
A
R
N
I
N
G
S
P
E
R
S
H
A
R
E
<TABLE>
<CAPTION>
% ATTAINMENT
------------
<S> <C> <C> <C> <C> <C> <C>
120.0%+ 75.00% 112.50% 135.00% 142.50% 150.00% 157.50%
110.0%-119.9% 62.50% 93.75% 112.50% 118.75% 125.00% 131.25%
100.0%-109.9%(1) 50.00% 75.00% 90.00% 95.00% 100.00% 105.00%
85.0%- 99.9% 37.50% 56.25% 67.50% 71.25% 75.00% 78.75%
80.0%- 84.9% 25.00%(2) 37.50% 45.00% 47.50% 50.00% 52.50%
-------------------------------------------------------------------------------------
% ATTAINMENT 80.0%-84.9% 85.0%-89.9% 90.0%-94.9%(1) 95.0%-99.9% 100.0%-104.9% 105.0%-109.9%
RETURN ON ASSETS
<CAPTION>
% ATTAINMENT
------------
<S> <C> <C> <C>
120.0%+ 165.00% 187.50% 225.00%
110.0%-119.9% 137.50% 156.25% 187.50%
100.0%-109.9%(1) 110.00% 125.00% 150.00%
85.0%- 99.9% 82.50% 93.75% 112.50%
80.0%- 84.9% 55.00% 62.50% 75.00%
-------------------------------------------
% ATTAINMENT 110.0%-114.9% 115.0%-119.9% 120.0%+
</TABLE>
- ---------
(1) Indicates percentage of attainment applicable for fiscal year 1998.
(2) Less than 80% budget attainment in either payout criteria results in a 0%
bonus factor.
Total annual cash compensation may be well below the 50th percentile when target
performance is not achieved. When targets are significantly exceeded, total
annual cash compensation may equal or exceed the 75th percentile.
The longer-term incentive compensation program primarily consists of stock
options (although one of the cash incentive award programs had a longer-term
orientation, since the annual financial performance goals were established in
1991 and specified through fiscal 1998). Award opportunities under the stock
option program for 1998 were set by comparison to stock option grants made to
comparable positions at companies with revenues of at least $1 billion within
the food-service industry and other industrial companies with revenues between
$1 billion and $3 billion, and were set at approximately the 75th percentile.
The companies used for the food-service industry comparison were the same
companies which comprise the "Peer Group Index" shown on the graph on page 14.
Options are exercisable at not less than 100% of the fair market value of the
Company's common shares on the date of grant. Award opportunities under the
stock option program are based on a fixed number of options for each eligible
employee grade. As a result, the Black-Scholes value of options awarded will
increase or decrease based on how the Company's stock price has changed since
the previous year's option awards (assuming that the other inputs used in the
Black-Scholes calculation remain constant). The fixed number of options to be
awarded will be adjusted periodically by comparison to comparable positions
within the food-service industry and to other industrial companies with revenues
between $1 billion and $3 billion. Grantees do not receive a benefit from stock
options unless and until the market price of the Company's common shares
increases. This program accomplishes the objective of linking each Executive
Officer's opportunity for financial gain to increases in shareholder wealth, as
reflected by the market price of the Company's common shares.
The benefits program is comprised of retirement income and group insurance
plans. The objective of the program is to provide Executive Officers with
reasonable and competitive levels of protection against the four contingencies
(retirement, death, disability and ill health) which will interrupt the
Executive Officer's employment and/or income received as an active employee. The
retirement program consists of two tax-qualified plans that cover all full-time
management and administrative employees, and a supplemental retirement plan
which covers the Executive Officers and other Officers of the Company. The group
insurance program consists of life, disability and health insurance benefit
plans that cover all full-time management and administrative employees and the
executive health care reimbursement plan, which covers Executive Officers and
other Officers.
Section 162(m) of the Internal Revenue Code of 1986, as amended, prohibits a
publicly-held corporation, such as the Company, from claiming a deduction on its
federal income tax return for compensation in excess of $1 million paid for a
given fiscal year to the chief executive officer (or person acting in that
capacity) at the close of the corporation's fiscal year and the four most highly
11
<PAGE> 16
compensated officers of the corporation, other than the chief executive officer,
at the end of the corporation's fiscal year. The $1 million compensation
deduction limitation does not apply to "performance-based compensation". The
Company believes that compensation paid under the SEEMP and its stock option
plans qualifies as "performance-based compensation" for purposes of Section
162(m).
COMPENSATION FOR CHIEF EXECUTIVE OFFICER
The Committee believes that the Company's executive compensation program has
resulted in a meaningful relationship between the compensation paid to Mr. Teter
and the Company's performance. Total cash compensation (salary and bonus) for
Mr. Teter decreased by $498,883, or 25.9% from the prior year. The Company's net
income for 1998 decreased 17.7% to $148,556,000 (or $1.13 per share, diluted)
from $180,506,000 (or $1.33 per share, diluted), in 1997, excluding the effect
of the non-recurring charges taken in the fourth quarter of both years. Giving
effect to those charges, the Company's net income decreased 5.5% to $123,358,000
(or $0.95 per share, diluted). In order to facilitate a more long-term
perspective between the Company's performance and total cash compensation paid
to the Chief Executive Officer, the following table shows the correlation
between changes in earnings per share (diluted) and the total cash compensation
paid to the Chief Executive Officer since 1993.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Percentage change from prior year in
earnings per share (diluted)......... 17.9% 11.4% 35.2% 11.8%(1) (15.0%)(2)
Percentage change from prior year in
cash compensation for CEO............ 13.6% 1.8%(3) 33.3% (5.7%) (25.9%)
</TABLE>
- ---------
(1) Excludes the effect of the non-recurring charges taken in the fourth quarter
of 1997. If the charges were included, this number would be (18.5%).
(2) Excludes the effect of the non-recurring charges taken in the fourth quarter
of 1997 and 1998. If the charges for both years were included, this number
would be (2.1%).
(3) Mr. Teter became Chief Executive Officer on January 1, 1995.
Mr. Teter's base salary rate for 1998 was targeted at the 50th percentile of
competitive data. In setting Mr. Teter's base salary level, the Compensation
Committee also considered Mr. Teter's vast experience in the restaurant
industry, the Company's performance under his leadership since he was named
Chief Executive Officer effective January 1, 1995, and the additional
responsibilities he assumed when he was also named Chairman of the Board
effective February 19, 1997.
An annual cash incentive award is payable under the SEEMP to Mr. Teter only if
the Company achieves or exceeds specified annual net income goals. The amount of
the award can increase if the Company exceeds the specified goals. Conversely,
no award is payable if the Company does not achieve the specified goals. The
payment to Mr. Teter for 1998 was based on the extent to which the 1998 goals
were achieved after giving effect to the non-recurring charges taken in the
fourth quarter. Forty-three percent of Mr. Teter's cash compensation for 1998
was incentive pay. Since the incentive award increases as the Company's
performance increases, and decreases (or becomes zero) if the specified goals
are not met, Mr. Teter's cash compensation is significantly affected by the
Company's performance. Mr. Teter does not participate in the Management
Incentive Plan.
Long-term incentives in the form of stock options were granted to Mr. Teter in
1998. Stock options were granted at 100% of the fair market value of the
Company's common shares on July 30, 1998, the date of grant. Options serve to
directly align Mr. Teter's interests with the interests of other shareholders,
since Mr. Teter will not realize a benefit unless and until the market price of
the Company's common shares increases.
The Committee considered the number of unexercised options already held by Mr.
Teter and competitive practices in determining the number of options to grant in
1998. The number of options granted in 1998 to Mr. Teter was designed to
approximate the 75th percentile of competitive practice for
12
<PAGE> 17
comparable positions within the food-service industry and at other industrial
companies with revenues between $1 billion and $3 billion, consistent with the
policy previously described.
The Committee believes that the information set forth in this report strongly
supports the conclusion that Mr. Teter has been reasonably compensated for the
job he has done since he became the Chief Executive Officer as well as for his
assumption of additional responsibilities as Chairman of the Board. His
opportunities to increase his future compensation depend on the Company's future
performance and the competitive pay practices of comparable positions within the
food-service industry. The compensation programs applicable to Mr. Teter have
accomplished the objective of linking shareholder and financial performance to
Mr. Teter's total compensation.
Respectfully submitted,
COMPENSATION COMMITTEE
Fielden B. Nutter, Sr., Chairman
Thekla R. Shackelford
Janet Hill
True H. Knowles
- --------------------------------------------------------------------------------
COMPARISON OF FIVE-YEAR TOTAL RETURN FOR WENDY'S INTERNATIONAL, INC.,
SPECIFIED PEER GROUPS AND THE S&P 500 INDEX
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return (as measured by dividing (i) the sum of (A)
the cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and (B) the difference between the Company's share price at the
end and the beginning of the measurement period; by (ii) the share price at the
beginning of the measurement period) against the cumulative total return of the
S&P 500 Stock Index and a peer group of other companies with restaurant
operations (excluding the Company) (the "Former Peer Group Index").
COMPARISON OF FIVE-YEAR TOTAL RETURN(1)
FOR WENDY'S INTERNATIONAL, INC., THE FORMER PEER GROUP
INDEX(2) AND THE S&P 500 INDEX
<TABLE>
<CAPTION>
FORMER PEER GROUP
WEN INDEX S&P INDEX
--- ----------------- ---------
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 83.98 94.51 101.60
1995 125.81 134.81 139.71
1996 122.92 137.87 172.18
1997 145.90 150.11 229.65
1998 133.75 230.86 294.87
</TABLE>
- ---------
(1) Assumes $100 invested on December 31, 1993, in Wendy's International, Inc.
common shares, the Former Peer Group Index and the S&P 500 Index. Total
return assumes dividend reinvestment.
13
<PAGE> 18
(2) The Former Peer Group Index has been computed by the Company, and is
comprised of the following 10 companies: Bob Evans Farms, Inc.; Brinker
International, Inc.; Cracker Barrel Old Country Store, Inc.; Flagstar
Companies, Inc.; Foodmaker, Inc.; Host Marriott Services Corp.; McDonald's
Corporation; Ruby Tuesday, Inc.; Ryan's Family Steakhouses, Inc.; and
Shoney's, Inc. This Index has been weighted by market capitalization of each
component company.
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return (as measured by dividing (i) the sum of (A)
the cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and (B) the difference between the Company's share price at the
end and the beginning of the measurement period; by (ii) the share price at the
beginning of the measurement period) against the cumulative total return of the
S&P 500 Stock Index and a peer group of other companies with restaurant
operations (excluding the Company) (the "Peer Group Index"). The companies which
comprise the Peer Group Index have revenues of at least $1 billion and better
reflect the Company's scope of operations and the competitive market in the
restaurant industry for senior executive talent, compared to the companies which
comprise the Former Peer Group Index.
COMPARISON OF FIVE-YEAR TOTAL RETURN(1)
FOR WENDY'S INTERNATIONAL, INC., THE PEER GROUP
INDEX(2) AND THE S&P 500 INDEX
<TABLE>
<CAPTION>
WEN PEER GROUP INDEX S&P INDEX
--- ---------------- ---------
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 83.98 94.38 101.60
1995 125.81 137.79 139.71
1996 122.92 139.44 172.18
1997 145.90 152.95 229.65
1998 133.75 233.68 294.87
</TABLE>
- ---------
(1) Assumes $100 invested on December 31, 1993, in Wendy's International, Inc.
common shares, the Peer Group Index and the S&P 500 Index. Total return
assumes dividend reinvestment.
(2) The Peer Group Index has been computed by the Company, and is comprised of
the following 11 companies: Advantica Restaurant Group, Inc.; Brinker
International, Inc.; CKE Restaurants, Inc.; Cracker Barrel Old Country
Store, Inc.; Darden Restaurants, Inc.; Foodmaker, Inc.; Host Marriott
Services Corp.; McDonald's Corporation; Outback Steakhouse, Inc.; Shoney's,
Inc.; and Tricon Global Restaurants, Inc. This Index has been weighted by
market capitalization of each component company.
14
<PAGE> 19
- --------------------------------------------------------------------------------
EXECUTIVE AGREEMENTS
The Company has entered into employment agreements ("Key Executive Agreements")
with each of the Executive Officers named in the Summary Compensation Table (see
page 7) as well as certain other Executive Officers. The Key Executive
Agreements are intended to assure the Company that it will have the continued
dedication, undivided loyalty, and objective advice and counsel from these key
executives in the event of a proposed transaction, or the threat of a
transaction, which could result in a change of control of the Company.
The Key Executive Agreements were amended and restated earlier this year to
replace and clarify certain provisions and to provide protections to both the
Company and the covered executives consistent with current executive
compensation practices.
The Key Executive Agreements provide that in the event of a "change of control"
(as defined therein), the key executives will be employed by the Company in
their present positions for a period of approximately five years, or until the
executive dies, is terminated for "cause" by the Company or terminates
employment himself without good reason (as such terms are defined therein),
whichever occurs first (the "Employment Term").
In the event of a change of control, the key executives will be entitled to
continue to receive during their Employment Term the annual salary, bonus and
other benefits made available to them by the Company immediately prior to the
change of control. The Board of Directors will review annually the performance
of each key executive during such Employment Term to determine whether or not
such salary and bonus should be increased.
A key executive's employment may be terminated under the Key Executive Agreement
for cause by the Company as defined therein. If a key executive is terminated
for cause by the Company, the Company has no further obligation to pay any
compensation or to provide benefits to the key executive.
A key executive may terminate his employment under the Key Executive Agreement
after a change in control for good reason if the Company (i) changes the key
executive's status, title, position or responsibilities in a way that does not
represent a promotion, (ii) either reduces the key executive's base salary or
provides an annual salary increase less than the increase in a defined consumer
price index, (iii) requires the key executive to relocate beyond a 30 mile
radius from the executive's business office location immediately prior to the
change in control, (iv) takes action which results in a material reduction in
compensation and benefits otherwise payable to the key executive, (v) materially
breaches the Key Executive Agreement, or (vi) fails to notify the key executive
that a successor to the Company has agreed to assume and perform under the Key
Executive Agreement. If a key executive's employment is terminated by the
Company without cause prior to a change in control, but the executive reasonably
demonstrates that the termination of employment (i) was at the request of a
third party who had indicated an intention or taken steps reasonably calculated
to effect a change in control, or (ii) otherwise occurred in connection with, or
in anticipation of, a change in control which had been threatened or proposed,
then such termination will be deemed to have occurred after a change of control
for the purposes of the Key Executive Agreement, provided that a change in
control shall actually have occurred.
If the employment of a key executive is terminated under a Key Executive
Agreement by the executive for good reason or by the Company other than for
cause, the Company will be obligated to make a lump-sum payment to the key
executive of three times the sum of such executive's then current salary plus
average annual bonuses over the prior three years. If the key executive had not
previously received bonus payments for three full plan years under the SEEMP or
EMP and was an eligible participant under either of such plans at the time his
employment was terminated, he will be deemed to have received a bonus in prior
years equal to the bonus paid to such key executive's predecessor in the same
position. If there was not a predecessor in the same position, the key executive
will be deemed to have received a bonus in prior years equal to the average of
the bonuses paid to participants in positions comparable to the executive's then
current position. The lump-sum payment will not be subject to offset. If the
employment of the key executive is terminated under a Key Executive Agreement by
the executive for good reason or by the Company other than for cause, such key
executive will also be
15
<PAGE> 20
entitled to (i) continuation of group insurance benefits for three years,
subject to offset for any benefits from subsequent employment, if any, (ii)
purchase his or her Company automobile at the then-current book value, and (iii)
a lump-sum payment equal to the present value of accrued retirement benefits
after adding three additional years of benefit accrual, reduced by any vested
benefits. In addition, any stock options or stock appreciation rights granted
under plans of the Company will become immediately vested and exercisable, and
any restrictions on any stock awarded to the key executive by the Company shall
lapse.
If any payments or other benefits payable to an executive under a Key Executive
Agreement or otherwise is subject to the excise tax under Internal Revenue Code
Section 4999 or any similar tax, the Company is obligated under the Key
Executive Agreement to pay to the executive an additional amount which, after
deduction of any income, withholding and excise tax thereon, equals the excise
tax.
The Company has established a benefits protection trust to provide for the
payment of benefits to the key executives and to provide for the payment of any
legal fees or expenses incurred by such key executives in enforcing their rights
under the Agreements or any other benefit plans in which they participate.
The Company entered into an Agreement with Gordon F. Teter in March, 1995 (the
"Agreement"). Mr. Teter became Chief Executive Officer (in addition to retaining
his titles of President and Chief Operating Officer) on January 1, 1995. The
Agreement recognizes the significant professional and personal contributions Mr.
Teter has made to the successful operation and recognized goodwill and
reputation of the Company. If Mr. Teter ceases to be actively employed by the
Company for any reason other than his termination for "cause" (as defined in the
Agreement) on any date (the "Transition Date") after attaining age 62 and before
attaining age 65, the Agreement provides for the continuation of Mr. Teter's
salary at the rate of his highest annual base salary in effect at any time
during the five-year period preceding the date of his termination of employment.
The salary continuation benefits will end on the earliest of (i) 24 months after
termination of active employment, (ii) death, or (iii) attainment of age 65 (the
"Salary Continuation Period"). Until the Salary Continuation Period expires, Mr.
Teter will continue to participate in the other employee benefit plans and
programs of the Company, except that Mr. Teter will not receive any further
stock options or other stock-based awards, Mr. Teter will only be entitled to
receive a pro-rated bonus under the annual cash bonus plan in effect for the
year in which his active employment terminates, and any benefits Mr. Teter
receives from the Company's short-term or long-term disability plans will offset
amounts otherwise payable under the Agreement.
If Mr. Teter's active employment is terminated prior to his attainment of age 62
for any reason other than by reason of his voluntary termination of employment,
death or termination for cause, the Agreement provides for the continuation of
Mr. Teter's salary for 24 months at the rate in effect at the time his active
employment is terminated. During such 24-month period, Mr. Teter will continue
to participate in certain of the Company's employee benefit plans in which he
was a participant immediately preceding the date his active employment
terminated, receive a pro-rated bonus under the Company's annual cash bonus plan
then in effect for the fiscal year in which his active employment is terminated,
and receive payment for any accrued, unused vacation for the year in which his
termination of active employment occurs. Any benefits Mr. Teter receives under
the Company's short-term or long-term disability plans will be offset against
amounts otherwise payable under this provision. In the event Mr. Teter accepts
other employment while he is receiving benefits under this provision of the
Agreement, he will be required to accept a lump-sum payment equal to the balance
of the salary continuation payments otherwise due, and the other benefits
described in this paragraph will immediately terminate. Mr. Teter's right to
receive the benefits described in this paragraph is conditioned upon his
execution of a general release in favor of the Company at the time his active
employment is terminated.
The Agreement with Mr. Teter also provides for a non-qualified supplemental
retirement benefit. Under the Company's existing retirement plans, Mr. Teter
would be entitled to retirement benefits as set forth in footnote 2 to the
Summary Compensation Table on page 7 and the Pension Plan benefit estimated on
page 9. Those plans are designed to provide a full benefit based on payments
beginning at age 65 and the employee's continuing employment with the Company or
its subsidiaries until age 65. The
16
<PAGE> 21
Agreement establishes a supplemental account intended to provide full retirement
benefits at age 62 rather than age 65 and which recognizes compensation earned
until the actual date of termination of employment. Each year until the year in
which the Transition Date occurs (or, if Mr. Teter's employment terminates
before he attains age 62, the year preceding the year in which his employment
terminates), the supplemental account will be credited in an amount determined
by actuarial calculation to result in the intended retirement benefits. The
supplemental account will be credited with an additional amount equal to .8% of
Mr. Teter's compensation for each such year until termination of employment.
This additional credit is intended to provide funds which Mr. Teter could use to
purchase retiree health insurance upon his termination of employment and the
expiration of the salary continuation period. The supplemental account will also
be credited with interest at the rate at which interest is credited under the
Company's qualified pension plan which applies to Mr. Teter and all of the
Company's other eligible employees.
Mr. Teter can elect whether to take the retirement benefit from the supplemental
account as a lump-sum distribution or over a period not exceeding the joint and
last survivor life expectancies of Mr. Teter and his wife (if Mr. Teter is
married at the time of his election).
Upon Mr. Teter's termination of employment, the Company is required to establish
a benefits protection trust to provide for the payment of any future payments
due to Mr. Teter under the Agreement.
If Mr. Teter ceases to be actively employed by the Company after attaining age
62 and before attaining age 65, the Agreement provides that (i) Mr. Teter will
make himself available to provide advice and counsel to the Company upon request
during the salary continuation period; (ii) the Company may require Mr. Teter to
return to active employment for up to 12 months under certain conditions; and
(iii) Mr. Teter is prohibited from competing against the Company during the
Salary Continuation Period. If Mr. Teter's employment with the Company is
terminated before he attains age 62, he is prohibited from competing against the
Company for two years following the date of his termination of employment. The
Agreement further provides that Mr. Teter will not be entitled to receive any
payments or benefits specified in the Agreement in the event he violates his
obligations under the Agreement or if his employment is terminated for cause.
If Mr. Teter's employment is terminated after he attains age 62 under
circumstances which entitle him to receive benefits under his Key Executive
Agreement, no salary continuation payments (or further salary continuation
payments in the event such payments have already commenced) will be paid under
the Agreement unless Mr. Teter waives all rights to any payments or benefits
under the Key Executive Agreement.
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS INVOLVING MANAGEMENT
Melinda Morse, the daughter of R. David Thomas, was a 49% shareholder in a
corporation which owned the right to operate five Wendy's Old Fashioned
Hamburgers restaurants in Texas. Mrs. Morse served as a co-Franchise Owner with
the corporation and her husband under the applicable Restaurant Franchise and
Unit Franchise Agreements with the Company. In the opinion of the Company, the
terms of these franchises were no less favorable than the Company could have
obtained from unrelated third parties.
On June 19, 1998, the Company acquired the right to operate all five of the
restaurants and ownership of the equipment for $3 million. The Company leased
the real estate for 7% of sales. The Company also has the option to purchase the
real estate after the tenth lease year for $3 million, and the sellers have an
option to require the Company to purchase the real estate through and including
the fifth lease year for $3 million. The purchase price for this transaction was
determined by George Condos, Executive Vice President -- Development, in
conjunction with financial management of the Company, based on the valuation
method the Company generally uses for acquisitions of restaurants from
franchisees. In the opinion of the Company, the terms of this transaction were
no less favorable than the Company could have obtained from unrelated third
parties.
John J. Casey and Kevin B. Casey, the sons of John K. Casey, are each a 26%
shareholder of J.K.C. Wen, L.C., which owns the right to operate ten Wendy's Old
Fashioned Hamburgers restaurants in
17
<PAGE> 22
Florida. A third shareholder, who is unrelated to the Caseys, owns the remaining
48% of the corporation. John J. Casey and Kevin B. Casey serve as co-Franchise
Owners with the corporation under the applicable Unit Franchise Agreements with
the Company. In the opinion of the Company, the terms of these franchises are no
less favorable than the Company could have obtained from unrelated third
parties. John K. Casey retired as a Director of the Company effective February
21, 1998. He was Vice Chairman and Chief Financial Officer of the Company until
April 1, 1997, when he became Vice President and Senior Advisor. Mr. Casey
retired as an officer on April 1, 1998.
On September 16, 1998, the Company purchased one million Exchangeable Shares of
WENTIM, LTD., a subsidiary of the Company, from Ronald V. Joyce. The
Exchangeable Shares were exchangeable into one million common shares of the
Company. The cash purchase price for the transaction was $21.21 per share. The
closing price for a common share of the Company on the date of purchase was
$21.375. The purchase price approximated the price Mr. Joyce would have received
if he had sold one million common shares of the Company to an unrelated third
party.
Pursuant to an option granted in the Share Purchase Agreement between the
Company and Mr. Joyce dated as of October 31, 1995, Mr. Joyce purchased real
estate located in Beamsville and Burlington, Ontario from The TDL Group Ltd., a
subsidiary of the Company, for Cdn. $1,516,544. The transaction was consummated
on June 1, 1998. The purchase price was equal to the net book value of the
properties on the date the transaction was consummated. The Share Purchase
Agreement was the result of an arms-length negotiation between the Company and
Mr. Joyce in 1995.
- --------------------------------------------------------------------------------
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Directors have selected PricewaterhouseCoopers LLP as the independent public
accountants of the Company for the current fiscal year. Management recommends
that the shareholders ratify the selection. Coopers & Lybrand L.L.P., one of the
constituent firms merged to form PricewaterhouseCoopers LLP, had audited the
Company's financial statements for each of the last 29 years. Management expects
that representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting with the opportunity to make a statement if they desire to do so and
will be available to respond to appropriate questions. The affirmative vote of
the holders of a majority of the common shares represented in person or by proxy
is necessary to ratify the selection of the Company's independent public
accountants. Under Ohio law and the Company's Regulations, abstentions and
broker non-votes are counted as present; the effect of an abstention or broker
non-vote on this proposal is the same as a "no" vote. Unless otherwise
indicated, the persons named in the Proxy will vote all Proxies in favor of
ratifying the selection of independent public accountants.
- --------------------------------------------------------------------------------
APPROVAL OF PERFORMANCE GOALS OF THE AMENDED AND RESTATED SENIOR EXECUTIVE
EARNINGS MAXIMIZATION PLAN
The Compensation Committee has established, subject to the approval of the
Company's shareholders, the Amended and Restated Senior Executive Earnings
Maximization Plan (the "SEEMP") to provide incentive cash compensation to
certain of its senior executives. Section 162(m) of the Internal Revenue Code
and the IRS Regulations issued thereunder generally would disallow the Company a
federal income tax deduction for compensation (including any bonuses payable
under the SEEMP) in excess of $1 million paid in any year to any of those
Executive Officers included in the Summary Compensation Table who are employed
by the Company on the last day of the taxable year. Section 162(m), however,
does allow a deduction for payments of "performance-based compensation", the
material terms of which have been disclosed to and approved by shareholders. The
Company has structured the cash bonuses payable pursuant to the SEEMP with the
intention that compensation resulting therefrom (other than in connection with a
change in control of the Company) would be qualified "performance-based
compensation" under Section 162(m) and would be deductible. To qualify, the
Company is seeking shareholder approval of the SEEMP.
The SEEMP is designed to create a strong link between the Company's financial
performance, measured by earnings per share and return on assets, and the total
cash compensation of participants.
18
<PAGE> 23
The prior Senior Executive Earnings Maximization Plan (the "Prior SEEMP")
applied to fiscal years 1994 through 1998. The Prior SEEMP was approved by
shareholders in 1994 by an overwhelming majority.
The employees eligible (the "Eligible Employees") to participate in and receive
compensation under the SEEMP are Executive Officers with the titles of Senior
Chairman of the Board, Chairman of the Board, Vice Chairman, Chief Executive
Officer, President, Chief Operating Officer and Chief Financial Officer,
provided that no more than three Executive Officers are eligible to participate
in the SEEMP in any one fiscal year. The Compensation Committee will designate
those Eligible Employees who will participate in the SEEMP for any fiscal year.
The Compensation Committee has designated those Executive Officers occupying the
offices of (i) Senior Chairman of the Board, (ii) Chairman of the Board, Chief
Executive Officer and President, and (iii) Chief Financial Officer, as
participants in the SEEMP for fiscal year 1999. If, prior to the beginning of
any fiscal year, an Executive Officer is not occupying one of those offices, the
Compensation Committee, prior to the beginning of such fiscal year, will
designate one of the Eligible Employees not already a participant to participate
in the SEEMP for all remaining fiscal years through 2003.
The Compensation Committee has established Earnings Per Share (as defined below)
targets at three levels for each fiscal year through 2003. A bonus pool will be
established in a fiscal year only if the Company achieves one of those specified
targets for the fiscal year. The bonus pool for any fiscal year in which a
target is achieved will initially be calculated as Earnings Per Share multiplied
by the funding pool level. The funding pool level is $15,000 per $.01 of
Earnings Per Share as reflected in the Company's consolidated audited financial
statements for the applicable fiscal year if the level 1 target is achieved,
$20,000 per $.01 of Earnings Per Share if the level 2 target is achieved, and
$25,000 per $.01 of Earnings Per Share if the level 3 target is achieved. The
amount of the bonus pool as so calculated will then be multiplied by either
105%, 110% or 115% if the Company's Return On Assets (as defined below) equals
or exceeds rates specified in advance by the Compensation Committee. The
resulting product will be the final bonus pool distributed. "Earnings Per Share"
means diluted earnings per share as reflected in the Company's consolidated
audited financial statements for the applicable fiscal year. "Return On Assets"
means net income as reflected in the Company's consolidated audited financial
statements for the applicable fiscal year before income taxes and interest
charges divided by the average total assets of the Company for the last five
fiscal quarters. Under the Prior SEEMP the annual targets were based solely on
net income (rather than Earnings Per Share). The bonus pool established for a
fiscal year was either 1%, 1.4% or 1.75% of net income, depending on which
target was achieved for that year.
The Chief Executive Officer will receive 50% of the bonus pool. The other
Executive Officers participating in the SEEMP for that fiscal year will each
receive 25% of the bonus pool. To be eligible for a bonus in respect of any
fiscal year, a participant in the SEEMP must be employed by the Company on the
last day of such fiscal year unless the participant's employment was terminated
because of his death, disability or retirement, in which event the participant
will be entitled to a pro-rata portion of the bonus otherwise payable in respect
of that fiscal year. In no event can the aggregate amount paid to all
participants under the SEEMP for any fiscal year exceed the amount of the bonus
pool for that fiscal year. The Compensation Committee has the discretion to
reduce the bonus payment otherwise payable under the SEEMP to any or all of the
participants. Any portion of the bonus pool established in respect of any fiscal
year that is not paid to participants in that fiscal year will not be paid to
any Eligible Employee in that year or in any succeeding fiscal year. Prior to
the payment of a bonus in respect of a fiscal year, the Compensation Committee
must certify in writing as to the satisfaction of the performance goals for such
fiscal year.
The SEEMP provides for an adjustment to the calculation of Earnings Per Share
where the statutory tax rates applicable to the Company change.
Upon the occurrence of a "change in control" (as defined in the SEEMP) of the
Company, the minimum bonus payable to each participant in respect of the fiscal
year in which the change in control occurs shall be the greater of (i) the bonus
amount paid to the participant in respect of the fiscal year prior to the year
in which the change in control occurs, (ii) the bonus amount that would be
payable to
19
<PAGE> 24
the participant assuming that the target level two entry point had been
achieved, or (iii) the bonus amount that would be payable to the participant
based on the Company's actual performance and achievement of applicable targets
for such fiscal year through the date of the change in control.
In addition, in the event that following a change in control and during the
fiscal year in which the change in control occurs a participant's employment is
terminated by the Company without "cause" or by the participant for "good
reason" (as such terms are defined in the SEEMP), such participant shall be
entitled to receive the bonus otherwise payable pursuant to the terms of the
Plan in respect of that fiscal year as if he had remained in the employ of the
Company through the end of such year.
Further, if a participant's employment is terminated by the Company without
cause prior to a change in control but the participant reasonably demonstrates
that the termination (i) 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 (ii) 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 the SEEMP provided a
change in control shall actually have occurred.
The Compensation Committee has the authority to amend or terminate the SEEMP at
any time in its discretion; provided, however, that no such action may affect
any bonus award previously granted under the SEEMP for that fiscal year; and
further provided that the SEEMP may not be amended or terminated through and
including the fiscal year in which a change in control occurs, (i) at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a change in control, or (ii) otherwise in
connection with, or in anticipation of, a change in control which has been
threatened or proposed, in either case, provided a change in control shall
actually have occurred.
The Prior SEEMP did not contain any change in control provisions.
Under certain circumstances, the payment of bonuses under the SEEMP in
connection with a change in control of the Company might be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Code. To the extent it is so considered, the executive may
be subject to a 20% excise tax and the Company may be denied a tax deduction. If
the executive is a party to a Key Executive Agreement (described beginning on
page 15), however, the Company would be obligated under that Agreement to pay to
the executive an additional amount which, after deduction of any income,
withholding and excise tax, equals the excise tax.
The amounts that will be received by each of the Eligible Employees (and as a
group) under the SEEMP cannot be determined at this time. The following table
sets forth the amounts which would have been received by each of the Eligible
Employees (and as a group) for the last completed fiscal year if the SEEMP had
been in effect instead of the principal bonus plan in which the individuals
actually participated in such fiscal year. The Company's Earnings Per Share and
Return On Assets for the last completed fiscal year (and therefore the amounts
shown in the table) were affected by the strategic initiatives implemented in
1998 to improve return on invested capital and by the charges for international
issues of $33.9 million (pre-tax).
<TABLE>
<CAPTION>
AMOUNT WHICH WOULD HAVE
NAME OF INDIVIDUAL OR GROUP BEEN RECEIVED OR ALLOCATED
- -------------------------------------------------------- ------------------------------
<S> <C>
Gordon F. Teter, Chairman of the Board, Chief Executive
Officer and President................................. $0
R. David Thomas, Senior Chairman of the Board and
Founder............................................... $0
Frederick R. Reed, Chief Financial Officer and
Secretary............................................. $0
John T. Schuessler, President and Chief Operating
Officer, U.S. Operations.............................. Not Applicable
George Condos, Executive Vice President................. Not Applicable
All Current Executive Officers as a Group............... $0
</TABLE>
20
<PAGE> 25
No other employees or Non-Employee Directors would have been eligible to receive
benefits or allocations under the SEEMP if such plan had been in effect for the
last completed fiscal year. A copy of the SEEMP is attached to this Proxy
Statement as the Annex.
The affirmative vote of the holders of a majority of the common shares
represented in person or by proxy at the meeting is necessary to approve the
performance goals of the SEEMP. Under Ohio law and the Company's Regulations,
abstentions and broker non-votes are counted as present; the effect of an
abstention or broker non-vote is the same as a "no" vote. Unless otherwise
indicated, the persons named in the Proxy will vote all Proxies in favor of
approving the performance goals of the SEEMP.
- --------------------------------------------------------------------------------
OTHER MATTERS
SHAREHOLDER PROPOSALS PURSUANT TO RULE 14A-8
In order to be considered for inclusion in the proxy statement distributed to
shareholders prior to the Annual Meeting of Shareholders in 2000, a shareholder
proposal pursuant to Securities and Exchange Commission Rule 14a-8 must be
received by the Company no later than November 15, 1999. Written requests for
inclusion should be addressed to: Corporate Secretary, P.O. Box 256, Dublin,
Ohio 43017-0256. It is suggested that you mail your proposal by certified mail,
return receipt requested.
SHAREHOLDER PROPOSALS OTHER THAN PURSUANT TO RULE 14A-8
With respect to any shareholder proposal not submitted pursuant to Securities
and Exchange Commission Rule 14a-8 in connection with the Annual Meeting of
Shareholders in 2000, the proxy for such meeting will confer discretionary
authority to vote on such proposal unless (i) the Company is notified of such
proposal not later than January 29, 2000, and (ii) the proponent complies with
the other requirements set forth in Securities and Exchange Commission Rule
14a-4.
GENERAL INFORMATION
A COPY OF FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
SENT TO ANY SHAREHOLDER WITHOUT CHARGE UPON WRITTEN REQUEST ADDRESSED TO
INVESTOR RELATIONS DEPARTMENT, P.O. BOX 256, 4288 WEST DUBLIN-GRANVILLE ROAD,
DUBLIN, OHIO 43017-0256.
Management knows of no other business which may be properly brought before the
Annual Meeting of Shareholders. However, if any other matters shall properly
come before such meeting, it is the intention of the persons named in the
enclosed form of Proxy to vote such Proxy in accordance with their best judgment
on such matters.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED STAMPED, SELF-ADDRESSED ENVELOPE.
By order of the Board of Directors.
/s/ Frederick R. Reed
FREDERICK R. REED
Secretary
21
<PAGE> 26
(Intentionally Left Blank)
<PAGE> 27
ANNEX
WENDY'S INTERNATIONAL, INC.
AMENDED AND RESTATED SENIOR EXECUTIVE EARNINGS MAXIMIZATION PLAN
1. PURPOSE. The purpose of the Amended and Restated Senior Executive
Earnings Maximization Plan (the "Plan") is to enhance Wendy's International,
Inc.'s (the "Company") ability to attract, motivate, reward, and retain key
employees, to strengthen their commitment to the success of the Company and to
align their interests with those of the Company's shareholders by providing
additional compensation to designated key employees of the Company based on the
achievement of performance objectives. To this end, the Plan provides a means of
rewarding participants based on the performance of the Company.
2. COMMITTEE. The Plan shall be administered by a committee of the Board
of Directors of the Company (the "Committee"). Each member of the Committee must
be an "outside director" within the meaning of the Regulations promulgated under
Section 162(m) of the Internal Revenue Code of 1986, as amended.
3. ELIGIBLE EMPLOYEES. Eligible employees shall include any individuals
holding the positions of Senior Chairman of the Board, Chairman of the Board,
Vice Chairman, Chief Executive Officer, President, Chief Operating Officer or
Chief Financial Officer; provided, however, that no more than three persons will
participate in the Plan for any particular fiscal year of the Company (those
Eligible Employees who are participants in respect of any fiscal year are
hereinafter referred to as "Participants"). The Eligible Employees who will
participate in the Plan for any fiscal year will be designated by the Committee
in its sole discretion not later than 90 days after the commencement of that
fiscal year.
4. CREATION OF A BONUS POOL. The Committee shall establish Earnings Per
Share targets at three levels for each fiscal year. A bonus pool (the "Bonus
Pool") will be created in respect of any fiscal year in which Earnings Per Share
exceeds one of those target levels. The amount of the Bonus Pool in any such
fiscal year shall initially be calculated as Earnings Per Share multiplied by
the pool funding level. In the event that the Company's Return On Assets
achieves a target rate established by the Committee for such fiscal year, an
additional amount shall be added to the Bonus Pool amount initially calculated
equal to the multiplier percentage established by the Committee. The Committee
may establish such targets, funding pool levels and percentages for a period of
years, but in all circumstances not later than 90 days after the commencement of
the year to which the targets and percentages relate. "Earnings Per Share" as
used in this Plan shall mean diluted Earnings Per Share of the Company as
reflected in the Company's consolidated audited financial statements for the
applicable fiscal year (or such successor measure as may be required under
generally accepted accounting principles), subject to the adjustment set forth
in the following paragraph. "Return On Assets" as used in this Plan shall mean
net income as reflected in the Company's consolidated audited financial
statements for the applicable fiscal year before income taxes and interest
charges divided by the average total assets of the Company for the last five
fiscal quarters.
With respect to countries where the Company is subject to income tax laws
in fiscal 1998, if the Statutory Tax Rates applicable to the Company for any
fiscal year are other than the Statutory Tax Rates in effect at the end of
fiscal 1998, and with respect to countries where the Company is not subject to
income tax laws in fiscal 1998, if the Statutory Tax Rates applicable to the
Company for any fiscal year are other than the Statutory Tax Rates in effect for
the first fiscal year when the Company becomes subject to the income tax laws in
such countries, then Earnings Per Share for the purpose of calculating the Bonus
Pool for such fiscal year shall be determined as though the Statutory Tax Rates
had not changed. "Statutory Tax Rates" as used in this Plan shall mean the
highest marginal tax rates applicable to the Company for a stated fiscal year
(or portion thereof) for each of the countries in which the Company had earned
income.
5. ALLOCATION. The Chief Executive Officer of the Company shall be
allocated 50% of the Bonus Pool created in respect of any fiscal year and each
of the other Participants shall be allocated 25% of the
A-1
<PAGE> 28
Bonus Pool; provided, however, that the Committee in its sole discretion may
reduce at any time, including during or following the fiscal year, the amount of
the bonus payable to any or all Participants in respect of such fiscal year. No
bonus shall be payable to any Participant unless he is employed by the Company
on the last day of the fiscal year, unless the Participant's employment was
terminated because of his death, disability or retirement after attaining age 55
and the completion of 10 years of continuous service with the Company, in which
event the Participant will be entitled to a pro-rata portion of the bonus
otherwise payable in respect of that fiscal year, subject to the Committee's
discretion as set forth in the proviso to the preceding sentence. Any portion of
the Bonus Pool that is not paid to a Participant in respect of any fiscal year
shall not be paid to any Eligible Employee.
6. CERTIFICATION. Prior to payment of a bonus in respect of a fiscal year,
the Committee must certify in writing as to the satisfaction of and compliance
with the performance goals and other material terms of the Plan for that fiscal
year.
7. CHANGE IN CONTROL. Notwithstanding any provision in this Plan to the
contrary, upon the occurrence of a "Change in Control" (as defined in Appendix
A, hereto) of the Company, the following provisions shall apply:
(i) The minimum bonus payable to each Participant in respect of the
fiscal year in which the Change in Control occurs shall be the
greater of:
(A) the bonus amount paid or payable to the Participant in
respect of the fiscal year prior to the year in which the
Change in Control occurs;
(B) the bonus amount that would be payable to the Participant
assuming that the target level two entry point had been
achieved; or
(C) the bonus amount that would be payable to the Participant
based on the Company's actual performance and achievement of
applicable targets for such fiscal year through the date of
the Change in Control.
(ii) Notwithstanding the second sentence of Section 5 hereof, in the
event that following the date of a Change in Control and during
the fiscal year in which the Change in Control occurs a
Participant's employment is terminated by the Company without
"Cause" or by the Participant for "Good Reason" (as such terms
are defined in Appendix A, hereto), such Participant shall be
entitled to receive the bonus otherwise payable pursuant to the
terms of the Plan in respect of that fiscal year as if he had
remained in the employ of the Company through the end of such
fiscal year.
If a Participant's employment is terminated by the Company
without Cause prior to the date of a Change in Control but the
Participant 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.
8. AMENDMENT OR TERMINATION. The Committee may amend or terminate the Plan
at any time in its discretion; provided, however, that no amendment or
termination of the Plan may affect any award made under the Plan prior to that
time; provided further, however, that the Plan may not be amended or terminated
through and including the fiscal year in which a Change in Control occurs, (i)
at the request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control, or (ii) otherwise in
connection with, or in anticipation of, a Change in Control which has been
threatened or proposed, in either case provided a Change in Control shall
actually have occurred.
9. SHAREHOLDER APPROVAL. The adoption of this Plan is subject to the
approval of the shareholders of the Company.
A-2
<PAGE> 29
APPENDIX A
1. A "Change in Control" shall mean the occurrence during the term of the Plan
of:
(a) An acquisition (other than directly from the Company) of any common
stock or other voting securities of the Company 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 the Company's common stock or the combined voting power of the
Company'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) the Company 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 the Company (for
purposes of this definition, a "Subsidiary") (ii) the Company or its
Subsidiaries, or (iii) any Person in connection with a "Non-Control Transaction"
(as hereinafter defined);
(b) The individuals who, as of February 18, 1999, are members of the Board
(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 the Company'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 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 the
Company or in which securities of the Company 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 the Company or in which securities of the
Company are issued where:
(A) the stockholders of the Company, 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
Corporation") 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
Corporation, or a corporation beneficially directly or indirectly
owning a majority of the Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company, (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 the Company 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
A-3
<PAGE> 30
Securities or common stock of the Company, has Beneficial Ownership
of thirty percent (30%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities or its
common stock.
(ii) A complete liquidation or dissolution of the Company; or
(iii) The sale or other disposition of all or substantially all of
the assets of the Company 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 the Company 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 the Company, and after
such share acquisition by the Company, 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.
2. A termination for "Cause" shall mean a termination by reason of the
Company's Board of Director's good faith determination that the Participant (a)
willfully and continually failed to substantially perform his duties with the
Company (other than a failure resulting from the Participant's incapacity due to
physical or mental illness) after a written demand for substantial performance
is delivered to the Participant by the Board of Directors which specifically
identifies the manner in which the Board of Directors believes that the
Participant 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 Company, monetarily or otherwise, or (c) has otherwise materially breached
the terms of his or her employment agreement with the Company, if applicable
(each, an "Employment Agreement"), (including, without limitation, a voluntary
termination of the Participant's employment by the Participant during the term
of such Employment Agreement). No act, nor failure to act, on the Participant'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 Company. Notwithstanding the
foregoing, the Participant's employment shall not be deemed to have been
terminated for Cause unless and until (1) there shall have been delivered to the
Participant a copy of a written notice setting forth that the Participant was
guilty of conduct set forth above in clause (a), (b) or (c) of the first
sentence of this definition and specifying the particulars thereof in detail,
and (2) the Participant shall have been provided an opportunity to be heard by
the Board of Directors of the Company (with the assistance of Participant's
counsel).
3. A termination for "Good Reason" shall mean the occurrence after a Change in
Control of any of the events or conditions described in Subsections (a) through
(f) hereof without the Participant's express written consent:
(a) a change in the Participant's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Participant'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 Participant of any duties or responsibilities
which, in the Participant's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Participant
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 Participant other than for Good Reason;
(b) a reduction by the Company in the Participant'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 Participant'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 Consumer Price Index
for All Urban
A-4
<PAGE> 31
Consumers and for All Items most recently published by the United States Bureau
of Labor Statistics prior to such salary review date;
(c) the Company's requiring the Participant to be based at any place
outside a 30-mile radius from the Participant's business office location
immediately prior to the Change in Control, except for reasonably required
travel on the Company business which is not materially greater than such travel
requirements prior to the Change in Control;
(d) the failure by the Company to continue to provide the Participant with
the compensation and benefits substantially similar (in terms of benefit levels
and/or reward opportunities) to those provided for under the Participant's
Employment Agreement and those provided to him under any of the employee benefit
plans in which the Participant becomes a participant, or the taking of any
action by the Company which would directly or indirectly materially reduce any
of such benefits or deprive the Participant of any material fringe benefit
enjoyed by him at the time of the Change in Control;
(e) any material breach by the Company of any provision of the
Participant's Employment Agreement with the Company, if applicable; and
(f) the failure of the Company to notify the Participant within the 30-day
period following any transfer of business and assets to any other person by
merger, consolidation, sale of assets or otherwise, that the Company has
obtained a satisfactory agreement from a successor or assign of the Company to
assume and agree to perform the Participant's Employment Agreement.
A-5
<PAGE> 32
(Intentionally Left Blank)
<PAGE> 33
[WENDY'S LOGO] [TIM HORTON'S LOGO]
WENDY'S INTERNATIONAL, INC.
Appendix to the
1999 Proxy Statement
(Annual Financial Statements
and Other Information)
[FOOD PHOTOS]
<TABLE>
<C> <S>
TABLE OF CONTENTS
AA-1 Management's Review
and Outlook
AA-9 Consolidated Statements
of Income
AA-10 Consolidated Balance Sheets
AA-11 Consolidated Statements
of Cash Flows
AA-12 Consolidated Statements
of Shareholders' Equity
AA-13 Consolidated Statements of
Comprehensive Income
AA-14 Notes to the Consolidated
Financial Statements
AA-25 Management's Statement of
Responsibility for Financial
Statements, Report of
Independent Accountants
AA-26 Officers and Directors
AA-27 Market for Common Stock and
Related Stockholder Matters,
Selected Financial Data
AA-28 Safe Harbor Statement
</TABLE>
<PAGE> 34
(Intentionally Left Blank)
<PAGE> 35
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S REVIEW AND OUTLOOK
RESULTS OF OPERATIONS
1998 OVERVIEW
For Wendy's International, Inc. (the Company), 1998 was a year of transition in
which strategic initiatives established in 1997 were implemented and several new
initiatives were introduced. Once again, average sales increased in domestic
Wendy's (5.7%), Wendy's of Canada (4.1% in Canadian dollars) and Canadian Tim
Hortons (10.4% in Canadian dollars). The Wendy's domestic company operating
margin expanded to 15.6% in 1998 from 14.8% in 1997 and 13.3% in 1996. Most
importantly, management remained focused on operational excellence and long-term
strategies to continue to succeed in the future, improve return on invested
capital and enhance shareholder value over time. Some of the highlights of the
year include:
- - The repurchase of 9.3 million shares for $211 million. In February 1998, the
Company announced a plan to repurchase up to $200 million of Wendy's common
stock. In August 1998, the Company announced an additional $150 million was
authorized for repurchase. The Company expects to continue repurchasing shares
under this plan.
- - Substantial action toward the goal of increasing return on assets and return
on invested capital by disposing of 145 rental properties, franchising 171
Wendy's company operated restaurants, and repayment of $48.0 million of notes
receivable through franchisee refinancings. The Company plans to use funds
raised in this manner for new restaurant development, share repurchase or
other high return strategies. Total pretax gains realized from these asset
sale transactions in 1998 were $21.4 million. In 1997 and 1996, $80.9 million
and $66.6 million in pretax gains were realized, respectively, from
franchising Wendy's restaurants and selling properties which were previously
leased to franchisees.
- - Charges for international issues totaling $33.9 million ($25.2 million after
tax). During the fourth quarter of 1998, it was determined that certain
international assets in the United Kingdom were impaired and accordingly,
these assets were written down, resulting in a $9.1 million pretax charge.
Also in the fourth quarter of 1998, the Company wrote down various
underperforming and non-recoverable assets in Argentina and recorded an
estimated settlement with the franchisee. These pretax charges totaled $24.8
million. The international write-downs were substantially non-cash (see Note 2
to the consolidated financial statements).
- - Substantial progress toward the goal of implementing a new enterprise-wide
information technology system. The first stages of the new system will be
introduced in the first quarter of 1999 and the remainder of the system should
be introduced throughout 1999. Progress was also made with the store
management technology system which will be implemented over the next two
years.
The Company reported diluted earnings per share (EPS) of $.95 in 1998, $.97 in
1997 and $1.19 in 1996. Both 1998 and 1997 earnings were reduced by significant
charges which included $25.2 million after tax ($.18 per share) in 1998 for the
international charges described above, and $50.0 million after tax ($.36 per
share) in 1997 for various strategic initiatives (see Note 3 to the consolidated
financial statements and the "general and administrative expenses" discussion
which follows). Net income each year also included the asset sale gains
described above.
The chart below shows the impact of the non-recurring charges and the asset sale
gains on the reported earnings:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------
Diluted EPS $ .95 $ .97 $1.19
Non-recurring charges .18 .36 --
Asset sale gains (.10) (.36) (.31)
- ---------------------------------------------------------
Diluted EPS without non-recurring
charges and asset sale gains $1.03 $ .97 $ .88
- ---------------------------------------------------------
</TABLE>
RETAIL SALES
DOMESTIC WENDY'S
Domestic Wendy's retail sales include sales from company operated Wendy's
restaurants and sales of sandwich buns from the Company's bakery to Wendy's
franchisees. Retail sales decreased 8.1% to $1.2 billion in 1998 from $1.3
billion in 1997 which compared with a 1.9% increase over 1996. This reflects
company domestic Wendy's restaurants sold to franchisees or closed during the
last two years somewhat offset by 1998 being a 53-week year compared with 1997
and 1996 being 52-week years. Average unit net sales increased 5.7% in 1998
compared with 5.9% in 1997. Same-store sales increased approximately 2% in
company operated units in 1998. The average number of Wendy's company operated
domestic restaurants decreased by 177 in 1998 and 46 in 1997 and increased by 15
in 1996.
AA-1
<PAGE> 36
The following chart reflects average net sales per domestic Wendy's restaurant
for the last three years. The 1998 amounts have been adjusted to a comparable
52-week basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------
Company $1,174,000 $1,111,000 $1,049,000
Franchise $1,031,000 $1,017,000 $ 978,000
Total domestic $1,062,000 $1,042,000 $ 998,000
- ------------------------------------------------------------
</TABLE>
The average number of transactions in domestic company operated Wendy's
increased approximately 3.5% in 1998 compared with 2.8% in 1997 and 1.1% in
1996. Domestic selling prices increased .8% during the year, while 1997 and 1996
increased 1.4% and .7%, respectively. This is consistent with the Company's
continued emphasis on its everyday value strategy in the extremely intense
competitive environment.
TIM HORTONS
Retail sales include sales from company operated Tim Hortons (Hortons)
restaurants (primarily in the United States) and sales of dry goods and supplies
from Hortons' Canadian warehouses to Hortons' Canadian franchisees. Warehouse
sales increased 14.5% to $198.0 million (22.8% in local currency) in 1998 and
25.2% to $172.9 million in 1997, reflecting increases in the number and average
sales of Hortons' franchised restaurants serviced and the additional week of
operations in 1998. This was primarily a result of an increase in Hortons'
Canadian same-store sales, in local currency, of approximately 10.4% during 1998
and 8.0% in 1997. Retail sales from company operated units increased 63.7% to
$69.6 million in 1998 and 93.3% in 1997 from $22.0 million, primarily reflecting
the opening of new restaurants in the United States. Retail sales were
negatively impacted by approximately $16 million due to the decline in the value
of the Canadian dollar during 1998.
INTERNATIONAL WENDY'S
International Wendy's retail sales primarily represents sales from company
operated restaurants in Canada. Canadian Wendy's average restaurant sales for
company operated restaurants, in local currency, increased 4.1% in 1998,
following a 7.7% increase in 1997.
FRANCHISE REVENUES
DOMESTIC WENDY'S
Included in domestic Wendy's franchise revenues are royalty income from
franchisees, rental income from properties leased to franchisees, gains from the
sale of properties previously leased to franchisees, gains from franchising
Wendy's company restaurants and franchise fees. Franchise fees include charges
for various costs and expenses of the Company related to establishing a
franchisee's business. Reserves for uncollectible franchise revenues are
provided. Management reviews reserves on an ongoing basis and believes they are
adequate for franchise-related receivables.
Royalties, before reserves, increased $17.2 million or 12.8% in 1998, and $14.6
million or 12.2% in 1997. This was a result of an average of 304 more franchise
domestic Wendy's restaurants being open in 1998 and an average of 239 more in
1997, and one additional week of operations in 1998. Average sales at franchise
restaurants increased 1.4% in 1998 and 4.0% in 1997.
Pretax gains from franchising Wendy's restaurants amounted to $2.4 million in
1998 for 171 restaurants sold, compared with $80.5 million in 1997 for 228
restaurants and $63.2 million in 1996 for 179 restaurants. Additionally, pretax
gains resulting from the sale of properties which were previously leased to
franchisees by Wendy's amounted to $18.0 million in 1998, $475,000 in 1997 and
$3.4 million in 1996. Franchise fees were $3.9 million in 1998, $4.0 million in
1997 and $3.9 million in 1996.
Rental income from restaurants leased to franchisees increased $8.1 million, or
27.2%, in 1998 compared with an increase of $10.3 million, or 53.4%, in 1997,
reflecting a higher average number of restaurants being leased to franchisees
and an extra week of operations in 1998. At the end of 1998, 660 domestic
Wendy's restaurants were leased to franchisees, compared with 630 in 1997 and
462 in 1996.
TIM HORTONS
Included in franchise revenues are royalty income from franchisees, rental
income from properties leased to franchisees and franchise fees. Franchise fees
include charges for various costs and expenses related to establishing a
franchisee's business, and include initial equipment packages for the Hortons
franchises. Reserves for uncollectible franchise revenues are provided.
Royalties, before reserves, increased 16.0% in 1998 to $26.7 million and 17.6%
in 1997 to $23.1 million, reflecting the increase in the number of Canadian
franchise restaurants open and the positive same-store sales growth, in local
currency, of 10.4%, 8.0% and 4.7% in 1998, 1997 and 1996, respectively.
Franchise fees were $26.5 million in 1998, $30.3 million in 1997 and $28.6
million in 1996.
AA-2
<PAGE> 37
Rental income from restaurants leased to franchisees increased $10.7 million, or
16.4% in 1998 compared with an increase of $9.8 million, or 17.9% in 1997,
reflecting an additional number of restaurants being leased to Canadian
franchisees and an extra week of operations in 1998. At the end of 1998, 1,116
restaurants were leased to franchisees, versus 1,046 in 1997 and 904 in 1996.
Franchise revenues for Hortons were reduced approximately $9 million due to the
decline in the value of the Canadian dollar during 1998.
INTERNATIONAL WENDY'S
International Wendy's royalties were up slightly in 1998. Wendy's of Canada's
royalties, before reserves, increased to $5.6 million in 1998, or 15.4% as 23
new stores were opened, 21 company stores were acquired, and same-store unit
sales increased 2.5%. This benefit was offset by a decrease in Wendy's other
international markets where average sales decreased 2.3% in U.S. dollars,
although average sales increased 10.5% in local currency. The sales decrease
primarily reflected weak currencies in the Pacific region. In 1997, Wendy's of
Canada's royalties, before reserves, increased 24.3% to $4.9 million reflecting
increased franchise store openings. Other international royalties decreased 4.0%
from $9.3 million in 1998, while in 1997, royalties increased 7.0% from $8.7
million reflecting the opening of new restaurants. Franchise fees from Wendy's
other international markets decreased $743,000 reflecting 37 fewer restaurant
openings in 1998.
COST OF SALES AND RESTAURANT OPERATING COSTS
DOMESTIC WENDY'S
Domestic Wendy's cost of sales decreased to 58.9% of Wendy's domestic retail
sales in 1998 from 59.1% in 1997 and 60.1% in 1996. Domestic food costs, as a
percent of domestic retail sales, were 28.7% in 1998, 28.9% in 1997 and 30.0% in
1996. The improvement in the 1998 food costs, as a percent of retail sales,
reflects lower beef and lettuce costs and the impact of salad bar removals
during 1998. The reduction in food costs in 1997 reflected a reduction in french
fry costs, the favorable impact of new products such as Fresh Stuffed Pitas and
the benefit of a 1.4% increase in selling prices.
Domestic Wendy's labor costs were 26.4% of domestic retail sales in 1998,
compared with 26.3% in 1997 and 26.0% in 1996. The increase reflects higher
restaurant labor costs due to pressure on wage rates. This continues to be
driven by demand throughout the industry for labor to provide quality service to
customers. In 1997 and 1996, labor rates were also impacted by minimum wage
increases. Average wage rates increased 5.8% in 1998 and 4.4% in 1997. The
Company continues to control labor costs by adherence to its labor guidelines
and with store-level productivity programs. The impact of higher labor rates was
mostly offset by higher average sales per restaurant. Sales per labor hour
increased to $27.90 in 1998 compared with $26.66 in 1997, reflecting a 4.7%
increase in productivity following a 3.3% increase in 1997.
Domestic Wendy's restaurant operating costs, as a percent of domestic retail
sales, were 25.5% in 1998, 26.1% in 1997 and 26.6% in 1996. The reduced
percentage in 1998 reflects lower utility and marketing costs while 1997
reflected lower marketing expenditures, with both years benefiting from the
leveraging of higher average sales. Operating costs also benefited from closing
underperforming restaurants in 1998.
Wendy's domestic company operating margin was 15.6% for 1998, compared with
14.8% in 1997 and 13.3% in 1996. The improvement in both years reflects
favorable food costs and restaurant operating costs as discussed above. The
following chart details the margin:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1998 1997 1996
% of Sales % of Sales % of Sales
<S> <C> <C> <C>
- -------------------------------------------------------------
Retail sales 100.0% 100.0% 100.0%
Cost of sales 58.9 59.1 60.1
Company restaurant
operating costs 25.5 26.1 26.6
- -------------------------------------------------------------
Domestic company
operating margin 15.6% 14.8% 13.3%
- -------------------------------------------------------------
</TABLE>
TIM HORTONS
The Hortons Canadian warehouse cost of sales increased 13.6% (21.8% in local
currency) to $170.0 million in 1998 and 29.0% to $149.7 million in 1997
reflecting additional sales to Canadian franchisees due to the increased number
of restaurants serviced and higher average sales per restaurant. Warehouse cost
of sales remained relatively constant as a percent of warehouse sales. The
warehouse distributes primarily dry goods such as flour, sugar and coffee to
Hortons' franchisees. Cost of sales for company operated units amounted to $44.2
million, $21.8 million and $10.0 million in 1998, 1997 and 1996, respectively,
reflecting the increase in the number of stores in the United States.
OPERATING COSTS
DOMESTIC WENDY'S
Domestic Wendy's operating costs include rent expense related to properties
subleased to franchisees and costs
AA-3
<PAGE> 38
related to operating and maintaining the bakery. Rent expense increased 27.9% or
$2.1 million in 1998 and 77.0% or $3.3 million in 1997 reflecting the growth in
the number of properties being leased and then subleased to franchisees. There
were 247 total restaurants leased by the Company and then subleased to
franchisees in 1998 versus 200 in 1997 and 161 in 1996.
TIM HORTONS
Hortons' operating costs include rent expense related to properties subleased 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 and costs to operate and maintain
the warehouse are also included in operating costs.
Rent expense increased 12.5% or $2.9 million in 1998 and 11.5% or $2.4 million
in 1997 reflecting the growth in the number of properties being leased and then
subleased to Canadian franchisees. There were 866 total restaurants leased by
Hortons and then subleased to franchisees at year-end 1998 versus 765 in 1997
and 654 in 1996. Cost of equipment decreased 8.8% or $1.8 million in 1998 but
increased 1.7% to $20.4 million in 1997 reflecting a reduced number of
restaurants franchised in 1998 following an increase in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for 1997 included a non-recurring charge in
connection with strategic initiatives taken in the fourth quarter of 1997 (see
Note 3 to the consolidated financial statements). This charge totaled $72.7
million pretax, and included provisions to franchise Wendy's restaurants or
close underperforming restaurants, write down information technology system
assets due to the implementation of a new enterprise-wide information technology
system and store management system, write off deferred pre-opening costs, remove
salad bars from company operated Wendy's and provide for various contingencies.
Excluding the 1997 non-recurring charges, general and administrative expenses
increased $23.2 million in 1998 and $23.8 million in 1997 and, as a percent of
revenues, were 9.4%, 7.9% and 7.2% in 1998, 1997 and 1996, respectively. The
higher percentage in 1998 reflects the decrease in revenues from closing and
refranchising Wendy's restaurants throughout the last three years. In addition,
1998 reflects increased professional services for technology projects,
development initiatives, charges for legal issues, spending to support Hortons
expansion in the United States and an additional week of operations. The
increase in 1997 includes salaries and benefits and other investments to expand
Wendy's and Hortons in existing markets, introduce the Hortons concept to the
United States, and further develop Wendy's outside North America. Reserves
originally provided for Hortons environmental issues were reduced $2.9 million
in 1997 and $6.6 million in 1996.
WRITE-DOWN OF CERTAIN INTERNATIONAL ASSETS AND RELATED CHARGES
The Company incurred a pretax charge for the write-down of impaired fixed assets
for the United Kingdom subsidiary amounting to $9.1 million. Additionally, the
Company took a pretax charge of $24.8 million to write off various
underperforming and non-recoverable assets and settle a franchisee dispute in
Argentina (see Note 2 to the consolidated financial statements).
OTHER EXPENSE AND INCOME
Other expense decreased $4.2 million in 1998 primarily due to lower charges for
store closures, remodeling and conversion costs. For 1997, these expenses
increased $7.6 million over 1996 reflecting significantly higher charges for
store closures, remodeling and conversion costs, as well as a pay out for an
international arbitration settlement.
INTEREST
Net interest expense included interest income of $28.0 million in 1998 compared
with $25.3 million in 1997 and $16.2 million in 1996. Interest income increased
in 1997 primarily as a result of the increase in notes receivable taken for
restaurant dispositions. Interest expense was $30.0 million in 1998, $28.9
million in 1997 and $23.0 million in 1996, which includes distributions on the
company-obligated mandatorily redeemable preferred securities. Interest expense
increased in 1997 reflecting additional borrowings in 1996.
INCOME TAXES
The effective income tax rate for 1998 was 40.6% compared with 40.5% for 1997
and 38.8% for 1996. The increases reflected the impact of the $33.9 million
international charges in 1998 and the $72.7 million non-recurring charge in
1997. Before the non-recurring charges each year, the effective income tax rates
were 38.5% for 1998 and 38.2% for 1997.
AA-4
<PAGE> 39
FINANCIAL POSITION
OVERVIEW
The Company maintains a strong balance sheet to support system growth and
financial flexibility. Although the Company took actions to reduce assets in
1998, total assets were still almost two-and-one half times liabilities. The
debt-to-equity ratio has remained very consistent over the last three years and
was 23% at year-end 1998 compared with 21% at year-end 1997 (company-obligated
mandatorily redeemable preferred securities are excluded from the debt-to-equity
ratio). Standard & Poors and Moody's rate the Company's senior unsecured debt
BBB+ and Baa-1, respectively.
Total assets decreased $103.7 million from 1997 reflecting the strategic
initiatives to franchise restaurants or close underperforming restaurants,
reduce notes receivable and use cash for common share repurchases. Property and
equipment increased $15.3 million reflecting capitalized costs in connection
with the new enterprise-wide and store management information initiatives offset
by fewer company operated restaurants. Notes receivable decreased $46.3 million
primarily due to a plan to monetize assets with overall returns lower than the
Company's cost of capital. A total of $211 million of cash was used to
repurchase 9.3 million common shares in 1998. Return on average assets was 12.8%
in 1998 and 13.4% in 1997, with both years reflecting significant non-recurring
charges. In 1996, when there were no similar charges, the return was 17.6%.
Shareholders' equity was reduced $116.2 million reflecting the treasury shares
purchased in 1998. This impact was somewhat offset by a $92.4 million increase
in retained earnings. Return on average equity was 11.0% in 1998 and 11.5% in
1997 as both years included significant non-recurring charges. In 1996, when
there were no similar charges, the return was 16.6%.
CASH FLOW
Cash provided by operating activities was $233.8 million in 1998, compared with
$223.4 million in 1997 and $189.9 million in 1996. Cash proceeds of $114.9
million were realized in 1998 primarily from the sale of Wendy's company
operated restaurants and sale of properties previously leased to franchisees,
while $93.9 million was provided in 1997 and $98.1 million was provided in 1996.
The Company also received $68.7 million, $17.3 million and $11.6 million in
principal payments of notes receivable in 1998, 1997 and 1996, respectively, of
which $48.0 million in 1998 was due to franchisee refinancings (see Note 1 to
the consolidated financial statements). The Company issued $200 million in
company-obligated mandatorily redeemable preferred securities in 1996.
In all three years, cash provided by operating activities and other sources was
primarily used for capital expenditures, dividend payments, debt repayment,
acquisitions of franchised restaurants, purchase of real estate for development
or conversion, and during 1998, repurchase of common stock. Over the last three
years, the Company used $74.1 million to acquire Wendy's franchised restaurants
and $50.8 million to purchase competitors' concepts to be converted to Wendy's
or Hortons. The Company repaid $41.5 million in long-term obligations during the
last three years. In 1998, the Company repurchased common stock for $211
million.
During 1998, capital expenditures amounted to $242 million. New restaurant
expenditures amounted to $147 million; $48 million was spent for improvements to
existing restaurants; and $47 million was spent for other additions. Plans for
1999 are to open about 370 to 390 new Wendy's restaurants, of which
approximately 115 to 120 are expected to be company operated Wendy's sites, and
190 to 200 new Hortons. Capital expenditures are expected to be approximately
$300 million in 1999, including approximately $74 million for Hortons.
Cash flow from operations, cash and investments on hand, possible asset sales,
cash from repayment of notes receivable, 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 1999,
including cash for capital expenditures, future acquisitions of restaurants from
franchisees, stock repurchases or other corporate purposes.
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.
TIM HORTONS
Hortons is the second largest quick-service restaurant chain in Canada and at
year-end 1998 had 1,567 restaurants open in Canada and 100 open in the United
States. 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
AA-5
<PAGE> 40
without drive-through windows, double-drive through buildings, and various other
satellites, kiosks and carts. In addition, combination units shared with Wendy's
restaurants have been opened. Future expansion in Canada, where the chain is
profitable, is anticipated to be primarily through franchising and the Company
plans to open about 170 to 175 Canadian Hortons in 1999. Hortons will slow new
unit development in the United States, and plans to open 20 to 25 stores in
1999. In the United States, Hortons is a new concept in the investment phase and
not currently profitable.
INTERNATIONAL WENDY'S
Canada is the Company's largest international market and makes up the majority
of company operated international restaurants. In 1998, 30 Wendy's opened in
Canada, bringing total restaurants to 267 at year end. In 1999, the Company
plans to open 40 to 45 Wendy's restaurants in Canada.
At year-end 1998, there were 390 international Wendy's open outside Canada, with
45 restaurants opened in 1998. International growth outside Canada continues to
be primarily through franchising, but company operated units are also planned.
In early 1999, the Company acquired restaurant sites from its former joint
venture partner in Argentina. The Company plans on opening 40 to 45 new Wendy's
in international markets outside North America in 1999, with the primary focus
on Latin America, and intends to increase international development in future
years. International operations in Canada are profitable, however operations
outside of Canada are not yet profitable, particularly in the United Kingdom.
MANAGEMENT'S OUTLOOK
The Company's initiatives implemented in 1998 are focused on increasing
shareholder value over time. These initiatives include improving store-level
productivity to increase margins, disposing of underperforming restaurants,
writing down underperforming and non-recoverable assets, accelerating restaurant
development in North America, monetizing lower return assets, repurchasing
common shares, and implementing the new enterprise-wide information system and
new store management system.
Management intends to allocate resources to improve long-term return on assets
and invested capital, as well as, stay focused on established operational
strategies of exceeding customer expectations, foster a performance-driven
culture, deliver a balanced message of brand equity plus value in marketing and
grow a healthy restaurant system. The Company believes its success depends on
providing everyday value, quality and variety, not discounting. Management
believes in reinvesting in its restaurants to maintain a fresh image, provide
convenience for its customers and increase the overall efficiency of restaurant
operations. The goal of these strategies is to increase average sales primarily
through greater customer traffic in the restaurants. The Company expects to face
some cost pressures with the domestic Wendy's business in 1999, particularly
with chicken, produce and labor costs. The Company also expects to manage
corporate and field-level costs to control overall general and administrative
expense growth.
New restaurant development continues to be very important to the Company. Both
Wendy's and Hortons restaurant concepts are underpenetrated in most 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
owned unit must meet minimum operational and financial requirements before being
approved for development. A total of 460 new restaurants were added in 1998.
Current plans call for approximately 560 to 590 new units to open in 1999. The
primary focus will be on core operations of Wendy's in North America and Hortons
Canada. While the majority of units will continue to be traditional sites, the
Company plans to continue adding special sites such as inside shopping malls and
universities. The Company expects pretax gains generated from selling company
restaurants or other asset sale transactions to be less than gains in 1998
($21.4 million in 1998, $80.9 million in 1997 and $66.6 million in 1996).
The strength and vitality of the franchise community is an essential part of the
continued success of the Company. Various strategies have been developed to
assist individual franchisees and the overall franchise system. The goal of
these strategies is to encourage responsible new restaurant development, attract
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
the concept does not yet enjoy the superior brand recognition it has in Canada.
The entire domestic quick-service restaurant industry is competitive and there
are many established baked goods outlets. Although Hortons is not currently
profitable in the United States, the Company's strategy is to enhance brand
awareness, increase same-store sales, build coffee
AA-6
<PAGE> 41
loyalty and attract additional franchisees. In 1999, the Company will limit new
development to approximately 20 to 25 new units in the United States.
The Company remains optimistic about long-term opportunities for international
operations. Most of Wendy's development outside North America is with
franchisees who are affected by adverse economic and political conditions, such
as those recently experienced in Asia. Economic and competitive pressures remain
very challenging in Europe and the Middle East. Although the Canadian economy
remains strong, the Canadian dollar has weakened in the last two years and
Wendy's company operations and Hortons' franchise operations were negatively
impacted. The Company does not believe these conditions change the long-term
potential of the international business, but they could influence short-term
results.
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 year 2000 compliant. This system is expected to be implemented during
1999. The Company has also implemented a plan to remediate existing store
management systems. These systems are expected to be implemented 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. Of the systems modified, approximately 75% have been
tested and put into production. It is expected that substantially all testing of
those systems will be completed by the end of the second 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.
The modifications to existing software are expected to cost approximately $4
million, of which $1 million was expensed in 1997 and $1.4 million was expensed
in 1998. 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 a significant relationship to determine their readiness with respect to
the year 2000 issue. These third parties include food and paper suppliers,
restaurant equipment suppliers and banks. 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 a significant relationship and to discuss any material year 2000
concerns that are identified. The Company intends to develop contingency plans
by the middle of 1999 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 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 the 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
issues. 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
AA-7
<PAGE> 42
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
Financial Accounting Standards Number 133 -- "Accounting for Derivative
Instruments and Hedging Activities" was issued in June 1998. This statement
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. This statement is effective
for years beginning after June 15, 1999. The Company is in the process of
evaluating the impact of this statement.
SAFE HARBOR STATEMENT
Certain information contained in this Appendix to the Proxy Statement,
particularly information regarding future economic performance and finances,
plans and objectives of management, is forward looking. In some cases,
information regarding certain important factors that could cause actual results
to differ materially from any such forward-looking statement appears together
with such statement. In addition, the following factors, in addition to other
possible factors not listed, could affect the Company's actual results and cause
such results to differ materially from those expressed in forward-looking
statements. These factors include competition within the quick-service
restaurant industry, which remains extremely intense, both domestically and
internationally, with many competitors pursuing heavy price discounting; changes
in economic conditions; changes in consumer perceptions of food safety; harsh
weather, particularly in the first and fourth quarters; changes in consumer
tastes; labor and benefit costs; legal claims; risk inherent to international
development (including currency fluctuations); the continued ability of the
Company and its franchisees to obtain suitable locations and financing for new
restaurant development; governmental initiatives such as minimum wage rates,
taxes and possible franchise legislation; 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 to the Company's
Form 10-K filed with the Securities and Exchange Commission and in this Appendix
to the Proxy Statement for the 1999 Annual Meeting of Shareholders.
WENDY'S DOMESTIC AND INTERNATIONAL RESTAURANTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
WENDY'S COMPANY
TOTAL WENDY'S OPERATED WENDY'S FRANCHISED
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Open at beginning of year 5,207 4,933 4,667 1,202 1,315 1,311 4,005 3,618 3,356
Opened 299 371 343 68 97 89 231 274 254
Closed (173) (97) (77) (70) (15) (10) (103) (82) (67)
Acquisitions within the
system 178 261 283 7 33 104 171 228 179
Dispositions within the
system (178) (261) (283) (171) (228) (179) (7) (33) (104)
- ---------------------------------------------------------------------------------------------------------------------------------
Open at end of year 5,333 5,207 4,933 1,036 1,202 1,315 4,297 4,005 3,618
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AA-8
<PAGE> 43
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Fifty-three weeks ended January 3, 1999 and fifty-two weeks ended December 28,
1997 and December 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Retail sales $1,586,145 $1,651,689 $1,566,888
Franchise revenues 362,094 385,641 330,256
- ----------------------------------------------------------------------------------------------
1,948,239 2,037,330 1,897,144
- ----------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 995,966 1,026,026 976,666
Company restaurant operating costs 359,815 389,534 379,404
Operating costs 67,318 63,175 54,710
General and administrative expenses (Note 3) 183,486 232,983 136,461
Depreciation and amortization of property and
equipment 95,396 95,638 88,957
Write-down of certain international assets and
related charges (Note 2) 33,893
Other expense (income) 2,665 6,899 (683)
Interest, net 2,039 3,604 6,812
- ----------------------------------------------------------------------------------------------
1,740,578 1,817,859 1,642,327
- ----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 207,661 219,471 254,817
INCOME TAXES 84,303 88,972 98,869
- ----------------------------------------------------------------------------------------------
NET INCOME $ 123,358 $ 130,499 $ 155,948
- ----------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $.96 $.99 $1.23
- ----------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $.95 $.97 $1.19
- ----------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $.24 $.24 $.24
- ----------------------------------------------------------------------------------------------
BASIC SHARES 128,353 131,595 126,461
- ----------------------------------------------------------------------------------------------
DILUTED SHARES 137,089 140,738 133,684
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-9
<PAGE> 44
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 3, 1999 and December 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 160,743 $ 234,262
Accounts receivable, net 74,737 66,755
Notes receivable, net 19,952 13,897
Deferred income taxes 23,177 31,007
Inventories and other 35,085 35,633
- --------------------------------------------------------------------------------------
313,694 381,554
- --------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 1,280,794 1,265,500
NOTES RECEIVABLE, NET 126,366 178,681
GOODWILL, NET 50,723 51,346
DEFERRED INCOME TAXES 15,090 15,117
OTHER ASSETS 51,280 49,482
- --------------------------------------------------------------------------------------
$1,837,947 $1,941,680
- --------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 101,100 $ 100,966
Accrued expenses
Salaries and wages 30,432 31,377
Taxes 31,105 15,830
Insurance 34,944 30,899
Other 46,432 26,391
Current portion of long-term obligations 5,399 7,151
- --------------------------------------------------------------------------------------
249,412 212,614
- --------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS
Term debt 205,371 205,872
Capital leases 40,676 43,891
- --------------------------------------------------------------------------------------
246,047 249,763
- --------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 60,707 81,017
OTHER LONG-TERM LIABILITIES 13,714 14,052
COMMITMENTS AND CONTINGENCIES
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY 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: 133,415,000 and 132,396,000
shares, respectively 11,796 11,595
Capital in excess of stated value 370,288 353,327
Retained earnings 931,603 839,215
Accumulated other comprehensive expense (33,355) (18,191)
- --------------------------------------------------------------------------------------
1,280,332 1,185,946
Treasury stock, at cost: 9,410,000 and 129,000 shares,
respectively (212,265) (1,712)
- --------------------------------------------------------------------------------------
1,068,067 1,184,234
- --------------------------------------------------------------------------------------
$1,837,947 $1,941,680
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-10
<PAGE> 45
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fifty-three weeks ended January 3, 1999 and fifty-two weeks ended December 28,
1997 and December 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $123,358 $130,499 $155,948
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 100,218 104,529 94,981
Deferred income taxes (12,767) 802 23,394
Gain from property dispositions, net (6,646) (20,044) (63,314)
Net reserves for receivables and other contingencies 1,982 352 (8,855)
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions of
restaurants
Accounts and notes receivable (489) (21,101) (3,443)
Inventories and other (1,883) (1,476) (6,476)
Accounts payable and accrued expenses 27,553 6,391 (6,956)
Decrease (increase) in other assets 1,330 12,048 (571)
Other, net 1,180 11,402 5,220
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 233,836 223,402 189,928
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from property dispositions 114,944 93,893 98,091
Capital expenditures (241,509) (294,552) (307,284)
Acquisition of franchises (4,775) (10,226) (59,119)
Principal payments of notes receivable 68,658 17,265 11,576
Other investing activities (11,549) (7,359) (5,253)
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (74,231) (200,979) (261,989)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 14,397 30,567 12,192
Repurchase of common stock (210,553)
Principal payments on long-term obligations (5,998) (6,089) (29,434)
Dividends paid on common stock (30,970) (31,595) (30,436)
Proceeds from issuance of trust preferred securities 200,000
Payments on amounts due officer, net (63,221)
Other financing activities (4,211)
- ----------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (233,124) (7,117) 84,890
- ----------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (73,519) 15,306 12,829
- ----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 234,262 218,956 206,127
- ----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $160,743 $234,262 $218,956
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 29,592 $ 29,186 $ 30,556
- ----------------------------------------------------------------------------------------------
Income taxes paid 73,573 79,941 71,840
- ----------------------------------------------------------------------------------------------
Debt converted to common stock 98,714
- ----------------------------------------------------------------------------------------------
Capital lease obligations incurred 4,998 6,811 6,156
- ----------------------------------------------------------------------------------------------
Notes receivable from restaurant dispositions 28,603 70,839 53,231
- ----------------------------------------------------------------------------------------------
Acquisition of franchises
- ----------------------------------------------------------------------------------------------
Fair value of assets acquired 4,775 19,106 64,803
- ----------------------------------------------------------------------------------------------
Cash paid 4,775 10,226 59,119
- ----------------------------------------------------------------------------------------------
Liabilities assumed 8,880 5,684
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-11
<PAGE> 46
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fifty-three weeks ended January 3, 1999 and fifty-two weeks ended December 28,
1997 and December 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK AT STATED VALUE
Balance at beginning of period $ 11,595 $ 11,315 $ 10,399
Exercise of options 101 280 103
Conversion of exchangeable shares and subordinated
debentures 100 813
- ---------------------------------------------------------------------------------------------------
Balance at end of period 11,796 11,595 11,315
- ---------------------------------------------------------------------------------------------------
CAPITAL IN EXCESS OF STATED VALUE
Balance at beginning of period 353,327 312,570 199,804
Exercise of options, including tax benefits 17,061 40,757 14,865
Conversion of exchangeable shares and subordinated
debentures (100) 97,901
- ---------------------------------------------------------------------------------------------------
Balance at end of period 370,288 353,327 312,570
- ---------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 839,215 740,311 614,799
Net income 123,358 130,499 155,948
Dividends paid (30,970) (31,595) (30,436)
- ---------------------------------------------------------------------------------------------------
Balance at end of period 931,603 839,215 740,311
- ---------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE EXPENSE (33,355) (18,191) (5,712)
- ---------------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance at beginning of period (1,712) (1,712) (1,712)
Purchase of common stock (210,553)
- ---------------------------------------------------------------------------------------------------
Balance at end of period (212,265) (1,712) (1,712)
- ---------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY $1,068,067 $1,184,234 $1,056,772
- ---------------------------------------------------------------------------------------------------
COMMON SHARES
Balance issued at beginning of period 115,946 113,148 103,993
Exercise of options 1,019 2,798 1,031
Conversion of exchangeable shares and subordinated
debentures 1,000 8,124
- ---------------------------------------------------------------------------------------------------
Balance issued at end of period 117,965 115,946 113,148
- ---------------------------------------------------------------------------------------------------
TREASURY SHARES
- ---------------------------------------------------------------------------------------------------
Balance at beginning of period (129) (129) (129)
Purchase of common stock (9,281)
- ---------------------------------------------------------------------------------------------------
Balance at end of period (9,410) (129) (129)
- ---------------------------------------------------------------------------------------------------
COMMON SHARES ISSUED AND OUTSTANDING 108,555 115,817 113,019
- ---------------------------------------------------------------------------------------------------
COMMON SHARES ISSUABLE UPON CONVERSION OF EXCHANGEABLE
SHARES (1,000 shares purchased and converted in 1998) 15,450 16,450 16,450
- ---------------------------------------------------------------------------------------------------
COMMON SHARES ISSUED AND OUTSTANDING, INCLUDING
EXCHANGEABLE SHARES 124,005 132,267 129,469
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-12
<PAGE> 47
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fifty-three weeks ended January 3, 1999 and fifty-two weeks ended December 28,
1997 and December 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $123,358 $130,499 $155,948
OTHER COMPREHENSIVE EXPENSE
Translation adjustments (net of taxes of $10,291, $8,005
and $1,100, respectively) (15,057) (11,741) (1,736)
Other (net of taxes of $90, $536 and $426, respectively) (107) (738) 535
- --------------------------------------------------------------------------------------------
(15,164) (12,479) (1,201)
- --------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $108,194 $118,020 $154,747
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-13
<PAGE> 48
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 and franchising of
quick-service restaurants serving high-quality food. At year-end 1998, the
Company and its franchise owners operated 5,333 restaurants under the name
"Wendy's" in 50 states and in 31 other countries and territories. Additionally,
the Company and its franchise owners operated 1,567 restaurants in Canada and
100 units in the United States under the name "Tim Hortons".
FISCAL YEAR
The Company's fiscal year ends on the Sunday nearest to December 31. The 1998
fiscal year consisted of 53 weeks and the 1997 and 1996 fiscal years consisted
of 52 weeks.
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Certain reclassifications have been made for prior years to conform with the
1998 presentation.
For purposes of the Consolidated Statements 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 claims, income taxes, useful lives of long-lived assets
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.
INVENTORIES
Inventories, amounting to $19.6 million and $19.3 million at January 3, 1999 and
December 28, 1997, 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 using the straight-line method in
amounts adequate to amortize costs over the following estimated useful lives:
buildings, up to 40 years; leasehold improvements, up to 25 years; restaurant
equipment, up to 15 years; other equipment, up to 10 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 generally expensed as incurred.
Major improvements are capitalized, while maintenance and repairs are expensed
when incurred.
Property and equipment, at cost, at each year end consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- -------------------------------------------------------
Land $ 317,895 $ 335,258
Buildings 628,477 601,616
Leasehold improvements 310,402 313,229
Restaurant equipment 358,327 394,702
Other equipment 104,609 84,039
Capital leases 63,502 74,566
- -------------------------------------------------------
1,783,212 1,803,410
- -------------------------------------------------------
Accumulated depreciation and
amortization (502,418) (537,910)
- -------------------------------------------------------
$1,280,794 $1,265,500
- -------------------------------------------------------
</TABLE>
GOODWILL
Goodwill is amortized using the straight-line method over periods ranging from
10 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 future cash flows, recognizes impairments when a
permanent decline in value has occurred. Accumulated amortization of goodwill
was $23.4 million and $21.7 million at January 3, 1999 and December 28, 1997,
respectively.
NOTES RECEIVABLE
The carrying amount of notes receivable approximates fair value.
During the third quarter 1998, the Company entered into an agreement with a
third party lender that permits such lender to contact the Company's franchisees
having
AA-14
<PAGE> 49
notes payable to the Company. The lender may offer to refinance such notes,
generally on terms more favorable to the franchisees than existing terms, and
enter into commitments to refinance such notes on or before March 31, 1999. The
Company is paid a fee by the lender for each individual note refinancing. As of
January 3, 1999, a total of $30.0 million in notes receivable had been
refinanced under this program resulting in $977,000 in fee income to the
Company. Additionally, other note refinancings amounted to $18.0 million. The
fee income is recorded in franchise revenues.
PRE-OPENING COSTS
Effective December 28, 1997, the Company recorded a special pretax charge of
approximately $6.0 million to reflect the decision to write off all existing
pre-opening costs and to thereafter expense such costs as incurred. The Company
did not separately state this change ($2.5 million pretax) as a cumulative
effect of a change in accounting principle due to the immaterial effect of the
change. Previously, the Company capitalized certain operating costs incurred
prior to the opening of a new restaurant and amortized such costs over a
one-year period (see Note 3).
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain internally developed software costs which are
amortized over a ten-year period. At January 3, 1999 and December 28, 1997,
capitalized software development costs, net of accumulated amortization,
amounted to $22.0 million and $1.0 million, respectively.
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 11).
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 January 3, 1999, the Company and its franchise owners operated 267 Wendy's
restaurants and 1,567 Tim Hortons restaurants in Canada. Additionally, 390
Wendy's restaurants were operated by the Company and its franchise owners in
other foreign countries and territories. Assets and liabilities are translated
at the year-end exchange rates and revenues and expenses are translated at
average exchange rates for the period. Resulting translation adjustments are
recorded as a component of shareholders' equity and in other comprehensive
income. The functional currency of each foreign subsidiary is the respective
local currency.
NET INCOME PER SHARE
Basic earnings per common share are computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during each period. Diluted computations include dilutive potential common
shares and company-obligated mandatorily redeemable preferred securities, when
dilutive, and the elimination of related expenses, net of income taxes.
AA-15
<PAGE> 50
The computation of basic and diluted earnings per common share for each year is
shown below:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) 1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Income for
computation of
basic earnings per
common share $123,358 $130,499 $155,948
Interest savings, net
of taxes, on
assumed conversions 6,359 6,034 2,759
- -------------------------------------------------------
Income for
computation of
diluted earnings
per common share $129,717 $136,533 $158,707
- -------------------------------------------------------
Weighted average
shares for
computation of
basic earnings per
common share 128,353 131,595 126,461
- -------------------------------------------------------
Incremental shares on
assumed issuance
and repurchase of
stock options 1,163 1,570 2,749
Assumed conversions 7,573 7,573 4,474
- -------------------------------------------------------
Weighted average
shares for
computation of
diluted earnings
per common share 137,089 140,738 133,684
- -------------------------------------------------------
Basic earnings per
common share $.96 $.99 $1.23
- -------------------------------------------------------
Diluted earnings per
common share $.95 $.97 $1.19
- -------------------------------------------------------
</TABLE>
NOTE 2 INTERNATIONAL CHARGES
The Company recorded a pretax charge in the fourth quarter 1998 of $33.9 million
related to its international operations. This charge includes $24.8 million for
the write-down of underperforming and nonrecoverable assets in Argentina and a
related franchisee settlement. The charge also includes $9.1 million for the
write-down of assets in the United Kingdom in accordance with Statement of
Financial Accounting Standards Number 121 -- "Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". Such charge resulted from the
inability of the United Kingdom operations to produce non-discounted cash flows
from long-lived assets.
NOTE 3 NON-RECURRING CHARGES -- 1997
In the fourth quarter of 1997, the Company initiated several strategic actions
that resulted in pretax charges of $72.7 million, which are included in general
and administrative expenses in the 1997 Consolidated Statement of Income. The
charges were primarily to establish the proper value of nonproducing or
underperforming assets. The Company identified 82 underperforming Wendy's
restaurants of which substantially all were closed or franchised in 1998. The
plan also included a provision for disposition of surplus property. A charge of
$35.0 million was provided to write down the assets to disposal value. Also, a
decision was made to implement a new enterprise-wide information technology
system and a new store management system. A charge of $15.7 million was
recognized to write down the existing information system to net realizable
value. A decision to remove salad bars from most company operated Wendy's
restaurants resulted in an asset write-down of $7.1 million. The salad bar
removals were completed during 1998.
The Company changed the accounting treatment for pre-opening costs at year-end
1997 to begin expensing such costs as they are incurred. The write-off of the
balance of pre-opening costs was $6.0 million. The remaining $8.9 million
included provisions for various legal and international contingencies and other
asset write downs.
NOTE 4 TERM DEBT
Term debt at each year end consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- ------------------------------------------------------
Notes, unsecured, and mortgages
payable with a weighted
average interest rate of 8.0%,
due in installments through
2010 $ 12,657 $ 13,518
6.35% Notes, due December 15,
2005 97,133 96,815
7% Debentures, due December 15,
2025 96,543 96,502
- ------------------------------------------------------
206,333 206,835
Current portion (962) (963)
- ------------------------------------------------------
$205,371 $205,872
- ------------------------------------------------------
</TABLE>
The 6.35% notes and 7% debentures are unsecured and unsubordinated. They are not
redeemable by the Company prior to maturity.
Based on future cash flows for all term debt, the fair value was approximately
$215 million at January 3, 1999 and $214 million at December 28, 1997.
AA-16
<PAGE> 51
The combined aggregate amounts of future maturities for all term debt are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS)
<S> <C>
- ------------------------------------------------------
1999 $ 962
2000 1,033
2001 965
2002 1,016
2003 996
Later years 201,361
- ------------------------------------------------------
$206,333
- ------------------------------------------------------
</TABLE>
The Company has an unused revolving credit facility totaling $167 million at
January 3, 1999. The rate is LIBOR plus a spread based on the Company's debt
rating. The spread is currently .25%. The Company is also charged a commitment
fee on the unused portion of the credit facility. The fee varies based on the
Company's debt rating and is currently .10%.
Net interest expense for each year consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------
Total interest charges $19,845 $18,936 $20,257
Distributions on trust
preferred securities 10,164 9,973 2,772
Interest income (27,970) (25,305) (16,217)
- ------------------------------------------------------
$ 2,039 $ 3,604 $ 6,812
- ------------------------------------------------------
</TABLE>
NOTE 5 COMPANY-OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES
In 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 of Wendy's due
September 15, 2026 (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 January 3, 1999 and $215 million at December
28, 1997.
NOTE 6 LEASES
The Company occupies land and buildings and uses equipment under terms of
numerous lease agreements. 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 cost of maintenance, insurance
and property taxes.
At each year end capital leases consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- ------------------------------------------------------
Buildings $63,502 $74,566
Accumulated amortization (26,873) (34,967)
- ------------------------------------------------------
$36,629 $39,599
- ------------------------------------------------------
</TABLE>
At January 3, 1999, 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>
- --------------------------------------------------------
1999 $ 7,870 $ 51,946
2000 6,743 48,338
2001 6,097 44,919
2002 5,792 42,084
2003 5,504 38,880
Later years 48,942 235,503
- --------------------------------------------------------
Total minimum lease payments 80,948 $461,670
- --------------------------------------------------------
Amount representing interest (35,835)
- --------------------------------------------------------
Present value of net minimum lease
payments 45,113
Current portion (4,437)
- --------------------------------------------------------
$40,676
- --------------------------------------------------------
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease rentals
of $4.9 million under capital
AA-17
<PAGE> 52
leases, and $235.8 million under operating leases due in the future under
noncancelable subleases.
Rent expense for each year is included in company restaurant operating costs and
in operating costs and amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------
Minimum rents $55,376 $56,512 $50,806
Contingent rents 16,409 13,737 12,817
- -------------------------------------------------------
$71,785 $70,249 $63,623
- -------------------------------------------------------
</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 10 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) 1998 1997
<S> <C> <C>
- ------------------------------------------------------
Total minimum lease receipts $ 23,217 $ 24,708
Estimated residual value 2,667 3,308
Amount representing unearned
interest (12,093) (12,497)
Current portion, included in
accounts receivable (901) (888)
- ------------------------------------------------------
$ 12,890 $ 14,631
- ------------------------------------------------------
</TABLE>
At each year end assets leased under operating leases consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- ------------------------------------------------------
Land $134,680 $136,288
Buildings 333,965 314,155
Equipment 36,861 43,468
- ------------------------------------------------------
505,506 493,911
Accumulated amortization (105,450) (102,995)
- ------------------------------------------------------
$400,056 $390,916
- ------------------------------------------------------
</TABLE>
At January 3, 1999, future minimum lease receipts were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FINANCING OPERATING
(IN THOUSANDS) LEASES LEASES
<S> <C> <C>
- ---------------------------------------------------------
1999 $ 2,148 $ 43,296
2000 2,088 42,634
2001 1,920 41,005
2002 1,855 38,162
2003 1,804 35,751
Later years 13,402 107,330
- ---------------------------------------------------------
$23,217 $308,178
- ---------------------------------------------------------
</TABLE>
Rental income for each year is included in franchise revenues and amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------
Minimum rents $ 42,162 $39,643 $35,267
Contingent rents 72,821 55,968 39,622
- -------------------------------------------------------
$114,983 $95,611 $74,889
- -------------------------------------------------------
</TABLE>
NOTE 7 INCOME TAXES
The provision for income taxes each year consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------
Current
Federal $ 59,315 $54,114 $50,658
State and local 6,155 7,254 4,290
Foreign 31,600 26,802 20,527
- -------------------------------------------------------
97,070 88,170 75,475
- -------------------------------------------------------
Deferred
Federal (8,935) (3,421) 14,235
State and local (926) 265 1,258
Foreign (2,906) 3,958 7,901
- -------------------------------------------------------
(12,767) 802 23,394
- -------------------------------------------------------
$ 84,303 $88,972 $98,869
- -------------------------------------------------------
</TABLE>
Income before income taxes for foreign operations was $69.9 million, $68.9
million and $67.8 million for 1998, 1997 and 1996, respectively.
AA-18
<PAGE> 53
The temporary differences which give rise to deferred tax assets and liabilities
at each year end consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- ---------------------------------------------------------
Deferred tax assets
Lease transactions $ 3,584 $ 4,012
Reserves not currently deductible 15,097 30,523
Foreign operations 19,703 11,842
All other 6,349 5,230
- ---------------------------------------------------------
44,733 51,607
- ---------------------------------------------------------
Valuation allowance (6,370) (4,734)
- ---------------------------------------------------------
$38,363 $46,873
- ---------------------------------------------------------
Deferred tax liabilities
Lease transactions $ 5,207 $ 5,854
Property and equipment basis
differences 27,914 35,582
Installment sales 14,590 33,334
Capitalized expenses deducted for
tax 7,147 130
All other 5,945 6,866
- ---------------------------------------------------------
$60,803 $81,766
- ---------------------------------------------------------
</TABLE>
Deferred tax assets for foreign operations have been established primarily for
net operating loss carryovers and excess capital allowances. In 1998 and 1997,
the deferred tax assets related to operations in the United Kingdom are offset
by a valuation allowance.
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) 1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------
Income taxes at statutory
rate $72,681 $76,815 $89,186
Effect of foreign operations 6,122 8,891 6,090
State and local taxes, net of
federal benefit 3,399 4,888 3,606
Other 2,101 (1,622) (13)
- ----------------------------------------------------------
Income taxes at effective
rate $84,303 $88,972 $98,869
- ----------------------------------------------------------
</TABLE>
NOTE 8 CAPITAL STOCK
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 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. Mr. Ronald V. Joyce, a
director of the Company, holds all of the exchangeable shares. In the third
quarter of 1998, the Company purchased one million exchangeable shares from Mr.
Joyce for $21.21 per share.
In 1998, the Board of Directors approved a plan to repurchase up to $350 million
of the Company's common stock over an 18 to 24-month period. Total common shares
repurchased during 1998 pursuant to the plan were 9.3 million common shares for
a total of $211 million.
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, except in the earnings per share
computations, until they are exercised. Pro forma disclosures are provided as if
the Company adopted the cost recognition requirements under Financial Accounting
Standards 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 10 percent of each eligible employee's earnings, with a minimum
of 20 options to be granted to each eligible employee annually. An aggregate of
5.9 million common shares of the Company have been reserved pursuant to the
WeShare Plan.
The options have a term of 10 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 July 30, 1998, July 30, 1997 and August 1, 1996, approximately
744,000 options, 572,000 options and 896,000 options were granted to eligible
employees at an exercise price of $22.34 per share, $27.13 per share and $17.38
per share, respectively.
In addition, the Board of Directors also adopted the 1990 Stock Option Plan
(1990 Plan) on August 2, 1990. An
AA-19
<PAGE> 54
aggregate of 18.5 million common shares of the Company have been reserved for
issuance to key employees and outside directors under the 1990 Plan, as amended.
On July 30, 1998, July 30, 1997 and August 1, 1996, approximately 1.7 million
options, 1.6 million options and 1.4 million options were granted under the 1990
Plan at an exercise price of $22.34 per share, $27.13 per share and $17.38 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 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
Granted 2,239 26.78
Exercised (2,798) 10.92
Canceled (485) 18.04
- ---------------------------------------------------------
Balance at December 28, 1997 9,703 18.46
Granted 2,530 22.48
Exercised (1,019) 14.13
Canceled (524) 21.89
- ---------------------------------------------------------
Balance at January 3, 1999 10,690 $19.66
- ---------------------------------------------------------
</TABLE>
Options exercisable to purchase common shares totaled 5.2 million, 4.4 million
and 5.1 million at January 3, 1999, December 28, 1997 and December 29, 1996,
respectively. Shares reserved under the plans at each year end were 14.9 million
in 1998, 15.4 million in 1997 and 12.0 million in 1996.
The following tables summarize stock options outstanding and exercisable at
January 3, 1999:
<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 - $17 2,307 4.5 $13.33
17 - 18 3,410 7.0 17.80
18 - 22 2,952 9.1 21.74
22 - 28 2,021 8.6 26.98
- ------------------------------------------------
$ 5 - $28 10,690 7.3 $19.66
- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
(SHARES IN THOUSANDS) OPTIONS EXERCISABLE
- -----------------------------------------
WEIGHTED
RANGE OF AVERAGE
EXERCISE OPTIONS EXERCISE
PRICES EXERCISABLE PRICE
<S> <C> <C>
- -----------------------------------------
$ 5 - $17 2,286 $13.29
17 - 18 2,175 17.89
18 - 22 296 19.37
22 - 28 486 27.13
- -----------------------------------------
$ 5 - $28 5,243 $16.83
- -----------------------------------------
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for 1998,
1997 and 1996, respectively: (1) dividend yield of 1.1%, 1.1% and 1.3%, (2)
expected volatility of 32%, 28% and 25%, (3) risk-free interest rate of 4.6%,
5.8% and 6.1% and (4) expected lives of four years. The per share weighted
average fair value of options granted during 1998, 1997 and 1996 was $6.46,
$7.73 and $4.70, respectively.
Had compensation expense been recognized 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 MILLIONS,
EXCEPT PER SHARE DATA) 1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------
Net income $117.2 $126.3 $153.5
Basic earnings per common
share $.91 $.96 $1.21
Diluted earnings per common
share $.90 $.94 $1.17
- -------------------------------------------------------
</TABLE>
The impact of applying SFAS 123 in this pro forma disclosure is not indicative
of future results. 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) under which one
preferred stock purchase right (Right) was distributed 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 $100 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 10 days after a
tender offer for 15 percent or more of the common shares is announced. 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
AA-20
<PAGE> 55
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, 2008.
NOTE 9 ACQUISITIONS
During 1998, the Company acquired seven Wendy's restaurants in various markets
for $4.8 million.
During 1997, the Company acquired 25 Wendy's restaurants in the Salt Lake City
market for cash and notes totaling $18.7 million. Eight other Wendy's
restaurants were also acquired in 1997.
Additionally, in 1997 the Company acquired 31 Rax restaurants in Ohio, West
Virginia and Kentucky for $9.1 million. These sites were converted to Wendy's
and Tim Hortons restaurants.
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 Wendy's restaurants were
acquired for $11.0 million during 1996.
In addition, in 1996 the Company acquired 40 Roy Rogers restaurants in the New
York area for $17.7 million and 44 Hardee's restaurants in the Detroit market
for $24.0 million. These sites were converted to Wendy's and Tim Hortons
restaurants.
Goodwill acquired totaled $3.1 million, $4.8 million and $15.6 million for 1998,
1997 and 1996, respectively.
NOTE 10 DISPOSITIONS
The Company franchised 171, 228 and 179 Wendy's restaurants during 1998, 1997
and 1996, respectively. These transactions resulted in pretax gains of
approximately $2.4 million, $80.5 million and $63.2 million in 1998, 1997 and
1996, respectively. In addition, the Company sold properties which were
previously leased to franchisees which resulted in pretax gains of $18.0
million, $475,000 and $3.4 million in 1998, 1997 and 1996, respectively. These
pretax gains are included in franchise revenues.
Notes receivable related to dispositions were $130.1 million at January 3, 1999
and $166.7 million at December 28, 1997.
NOTE 11 COMMITMENTS AND CONTINGENCIES
At January 3, 1999 and December 28, 1997, the Company's reserves established for
doubtful royalty receivables were $3.0 million and $2.0 million, respectively.
Reserves related to possible losses on notes receivable, real estate,
guarantees, claims and contingencies involving franchisees totaled $17.3 million
at January 3, 1999 and $5.8 million at December 28, 1997. These reserves are
included in accounts receivable, notes receivable and other accrued expenses.
The Company has guaranteed certain leases and debt payments of franchise owners
with average annual obligations of $8.5 million over three years. In the event
of default by a franchise owner, the Company generally retains the right to
acquire possession of the related restaurants.
The Company is self-insured for most workers' compensation, general liability
and automotive liability losses subject to per occurrence and aggregate annual
liability limitations. The Company is also self-insured for health care claims
for eligible participating employees subject to certain deductibles and
limitations. The Company determines its liability for claims incurred but not
reported on an actuarial basis.
The Company has entered into long-term purchase agreements with some of its
suppliers. The range of prices and volume of purchases under the agreements may
vary according to the Company's demand for the products and fluctuations in
market rates.
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 continues to complete environmental assessments of properties where
appropriate. The amount of obligation to be incurred is uncertain, however the
Company believes such obligations to be immaterial to the financial position and
results of operations of the Company.
AA-21
<PAGE> 56
NOTE 12 RETIREMENT PLANS
The change in projected benefit obligation for each year consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- ------------------------------------------------------
Balance at beginning of year $51,360 $45,185
Service cost 5,041 4,583
Interest cost 3,739 3,575
Plan participants' contributions 2,930 2,698
Actuarial gain 3,390 3,320
Benefits paid (7,733) (8,001)
- ------------------------------------------------------
$58,727 $51,360
- ------------------------------------------------------
</TABLE>
The change in fair value of plan assets for each year consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- ------------------------------------------------------
Balance at beginning of year $53,659 $48,705
Actual return on plan assets 7,060 7,712
Company contributions 3,685 3,298
Plan participants' contributions 2,930 2,698
Benefits paid (8,974) (8,754)
- ------------------------------------------------------
$58,360 $53,659
- ------------------------------------------------------
</TABLE>
Prepaid benefit cost at each year end consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- -------------------------------------------------------
Funded status $ (367) $2,299
Unrecognized actuarial loss 4,566 2,959
Unrecognized prior service cost 22 76
- -------------------------------------------------------
$4,221 $5,334
- -------------------------------------------------------
</TABLE>
In determining the present value of benefit obligations, discount rates of 6.25%
and 6.75% were used in 1998 and 1997, respectively. The expected long-term rate
of return on assets used was 8.5% in 1998 and 1997. The assumed rate of increase
in compensation levels was 8.0% for 1998 and 1997. Plan assets as of January 3,
1999 and December 28, 1997 consisted of debt and equity instruments and cash
equivalents.
Net periodic pension cost for each year end consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------
Service cost $ 5,041 $ 4,583 $ 4,478
Interest cost 3,739 3,575 3,105
Expected return on plan
assets (4,706) (4,213) (3,748)
Net amortization 715 1,372 517
- ------------------------------------------------------
$ 4,789 $ 5,317 $ 4,352
- ------------------------------------------------------
</TABLE>
The Company provided for profit sharing and supplemental retirement benefits of
$4.5 million, $4.4 million and $4.3 million for 1998, 1997 and 1996,
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 1996.
NOTE 13 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. This contribution rate was temporarily reduced to 1.75% for
the period from September 1, 1998 through February 28, 1999. During 1998, 1997
and 1996, the Company contributed $26.7 million, $32.4 million and $31.8
million, respectively, to WNAP. These contributions were recognized in company
restaurant operating costs.
Under a plan approved by the WNAP Committee, WNAP periodically reimburses the
Company for certain production costs incurred in new product testing for
programs which are used in national or local advertising. WNAP made
reimbursements to the Company totaling $3.1 million, $2.9 million and $2.5
million for 1998, 1997 and 1996, respectively.
The advertising program utilized by Tim Hortons Canada is known as the Tim
Hortons Advertising and Promotion Fund (Canada) Inc. (Ad Fund), and the
advertising program utilized by Tim Hortons U.S. is known as Tim's National
Advertising Program (TNAP). Hortons' Canada franchisees and company operated
units are required to contribute 4% of gross sales to the Ad Fund and Tim
Hortons U.S. franchisees and company operated units are required to contribute
4% of net sales to TNAP.
At January 3, 1999 and December 28, 1997, the Company's payables to WNAP, the Ad
Fund and TNAP amounted to $2.3 million and $2.4 million, respectively. None of
these affiliates are consolidated.
Total advertising expense of the Company, including amounts contributed to WNAP,
the Ad Fund, TNAP,
AA-22
<PAGE> 57
local advertising costs and other marketing and advertising expenses, amounted
to $55.4 million, $60.9 million and $62.2 million in 1998, 1997 and 1996,
respectively.
NOTE 14 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 TIM INTERNATIONAL
(IN THOUSANDS) WENDY'S HORTONS WENDY'S TOTAL
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
1998
REVENUES $1,421,354 $399,268 $127,617 $1,948,239
INCOME (LOSS) BEFORE
INCOME TAXES 257,849 65,050(1) (29,791)(2) 293,108
CAPITAL EXPENDITURES 165,430 70,047 6,032 241,509
TOTAL ASSETS 1,410,909 321,796 68,902 1,801,607
- -------------------------------------------------------------------------
1997
Revenues $1,564,504 $336,093 $136,733 $2,037,330
Income (loss) before
income taxes(3) 232,203 64,649 (1,964) 294,888
Capital expenditures 202,969 82,406 9,177 294,552
Total assets 1,535,139 294,867 74,975 1,904,981
- -------------------------------------------------------------------------
1996
Revenues $1,510,917 $265,388 $120,839 $1,897,144
Income before income
taxes 255,268 72,601 1,694 329,563
Capital expenditures 236,632 57,857 12,795 307,284
- -------------------------------------------------------------------------
</TABLE>
(1) Tim Hortons income was reduced $5.9 million in 1998 by the currency change
in the Canadian dollar.
(2) Includes international charges of $33.9 million (see Note 2).
(3) Includes charges of $72.7 million of which $63.2 million is Domestic
Wendy's, $5.9 million is Tim Hortons and $3.6 million is International
Wendy's (see Note 3).
A reconciliation of reportable segment income before income taxes to
consolidated income before income taxes follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------
Income before income
taxes $293,108 $294,888 $329,563
Corporate charges (85,447) (75,417) (74,746)
- -------------------------------------------------------
Consolidated income
before income taxes $207,661 $219,471 $254,817
- -------------------------------------------------------
</TABLE>
Corporate charges include all overhead costs and net interest expense.
A reconciliation of total reportable segment assets to consolidated total assets
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(IN THOUSANDS) 1998 1997
<S> <C> <C>
- --------------------------------------------------------
Total assets $1,801,607 $1,904,981
Corporate assets 36,340 36,699
- --------------------------------------------------------
Consolidated total assets $1,837,947 $1,941,680
- --------------------------------------------------------
</TABLE>
AA-23
<PAGE> 58
Significant non-cash items included in reportable segment income before income
taxes follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
DOMESTIC TIM INTERNATIONAL
(IN THOUSANDS) WENDY'S HORTONS WENDY'S TOTAL
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------
1998
DEPRECIATION AND
AMORTIZATION $69,003 $15,965 $6,773 $91,741
GAINS FROM PROPERTY
DISPOSITIONS, NET 20,631 785 21,416
- -------------------------------------------------------------------
1997
Depreciation and
amortization $74,416 $11,047 $6,978 $92,441
Gains from property
dispositions, net 80,440 495 80,935
- -------------------------------------------------------------------
1996
Depreciation and
amortization $71,741 $ 8,332 $6,064 $86,137
Gains from property
dispositions, net 66,403 163 66,566
- -------------------------------------------------------------------
</TABLE>
A reconciliation of total reportable segment depreciation and amortization
expense to consolidated depreciation and amortization expense follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------
Depreciation and
amortization $ 91,741 $ 92,441 $86,137
Corporate charges 8,477 12,088 8,844
- -------------------------------------------------------
Consolidated
depreciation and
amortization expense $100,218 $104,529 $94,981
- -------------------------------------------------------
</TABLE>
Revenue and long-lived-asset information by geographic area follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
UNITED
(IN THOUSANDS) STATES CANADA OTHER TOTAL
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------
1998
REVENUES $1,466,294 $456,428 $25,517 $1,948,239
LONG-LIVED ASSETS 1,082,582 248,846 89 1,331,517
- -------------------------------------------------------------------
1997
Revenues $1,581,538 $431,289 $24,503 $2,037,330
Long-lived assets 1,085,345 222,519 8,982 1,316,846
- -------------------------------------------------------------------
1996
Revenues $1,515,822 $361,639 $19,683 $1,897,144
- -------------------------------------------------------------------
</TABLE>
NOTE 15 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
QUARTER FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997 1998 1997 1998(1) 1997(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $455,573 $458,884 $529,964 $540,215 $485,175 $525,501 $477,527 $512,730
Gross profit(3) 107,125 107,884 144,851 159,818 140,584 146,788 132,580 144,105
Net income (loss) 23,834 24,637 45,603 56,996 42,935 52,968 10,986 (4,102)
Basic earnings per common share .18 .19 .35 .43 .34 .40 .09 (.03)
Diluted earnings per common share .18 .19 .34 .42 .33 .39 .09 (.03)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The first, third and fourth quarters of 1998 each consisted of 13 weeks and the
second quarter of 1998 consisted of 14 weeks.
(1) Includes international charges of $33.9 million ($25.2 million after tax)
(see Note 2).
(2) Includes charges of $72.7 million ($50.0 million after tax) (see Note 3).
(3) Total revenues less cost of sales, company restaurant operating costs and
operating costs.
AA-24
<PAGE> 59
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR
FINANCIAL STATEMENTS
TO OUR SHAREHOLDERS
Management is responsible for the preparation of the consolidated financial
statements and other related financial information included in this Appendix to
the Proxy Statement. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, incorporating
management's reasonable estimates and judgments, where applicable.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded, that transactions are
executed as authorized and that transactions are recorded and reported properly.
The control system is supported by written policies and procedures, appropriate
divisions of responsibility and authority and an effective internal audit
function. Even effective internal controls, no matter how well designed, have
inherent limitations, such as the possibility of human error or the overriding
of controls. Further, changes in conditions may have an impact on the
effectiveness of controls over time.
The Company assessed its internal control systems for the year ended January 3,
1999, using the criteria for effective internal controls as described in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. This in-depth review focused on
evaluating controls related to the effectiveness and efficiency of operations,
the reliability of financial reporting and compliance with applicable laws and
regulations. Similar reviews were performed concurrently at Tim Hortons and
Wendy's Restaurants of Canada. Based on these assessments, the Company believes
that, for the year ended January 3, 1999, its system of internal control met
those criteria.
The Company engages PricewaterhouseCoopers LLP as independent public accountants
to perform an independent audit of the financial statements. Their report, which
appears herein, is based on obtaining an understanding of the Company's
accounting systems and procedures and testing them as they deem necessary.
The Board of Directors has an Audit Committee composed entirely of outside
directors. The Audit Committee meets periodically with representatives of
internal audit and PricewaterhouseCoopers LLP, and both have unrestricted access
to the Audit Committee.
/s/ Gordon F. Teter
Gordon F. Teter
Chairman, Chief Executive Officer
and President
/s/ Frederick R. Reed
Frederick R. Reed
Chief Financial Officer
and Secretary
/s/ Lawrence A. Laudick
Lawrence A. Laudick
Senior Vice President, General Controller
and Assistant Secretary
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF WENDY'S INTERNATIONAL, INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity, comprehensive income,
and cash flows present fairly, in all material respects, the financial position
of Wendy's International, Inc. and its subsidiaries at January 3, 1999 and
December 28, 1997, and the results of their operations and their cash flows for
the periods ended January 3, 1999, December 28, 1997 and December 29, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
February 10, 1999
AA-25
<PAGE> 60
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS
R. DAVID THOMAS
Senior Chairman of the Board and Founder, Director
RONALD V. JOYCE
Senior Chairman and Co-Founder, Tim Hortons, Director
GORDON F. TETER
Chairman, CEO and President, Director
FREDERICK R. REED
Chief Financial Officer and Secretary, Director
PAUL D. HOUSE
President and COO, Tim Hortons, Director
JOHN T. SCHUESSLER
President and COO -- U.S. Operations
GEORGE CONDOS
Executive Vice President -- Development
RONALD E. MUSICK
Executive Vice President -- Finance and Information Technology, Director
EDWARD L. AUSTIN
Senior Vice President
JOHN F. BROWNLEY
Senior Vice President and Treasurer
JOYCE L. EUFEMI
Senior Vice President -- Upper U.S. Region
STEPHEN D. FARRAR
Senior Vice President -- Western Region
BRION G. GRUBE
Senior Vice President -- Wendy's Restaurants of
Canada Inc.
LAWRENCE A. LAUDICK
Senior Vice President, General Controller and
Assistant Secretary
LEON M. MCCORKLE, JR.
Senior Vice President and General Counsel
THOMAS J. MUELLER
Senior Vice President -- Northeast Region
JAMES J. RIEGER
Senior Vice President -- International
JACK C. WHITING
Senior Vice President -- Midwest Region
OUTSIDE DIRECTORS
W. CLAY HAMNER
Chairman and CEO, Montrose Capital Corporation
THE HONORABLE ERNEST S. HAYECK
National Judicial College Faculty, Retired Judge, Trial Court of Massachusetts
JANET HILL
Vice President, Alexander & Associates, Inc.
THOMAS F. KELLER
R.J. Reynolds Professor of Business Administration, Fuqua School of Business,
Duke University
TRUE H. KNOWLES
Former President/COO, Dr Pepper Company, and Former Executive V.P., Dr
Pepper/Seven Up
Companies Inc.
ANDREW G. MCCAUGHEY
Former Chairman/CEO, Scott's Hospitality Inc.
FIELDEN B. NUTTER, SR.
President and CEO, F.B. Nutter Leasing Company
JAMES V. PICKETT
Chairman, The Pickett Realty Advisors, Inc., Vice Chairman, Banc One Capital
Markets Corporation
THEKLA R. SHACKELFORD
Owner/President, School Selection Consulting
AA-26
<PAGE> 61
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Wendy's International, Inc. shares are traded on the New York, Boston, Chicago,
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>
1998 HIGH LOW CLOSE
----------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $24.00 $20.4375 $22.3125
Second Quarter 25.1875 21.5625 23.50
Third Quarter 24.00 19.6875 22.1875
Fourth Quarter 24.5625 18.125 21.8125
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW CLOSE
----------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $23.375 $19.875 $20.625
Second Quarter 26.625 19.625 25.9375
Third Quarter 27.9375 21.000 21.250
Fourth Quarter 24.1875 19.8125 24.0625
</TABLE>
At March 1, 1999, the Company had approximately 92,000 shareholders of record.
DIVIDENDS DECLARED PER SHARE
<TABLE>
<CAPTION>
QUARTER 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
First $.06 $.06
Second .06 .06
Third .06 .06
Fourth .06 .06
</TABLE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998(1) 1997(2) 1996 1995(3) 1994(3)
------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATIONS (IN MILLIONS)
Retail sales $1,586 1,652 1,567 1,462 1,366
Revenues $1,948 2,037 1,897 1,746 1,592
Income before income taxes $ 208 219 255 165 150
Net income $ 123 130 156 110 97
FINANCIAL POSITION (IN MILLIONS)
Total assets $1,838 1,942 1,781 1,509 1,215
Property and equipment, net $1,281 1,266 1,208 1,007 865
Long-term obligations $ 246 250 242 337 145
Company-obligated mandatorily redeemable preferred
securities $ 200 200 200
Shareholders' equity $1,068 1,184 1,057 819 702
OTHER DATA (IN MILLIONS)
Systemwide sales -- Wendy's $5,555 5,226 4,784 4,495 4,227
Systemwide sales -- Hortons $ 895 772 646 541 440
Capital expenditures $ 242 295 307 218 172
PER SHARE DATA
Net income -- basic $ .96 .99 1.23 .93 .83
Net income -- diluted $ .95 .97 1.19 .88 .79
Dividends $ .24 .24 .24 .24 .24
Market price at year end $21.81 22.88 20.88 21.25 14.38
</TABLE>
- ---------------
(1) Includes non-recurring charges of $33.9 million ($25.2 million after tax)
(see Note 2 to the Consolidated Financial Statements).
(2) Includes non-recurring charges of $72.7 million ($50.0 million after tax)
(see Note 3 to the Consolidated Financial Statements).
(3) Includes special pretax charges of $49.7 million and $28.9 million for 1995
and 1994, respectively, primarily all related to special profit sharing
contributions made at Hortons.
AA-27
<PAGE> 62
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 the 1998 Summary Annual Report to Shareholders and this
Appendix to the 1999 Proxy Statement, 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 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
AA-28
<PAGE> 63
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 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 Company owns several notes
receivable issued by franchisees. The Company has entered into an agreement with
a third party lender that permits the lender to contact franchisees, offer to
refinance notes and enter into commitments to refinance such notes on or before
March 31, 1999. The Company expects that a substantial portion of the notes will
be refinanced. However, franchisees could decide to not refinance for various
reasons, including changes in economic, credit market or other conditions, and
the Company cannot require franchisees to refinance. In addition, the timing of
refinancing transactions would be controlled by the lender and franchisees. As a
result, there is no assurance as to when the Company could receive cash proceeds
or realize income from refinancing transactions.
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
the 1998 Summary Annual Report to Shareholders and this Appendix to the 1999
Proxy Statement, or to update them to reflect events or circumstances occurring
after the date these materials were first furnished to shareholders, or to
reflect the occurrence of unanticipated events.
AA-29
<PAGE> 64
MAP TO WENDY'S INTERNATIONAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
COLUMBUS, OHIO
[MAP TO ANNUAL MEETING]
TUESDAY, MAY 4, 1999
MEETING BEGINS AT 10:00 A.M. - DOORS OPEN AT 9:30 A.M.
AMC LENNOX TOWNE CENTER THEATRES - 777 KINNEAR ROAD - COLUMBUS, OH 43212
(614) 429-0100
FOR FURTHER INFORMATION, CALL 1-800-443-7266 AND ASK FOR EXTENSION 3251.
Directions:
FROM 315 SOUTH
Exit at Kinnear Rd. Lennox Towne Center is across the street at the end of the
exit ramp.
FROM 315 NORTH
Exit at Lane Ave. Turn left on Lane Ave., then left again to get back on to 315
South. Exit at Kinnear Rd. Lennox Towne Center is across the street at the end
of the exit ramp.
<PAGE> 65
[WENDY'S LOGO]
Dear Wendy's Shareholder:
You are invited to join our directors and management at the Annual Meeting of
Shareholders of Wendy's International, Inc. The meeting will be held at the AMC
Lennox Towne Center Theatres, 777 Kinnear Road, Columbus, Ohio 43212, on
Tuesday, May 4, 1999, beginning at 10 a.m., local time.
We will elect directors, ratify the selection of independent public accountants,
approve the performance goals of the Amended and Restated Senior Executive
Earnings Maximization Plan and transact such other business as may properly come
before the meeting. We will also give you an overview on our strategies with
Wendy's and Tim Hortons restaurants. And, Wendy's Senior Chairman of the Board
and Founder Dave Thomas plans to attend the meeting. We hope you will be able to
join us.
It is important that your shares be voted whether or not you plan to be present
at the meeting. You should specify your choices by marking the appropriate boxes
on the proxy form, and date, sign and return your proxy form in the enclosed
envelope as promptly as possible. If you date, sign and return your proxy form
without specifying your choices, your shares will be voted in accordance with
the recommendations of Wendy's directors.
Sincerely,
/s/ GORDON F. TETER
Chairman, Chief Executive Officer and President
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PLEASE MARK YOUR
/X/ VOTE AS THIS
EXAMPLE
FOR WITHHELD FOR AGAINST ABSTAIN
1. ELECTION OF / / / / Nominees: Thekla R. Shackelford, 2. APPROVAL OF INDEPENDENT PUBLIC / / / / / /
DIRECTORS Ronald E. Musick, W. Clay Hammer, ACCOUNTANTS
Gordon F. Teter, Frederick R. Reed
FOR, except vote withheld from the following nominee(s): 3. APPROVAL OF THE PERFORMANCE GOALS / / / / / /
OF THE AMENDED AND RESTATED SENIOR
- ----------------------------------------------------------------- EXECUTIVE EARNINGS MAXIMIZATION
The Board of Directors recommends a vote FOR the nominees and FOR PLAN
proposal 2 and 3.
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING
Change of
Address/comments / /
on reverse side
I plan to I do not plan
attend the / / to attend the / /
meeting meeting
SIGNATURE(S) DATE
-------------------------------------------------------------- --------------------
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. I
HEREBY REVOKE ALL PROXIES HERETOFORE GIVEN BY ME TO VOTE AT SAID MEETING OR ANY ADJOURNMENTS
THEREOF.
</TABLE>
<PAGE> 66
WENDY'S INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR ANNUAL MEETING MAY 4, 1999
The undersigned hereby constitutes and appoints R. David Thomas, Gordon F. Teter
and Frederick R. Reed, and each of them, his true and lawful agents and proxies
with full power of substitution in each, to represent the undersigned at the
Annual Meeting of Shareholders of Wendy's International, Inc. to be held at the
AMC Lennox Towne Center Theatres, 777 Kinnear Road, Columbus, Ohio 43212, on
Tuesday, May 4, 1999, and at any adjournments thereof, on all matters coming
before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR
SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS,
FOR THE APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS AND FOR APPROVAL OF THE
PERFORMANCE GOALS OF THE AMENDED AND RESTATED SENIOR EXECUTIVE EARNINGS
MAXIMIZATION PLAN.
COMMENTS: (Change of address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(IF YOU HAVE WRITTEN IN THE ABOVE SPACE, PLEASE MARK
THE CORRESPONDING BOX ON THE REVERSE SIDE OF THE CARD)
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SEE
REVERSE
SIDE
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