<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Rule 14a-11(c) or Rule 14a-12.
</TABLE>
Wendy's International, Inc.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(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]
WENDY'S
INTERNATIONAL, INC.
TWO QUALITY BRANDS
ONE GREAT COMPANY
Notice of
2000 Annual Meeting
of Shareholders
Proxy Statement
Financial Statements
and Other Information
<PAGE> 3
<TABLE>
<C> <S>
CONTENTS
Notice of Annual Meeting of Shareholders
1 Proxy Statement
1 Voting Securities and Principal Holders Thereof
4 Election of Directors
6 Committees of Directors
7 Compensation of Management
8 Summary Compensation Table
9 Options Granted in Last Fiscal Year
10 Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
10 Report of the Compensation Committee on Executive
Compensation
14 Comparison of Five-Year Total Return For Wendy's
International, Inc., the Peer Group Index and the S&P 500
Index
14 Executive Agreements
16 Certain Transactions Involving Management
17 Selection of Independent Public Accountants
17 Approval of Proposal to Amend the Company's 1990 Stock
Option Plan
24 Approval of an Amendment to the Company's Regulations
25 Other Matters
A-1 Annex -- Wendy's International, Inc. Amended and Restated
1990 Stock Option Plan
Financial Statements and Other Information
AA-1 Management's Review and Outlook
AA-8 Consolidated Statements of Income
AA-9 Consolidated Balance Sheets
AA-10 Consolidated Statements of Cash Flows
AA-11 Consolidated Statements of Shareholders' Equity
AA-12 Consolidated Statements of Comprehensive Income
AA-13 Notes to the Consolidated Financial Statements
AA-24 Management's Statement of Responsibility for Financial
Statements, Report of Independent Accountants
AA-25 Officers and Directors
AA-26 Market for Common Stock and Related Stockholder Matters
AA-26 Selected Financial Data
AA-27 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 Wednesday, May 3, 2000, 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 a proposal to amend the Company's 1990 Stock Option Plan.
4. To approve an amendment to the Company's Regulations which would permit
electronic proxy voting.
5. To transact such other business as may properly come before the meeting.
Only shareholders of record at the close of business on March 6, 2000 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/ Leon M. McCorkle, Jr.
LEON M. McCORKLE, JR.
Secretary
Dublin, Ohio
March 7, 2000
<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
Wednesday, May 3, 2000, 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, "FOR" the proposal to amend the Company's 1990 Stock Option
Plan, and "FOR" the approval of the amendment to the Company's Regulations which
would permit electronic proxy voting.
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 Shareholder Communications, Inc., 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 14, 2000.
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING RIGHTS
The total number of outstanding shares entitled to vote at the meeting is
115,506,628, and only shareholders of record at the close of business on March
6, 2000, are entitled to notice of and to vote at the 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 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 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth 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
1
<PAGE> 6
percent of the outstanding common shares of the Company as of March 6, 2000
(except where otherwise noted):
<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 15,695,703 13.6%
10 Blue Ridge Mountain Estates
Calgary, Alberta T2M 4N4
Canada
Common shares Barrow, Hanley, McWhinney & 10,245,740(b) 8.8%
Strauss, Inc.
One McKinney Plaza
3232 McKinney Ave.,
15th Floor
Dallas, Texas, 75204-2429
Common shares FMR Corp. 9,709,681(b)(c) 8.4%
82 Devonshire Street
Boston, Massachusetts 02109
Common shares American Express Financial 5,976,405(b) 5.2%
Corporation
IDS Tower 10
Minneapolis, Minnesota 55440(d)
</TABLE>
- ---------
(a) Includes options exercisable within 60 days following March 6, 2000.
(b) As of December 31, 1999.
(c) Fidelity Management and Research Company ("Fidelity"), a subsidiary of FMR
Corp., is the beneficial owner of 9,609,832 common shares as the result of
acting as investment advisor to various investment companies (the "Fidelity
Funds") registered under Section 8 of the Investment Company Act of 1940.
Included in that amount are 18,932 common shares resulting from the assumed
conversion of $2.50 Term Convertible Securities, Series A, of Wendy's
Financing I beneficially owned by the Fidelity Funds. Edward C. Johnson 3d
(Chairman of FMR Corp.), FMR Corp., through its control of Fidelity, and the
Fidelity Funds each have sole power to dispose of the 9,609,832 common
shares. Neither FMR Corp. nor Edward C. Johnson 3d has the sole power to
vote or direct the voting of the common shares owned directly by the
Fidelity Funds. The sole power to vote or direct the voting of the common
shares owned directly by the Fidelity Funds resides with the Board of
Trustees of such funds.
Fidelity Management Trust Company, a subsidiary of FMR Corp., is the
beneficial owner of 99,849 common shares as the result of its serving as
investment manager of institutional accounts. Edward C. Johnson 3d and FMR
Corp., through its control of Fidelity Management Trust Company, each has
sole power to vote or to direct the voting and sole dispositive power over
the 99,849 common shares owned by the institutional accounts.
Strategic Advisors, Inc., a subsidiary of FMR Corp., provides investment
advisory services to individuals. Strategic Advisors, Inc. does not have
sole power to vote or to direct the voting of securities held for clients
and has sole dispositive power over such securities. FMR Corp's beneficial
ownership may include securities beneficially owned through Strategic
Advisors, Inc.
Members of the Edward C. Johnson 3d family are the predominant owners of
Class B shares of the common stock of FMR Corp., representing approximately
49% of the voting power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail
P. Johnson owns 24.5% of the aggregate outstanding voting stock of FMR Corp.
Mr. Johnson 3d is Chairman of FMR Corp. and Abigail P. Johnson is a director
of FMR Corp. The Johnson family group and all other Class B shareholders
have entered into a shareholders' voting agreement under which all Class B
shares will be voted in accordance with the majority vote of Class B shares.
Accordingly, through their ownership of voting common stock and the
execution of the shareholders' voting agreement, members of the Johnson
family
2
<PAGE> 7
may be deemed, under the Investment Company Act of 1940, to form a
controlling group with respect to FMR Corp.
(d) American Express Company, American Express Tower, 200 Vesey Street, New
York, New York 10285, filed a Schedule 13G jointly with American Express
Financial Corporation. In such Schedule 13G American Express Company
disclaimed beneficial ownership of the common shares listed in the table.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 6, 2000, 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 8 of this Proxy Statement and
by all Directors and Executive Officers as a group:
<TABLE>
<CAPTION>
(3) AMOUNT AND
(1) TITLE NATURE OF BENEFICIAL (4) PERCENT
OF CLASS (2) NAME OF BENEFICIAL OWNER OWNERSHIP (a)(b) OF CLASS
--------- ---------------------------- -------------------- -----------
<S> <C> <C> <C>
(All of these are R. David Thomas 5,579,796 4.8%
common shares.) Ronald V. Joyce 15,695,703 13.6%
Paul D. House 160,698 .1%
Ronald E. Musick 199,202 .2%
Frederick R. Reed 122,549 .1%
John T. Schuessler 55,971 --
Ernest S. Hayeck 5,400 --
Janet Hill 6,100 --
Thomas F. Keller 6,869 --
True H. Knowles 3,875 --
David P. Lauer 195,110 .2%
Andrew G. McCaughey 4,875 --
Fielden B. Nutter, Sr. 40,500 --
James V. Pickett 77,370 .1%
Thekla R. Shackelford 22,034 --
Gordon F. Teter (c) 1,179,814 1.0%
George Condos 69,919 .1%
All Directors and 23,296,391(d) 19.8%
Executive Officers as a group
(29 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 March 6, 2000.
(c) Mr. Teter was Chairman, Chief Executive Officer and President of the Company
at the time of his death on December 18, 1999.
(d) Excludes common shares listed as beneficially owned by Messrs. Lauer and
Teter since neither individual was a Director or Executive Officer on March
6, 2000.
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
3
<PAGE> 8
Officers in completing and filing those reports. The Company believes that all
filing requirements applicable to its Directors and Executive Officers were
complied with during the last completed fiscal year.
- --------------------------------------------------------------------------------
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 2003:
<TABLE>
<CAPTION>
DIRECTOR
DIRECTORS OR NOMINEES AND THEIR PRINCIPAL OCCUPATIONS AGE SINCE
- ----------------------------------------------------- --- --------
<S> <C> <C>
James V. Pickett (1)(2).................................. 58 1982
Chairman, The Pickett Realty Advisors Inc.;
Principal, Stonehenge Holdings, Inc.
Dublin, Ohio
Thomas F. Keller (1)(2).................................. 68 1991
R.J. Reynolds Professor of Business Administration,
Fuqua School of Business,
Duke University;
Dean, Fuqua School of Business Europe
Durham, North Carolina
Ronald V. Joyce (1)...................................... 69 1996
Senior Chairman and Co-Founder,
The TDL Group Ltd.
Oakville, Ontario, Canada
Andrew G. McCaughey (1).................................. 77 1997
Former Chairman and Chief Executive Officer,
Scott's Hospitality Inc.
Toronto, Ontario, Canada
David P. Lauer (1)(2).................................... 57 N/A
President and Chief Operating Officer,
Bank One, Columbus, NA
Columbus, Ohio
</TABLE>
The following Directors will continue to serve after the 2000 Annual Meeting:
<TABLE>
<S> <C> <C>
TERMS EXPIRING IN 2001
- -----------------------
R. David Thomas (2)...................................... 67 1969
Senior Chairman of the Board and Founder
Ernest S. Hayeck (1)..................................... 75 1993
Retired Judge, Trial Court of Massachusetts
Janet Hill (1)(2)........................................ 52 1994
Vice President, Alexander & Associates, Inc.
Washington, D.C.
True H. Knowles (1)(2)................................... 62 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 (1)........................................ 56 1998
President and Chief Operating Officer,
The TDL Group Ltd.
Oakville, Ontario, Canada
</TABLE>
4
<PAGE> 9
<TABLE>
<S> <C> <C>
TERMS EXPIRING IN 2002
- -----------------------
Thekla R. Shackelford (2)................................ 65 1984
Owner/President, School Selection Consulting
Columbus, Ohio
Ronald E. Musick......................................... 59 1987(3)
Executive Vice President
Frederick R. Reed (1).................................... 51 1995
Chief Financial Officer
John T. Schuessler (1)................................... 49 2000
President and Chief Operating Officer, U.S. Operations
</TABLE>
- ---------
(1) 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.
Mr. Pickett was also the Vice Chairman of Banc One Capital Corporation from
February 1, 1993 to August 4, 1999. He became a Principal of Stonehenge
Holdings, Inc. on August 6, 1999. Stonehenge Holdings, Inc. is an investment
management firm.
Mr. Keller was also Dean of the Fuqua School of Business at Duke University
until he retired from that position on May 31, 1996. He became Dean of the
Fuqua School of Business Europe on July 1, 1999.
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 12 franchised Wendy's and 17 franchised Tim Hortons
restaurants.
Mr. Lauer was Office Managing Partner of the Columbus office of Deloitte &
Touche LLP from January, 1989 until he retired in June, 1997. He was also a
member of the board of directors of Deloitte & Touche LLP from 1988 to 1995.
He was appointed to his current position with Bank One, Columbus, NA in
June, 1997.
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.
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 has
served as Chief Financial Officer since April 1, 1997. Mr. Reed was also
General Counsel until August 31, 1998 and Secretary until February 11, 2000.
5
<PAGE> 10
Mr. Schuessler joined the Company in 1976 and has been promoted several
times. He was Executive Vice President, U.S. Operations from February 20,
1995 until February 19, 1997, when he assumed his current position.
(2) Mr. Pickett serves as a director of Metatec Corporation; Mr. Keller serves
as a director of 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., DIMON International and Biogen Inc.; Mr. Lauer serves as a
director of AirNet Systems, 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., Dean Foods
Company and Nextel Communications, Inc.; Mr. Knowles serves as a director of
Cott Corporation; and Mrs. Shackelford serves as a director of Bank One
Corporation and Fiserv Inc.
(3) Mr. Musick was also a Director of the Company from 1970 to 1981.
Each of the other Directors has had the same principal occupation and
employer during the past five years as set forth in this table.
Mr. Fielden B. Nutter, Sr. is currently a Director of the Company. Mr. Nutter is
also currently the President of F.B. Nutter Leasing Co., which is a real estate
leasing and management company. He was also Chairman and Chief Executive Officer
of John Henry Rock Drills, Inc. from September 1, 1993 to March 31, 1997. John
Henry Rock Drills, Inc. manufactured hydraulic rock drills. Mr. Nutter announced
his retirement as a Director effective as of May 3, 2000, and he is not standing
for re-election as a Director.
Unless otherwise directed, the persons named in the Proxy will vote the Proxies
for the election of Messrs. Pickett, Keller, Joyce, McCaughey and Lauer as
Directors of the Company, each to serve for a term of three years and until
their successors are elected. 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.
- --------------------------------------------------------------------------------
COMMITTEES OF DIRECTORS
A total of 10 meetings of the Board of Directors of the Company were held during
1999. 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.
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,
McCaughey and Pickett. The Committee met six times during 1999. 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),
Knowles, Reed, Thomas and Mrs. Shackelford. The Committee met twice during 1999.
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 2001 Annual Meeting of Shareholders, provided that
6
<PAGE> 11
the names of such nominees are submitted in writing, not later than November 14,
2000, 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 six
times during 1999. 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.
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. 25% of the options granted each year become exercisable on
each of the first four anniversaries of the grant date for such options. During
1999, W. Clay Hamner, a former Director of the Company, was paid $9,769.11 for
stock options previously granted to him while he was a Director.
- --------------------------------------------------------------------------------
COMPENSATION OF MANAGEMENT
The following table summarizes compensation awarded or paid to, or earned by,
each of the named Executive Officers during each of the Company's last three
fiscal years.
7
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
SECURITIES ALL OTHER
NAME AND SALARY UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) BONUS ($) OPTIONS (#) ($)(2)
------------------ ---- ------- --------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Gordon F. Teter, 1999 879,250(4) 1,400,285 216,338 660,999
Chairman of the Board, 1998 812,885 616,790 184,628 748,518
Chief Executive Officer 1997 786,692 1,141,866 181,061 682,384
and President (3)
R. David Thomas, 1999 927,970(5) 726,000 123,870 24,786
Senior Chairman of the 1998 892,378(5) 308,395 105,771 25,195
Board and Founder 1997 868,813(5) 570,933 103,840 78,363
Frederick R. Reed, 1999 356,152 726,000 62,307 86,821
Chief Financial Officer 1998 334,663 276,621 51,871 78,512
and Secretary (6) 1997 313,673 376,849 50,315 41,933
John T. Schuessler, 1999 293,096 490,816 39,942 21,032
President and Chief 1998 277,581 233,098 32,583 28,341
Operating Officer, 1997 268,846 321,312 32,009 27,678
U.S. Operations (7)
George Condos, 1999 288,096 489,503 39,928 12,828
Executive Vice President 1998 273,292 231,973 32,587 12,033
1997 269,488 321,312 32,057 11,831
</TABLE>
- ---------
(1) 1997 salary included 27 biweekly pay periods. 1999 and 1998 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 $2,469, $2,337 and $2,224 made in 1999, 1998 and
1997, respectively (except that Mr. Reed did not receive contributions or
allocations in 1998 or 1997); 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 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Mr. Teter............. $3,173 $3,173 $3,173 $389,294 $429,052 $384,227
Mr. Thomas............ $5,229 $5,229 $5,229 $ 17,088 $ 17,629 $ 70,910
Mr. Reed.............. $3,173 $3,173 $3,173 $ 81,179 $ 75,339 $ 38,760
Mr. Schuessler........ $3,173 $3,173 $3,173 $ 15,390 $ 22,831 $ 22,281
Mr. Condos............ $3,173 $3,173 $3,173 $ 7,186 $ 6,523 $ 6,434
</TABLE>
In addition, the amounts shown in this column for Mr. Teter includes
allocations of $266,063, $313,956 and $292,760 for 1999, 1998 and 1997,
respectively, under an Agreement between the Company and Mr. Teter.
(3) Mr. Teter was President, Chief Executive Officer and Chief Operating Officer
until February 19, 1997, at which time he became Chairman, Chief Executive
Officer and President. Mr. Teter died unexpectedly on December 18, 1999.
(4) Includes unused vacation paid to Mr. Teter's estate following his death.
(5) 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 $269,849, $269,786 and $261,659 in 1999, 1998
8
<PAGE> 13
and 1997, respectively. Mr. Thomas was paid for these services at the
minimum rate permitted by applicable union contract provisions. The
Advertising Payments were not acted on by the Compensation Committee since
they were not made for services rendered by Mr. Thomas in his capacity as an
Executive Officer. The Advertising Payments are therefore not included in
the compensation data set forth in the section of this Proxy Statement
entitled "REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION"
(which begins on page 10).
(6) Mr. Reed has been a director of the Company since February 23, 1995. He was
Executive Vice President, General Counsel and Secretary of the Company from
September 3, 1996 to April 1, 1997. He was Chief Financial Officer, General
Counsel and Secretary from April 1, 1997 to August 31, 1998. He was Chief
Financial Officer and Secretary from August 31, 1998 to February 11, 2000.
His current title is Chief Financial Officer.
(7) Mr. Schuessler was an Executive Vice President until February 19, 1997, when
he assumed his current position.
The following table sets forth information concerning individual grants of stock
options made during the last fiscal year to each of the named Executive
Officers.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANT DATE
UNDERLYING GRANTED TO EXERCISE PRESENT
OPTIONS EMPLOYEES IN PRICE EXPIRATION VALUE
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE)(2) DATE $(3)
---- -------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Gordon F. Teter................ 216,338 8.6% $30.8438 7/27/09 $2,118,966
R. David Thomas................ 123,870 4.9% $30.8438 7/27/09 $1,213,269
Frederick R. Reed.............. 62,307 2.5% $30.8438 7/27/09 $ 610,278
John T. Schuessler............. 39,942 1.6% $30.8438 7/27/09 $ 391,220
George Condos.................. 39,928 1.6% $30.8438 7/27/09 $ 391,083
</TABLE>
- ---------
(1) 25% of the options listed in this column become exercisable on July 28,
2000. An additional 25% becomes exercisable on each successive July 28.
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 .3233; risk-free rate of return 5.83%; dividend yield .9469%; 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.
9
<PAGE> 14
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....... 0 N/A 1,096,887 0 1,950,685 0
R. David Thomas....... 0 N/A 646,099 281,529 1,881,230 90,784
Frederick R. Reed..... 2,000 4,375 110,549 151,644 5,586 945
John T. Schuessler.... 78,412 889,696 24,149 88,595 0 28,222
George Condos......... 0 N/A 68,235 88,662 153,404 28,408
</TABLE>
- ---------
(1) All values as shown are pre-tax.
(2) Based on the fiscal year-end closing price of $20.8125 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 8). 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 (except for Mr. Teter) are as follows: R. David Thomas, $161,807;
Frederick R. Reed, $20,434; John T. Schuessler, $66,314; and George Condos,
$84,525. The estimated annual retirement benefits assume a 7.5% interest factor
and retirement at age 65. The benefit payable under the Pension Plan to Mr.
Teter's designated beneficiary as a result of his death on December 18, 1999 was
$177,757.
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 GRAPH ON PAGE 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.
10
<PAGE> 15
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 1999 were comprised of the participants in the National
Chain Restaurant Compensation Association annual survey and the same companies
which comprise the "Peer Group Index" shown on the graph on page 14 (except that
Host Marriott Services Corp. is not included in the Peer Group Index because it
was no longer publicly traded at the end of 1999). The companies which comprise
the Peer Group Index have revenues of at least $1 billion and 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 1999 fiscal year. Under the Senior Executive Earnings
Maximization Plan (the "SEEMP") (which Messrs. Teter, Thomas and Reed
participated in during fiscal 1999), 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 earnings per share and return on assets goals for the year.
The goals for the SEEMP and EMP were established in 1998 and increase annually
through 2003. Under the Management Incentive Plan, 1999 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. 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 16% to 34% of
base salary). For 1999 the Company attained between 100.0% and 109.9% of its
earnings per share goal and between 105.0% and 109.9% of its return on assets
goal.
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% 95.0%-99.9% 100.0%-104.9% 105.0%-109.9%(1)
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 1999.
(2) Less than 80% budget attainment in either payout criteria results in a 0%
bonus factor.
11
<PAGE> 16
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 has a longer-term
orientation, since the annual financial performance goals were established in
1998 and specified through fiscal 2003). Award opportunities under the stock
option program for 1999 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
(except that Host Marriott Services Corp. is not included in the Peer Group
Index because it was no longer publicly traded at the end of 1999). 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
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
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 increased by $849,860, or 59.4% from the prior year. The Company's net
income for 1999 increased 35.0% to $166,585,000 (or $1.32 per share, diluted)
from $123,358,000 (or $0.95 per share, diluted), in 1998. Excluding the effect
of the non-recurring charges taken in the fourth quarter of 1998, the Company's
net income increased 12.1% from $148,556,000 (or $1.13 per share, diluted). In
order to facilitate a longer 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 1997.
12
<PAGE> 17
<TABLE>
<CAPTION>
1998 1999
----- ----
<S> <C> <C>
Percentage change from prior year in earnings per share
(diluted)................................................. (2.1)%(1) 38.9%(2)
Percentage change from prior year in cash compensation for
CEO....................................................... (25.9)% 59.4%
</TABLE>
- ---------
(1) Includes the effect of the non-recurring charges taken in the fourth quarter
of 1997 and 1998. If the charges for both years were excluded, this number
would be (15.0%).
(2) Includes the effect of the non-recurring charges taken in the fourth quarter
of 1998. If the charges were excluded, this number would be 16.8%.
Mr. Teter's base salary rate for 1999 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 was payable under the SEEMP to Mr. Teter only if
the Company achieved or exceeded specified earnings per share and return on
assets goals. The amount of the award increased if the Company exceeded the
specified goals. Conversely, no award was payable if the Company did not achieve
the specified goals. The payment to Mr. Teter for 1999 was based on the extent
to which the 1999 goals were achieved. 61.4% of Mr. Teter's cash compensation
for 1999 was incentive pay. Since the incentive award increased as the Company's
performance increased, and decreased (or becomes zero) if the specified goals
were not met, Mr. Teter's cash compensation was significantly affected by the
Company's performance. Mr. Teter did not participate in the Management Incentive
Plan.
Long-term incentives in the form of stock options were granted to Mr. Teter in
1999. Stock options were granted at 100% of the fair market value of the
Company's common shares on July 28, 1999, the date of grant. Options served to
directly align Mr. Teter's interests with the interests of other shareholders,
since Mr. Teter would not have realized a benefit unless and until the market
price of the Company's common shares increased.
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
1999. The number of options granted in 1999 to Mr. Teter was designed to
approximate the 75th percentile of competitive practice for 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 was reasonably compensated for the job he
had done as the Chief Executive Officer as well as for his additional
responsibilities as Chairman of the Board.
The compensation programs applicable to Mr. Teter had 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
13
<PAGE> 18
- --------------------------------------------------------------------------------
COMPARISON OF FIVE-YEAR TOTAL RETURN FOR WENDY'S INTERNATIONAL, INC.,
THE PEER GROUP INDEX 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 "Peer Group Index"). The companies which
comprise the Peer Group Index have revenues of at least $1 billion and reflect
the Company's scope of operations and the competitive market in the restaurant
industry for senior executive talent.
COMPARISON OF FIVE-YEAR TOTAL RETURN(1)
FOR WENDY'S INTERNATIONAL, INC., THE PEER GROUP
INDEX(2) AND THE S&P 500 INDEX
[GRAPH]
<TABLE>
<CAPTION>
S&P 500 INDEX PEER GROUP INDEX WEN
------------- ---------------- ---
<S> <C> <C> <C>
1994 100.00 100.00 $100.00
1995 137.50 145.99 149.80
1996 169.47 147.53 146.36
1997 226.03 161.20 173.72
1998 290.22 247.37 159.26
1999 349.08 241.94 153.39
</TABLE>
- ---------
(1) Assumes $100 invested on December 31, 1994, 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 10 companies: Advantica Restaurant Group, Inc.; Brinker
International, Inc.; CBRL Group; CKE Restaurants, Inc.; Darden Restaurants,
Inc.; Jack in the Box Inc.; McDonald's Corporation; Outback Steakhouse,
Inc.; Shoney's, Inc.; and Tricon Global Restaurants, Inc. Host Marriott
Services Corp., which was included in the Peer Group Index in the Company's
1999 Proxy Statement, is omitted this year since its stock was no longer
publicly traded at the end of 1999. This Index has been weighted by market
capitalization of each component company.
- --------------------------------------------------------------------------------
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 8) 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 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
14
<PAGE> 19
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 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
reasonable legal fees or expenses incurred in good faith by
15
<PAGE> 20
such key executives in enforcing their rights under the Agreements or any other
benefit plans in which they participate.
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS INVOLVING MANAGEMENT
Robert G. Zoeller, a former Senior Vice President of the Company, is a 45.6%
owner of five corporations, each of which owns the right to operate one Wendy's
Old Fashioned Hamburgers restaurant. The corporations acquired the restaurants
from the Company on April 23, 1999. The sale price for this transaction was $5.0
million. 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.
A trust for the benefit of Paul D. House and his wife is the sole shareholder of
a corporation which purchased a shopping center property in Tottenham, Ontario,
Canada from an unrelated third party in 1998. As part of the shopping center
purchase transaction, the corporation now leases a Tim Hortons restaurant to a
subsidiary of the Company. The remaining term of the lease is 14 years. The
amount of rent paid by such subsidiary to the corporation in 1999 was the
Canadian dollar equivalent of $34,330 (the exchange rate used for all Canadian
dollar equivalents in this section is 1.4856 Canadian dollars per U.S. dollar).
In the opinion of the Company, the terms of this lease are no less favorable
than the Company and its subsidiaries could have obtained from an unrelated
third party.
Ronald V. Joyce has interests in three real properties which are leased to a
subsidiary of the Company. Mr. Joyce owns a 70% interest in a joint venture
which leases the land and building for a Tim Hortons restaurant in Burlington,
Ontario to a subsidiary of the Company. The remaining term of the lease is 14
years. Rent due under the lease is the greater of the Canadian dollar equivalent
of $60,582 per year or 6% of sales. The amount of rent paid by the subsidiary of
the Company to the joint venture in 1999 was the Canadian dollar equivalent of
$107,557. In the opinion of the Company, the terms of this lease are no less
favorable than the Company and its subsidiaries could have obtained from an
unrelated third party.
Mr. Joyce has a two-thirds interest as a tenant in common in a joint venture
which leases the land and building for a Tim Hortons restaurant in Beamsville,
Ontario to a subsidiary of the Company. The remaining term of the lease is 12
years. Rent due under the lease is the greater of the Canadian dollar equivalent
of $47,119 per year or 6% of sales. The amount of rent paid by the subsidiary of
the Company to the joint venture in 1999 was the Canadian dollar equivalent of
$81,265. In the opinion of the Company, the terms of this lease are no less
favorable than the Company and its subsidiaries could have obtained from an
unrelated third party.
A trust for the benefit of Mr. Joyce's children is the sole shareholder of a
corporation which leases the land and building for a Tim Hortons restaurant in
Brampton, Ontario to a subsidiary of the Company. The remaining term of the
lease is 14 years. Rent due under the lease is the greater of the Canadian
dollar equivalent of $24,333 per year or 9% of sales. The amount of rent paid by
the subsidiary of the Company under this lease in 1999 was the Canadian dollar
equivalent of $51,366. This lease commenced in early 1994, nearly two years
before the Share Purchase Agreement between the Company and Mr. Joyce was
executed.
Pursuant to an employment agreement between Mr. Joyce and a subsidiary of the
Company which was negotiated and executed in connection with the Share Purchase
Agreement between the Company and Mr. Joyce dated as of October 31, 1995, a
subsidiary of the Company agreed to reimburse Mr. Joyce for reasonable overhead
costs associated with the use of his aircraft for business purposes of the
Company and its subsidiaries. The total amount paid to corporations owned by Mr.
Joyce for air transportation services provided in 1999 was the Canadian dollar
equivalent of $695,613. In the opinion of the Company, the payments for air
transportation services made to these corporations were less than the Company
and its subsidiaries would have paid for comparable services from unrelated
third parties.
16
<PAGE> 21
- --------------------------------------------------------------------------------
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. PricewaterhouseCoopers LLP or one of
its constituent firms has audited the Company's financial statements for each of
the last 30 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 PROPOSAL TO AMEND THE COMPANY'S 1990 STOCK OPTION PLAN
The Company believes stock options more strongly align the interests of key
employees with the interests of its other shareholders. The 1990 Stock Option
Plan ("the 1990 Plan") was adopted to benefit the Company and its shareholders
by providing means for key employees and non-employee Directors ("Non-Employee
Directors") to enlarge their ownership interest in the Company. The 1990 Plan is
intended to accomplish three major objectives (i) encourage the judgment,
initiative and efforts of key employees and Non-Employee Directors toward the
continuing success of the Company, (ii) bring stock ownership levels of key
employees into line with key employees of other food-service companies, and
(iii) assist the Company in attracting, retaining and motivating key employees
and Non-Employee Directors. Key employees may include not only the Executive
Officers of the Company but also may include other Officers or employees of the
Company who are able to contribute significantly to the success and growth of
the Company.
The 1990 Plan consists of two Parts. Part I pertains to key employees of the
Company. Part II pertains to Non-Employee Directors of the Company. Shareholders
are being asked to amend the 1990 Plan to increase the number of common shares
issuable under Part I of the 1990 Plan to 23,455,000 from 18,330,000; increase
the number of common shares issuable under Part II of the 1990 Plan to 245,000
from 170,000; and revise the provision in Part II that would govern when stock
options could be exercised following a change in control transaction, as more
fully described below. Both the adoption of the 1990 Plan in 1991 and amendments
to the 1990 Plan in 1994 and 1997 were approved by an overwhelming majority of
shares voted.
The Board of Directors believes that it is desirable to be able to continue the
incentive program provided by the 1990 Plan and therefore recommends that the
shareholders approve the proposal to amend the 1990 Plan. The Board anticipates
that these additional common shares will cover the option grants which the
Company may make through 2002, including options which may be granted once a new
Chief Executive Officer has been selected.
The following table sets forth the number and exercise price of options granted
during the last fiscal year under the 1990 Plan to (i) each of the Executive
Officers of the Company named in the Summary Compensation Table; (ii) all
current Executive Officers of the Company as a group; (iii) all current
Directors who are not Executive Officers as a group; (iv) each nominee for
election as a Director of the Company; and (v) all employees, including all
current Officers who are not Executive Officers, as a group. No options were
granted to associates of any of the Directors, Executive Officers or nominees
for
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<PAGE> 22
election as a Director of the Company, and no person received five percent (5%)
or more of the options granted under the 1990 Plan during the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Gordon F. Teter, Chairman of the Board, Chief Executive
Officer and President (1)................................. 216,338 $30.8438
R. David Thomas, Senior Chairman of the Board and Founder... 123,870 $30.8438
Frederick R. Reed, Chief Financial Officer and Secretary.... 60,000 $30.8438
John T. Schuessler, President and Chief Operating Officer,
U.S. Operations........................................... 38,000 $30.8438
George Condos, Executive Vice President..................... 38,000 $30.8438
All Current Executive Officers as a Group................... 861,734 $30.8438
All Current Directors who are not Executive Officers as a
Group..................................................... 20,000 $30.8438
David P. Lauer (2)(3)....................................... None N/A
James V. Pickett (3)........................................ 2,500 $30.8438
Thomas F. Keller (3)........................................ 2,500 $30.8438
Ronald V. Joyce (3)......................................... 120,000 $30.8438
Andrew G. McCaughey (3)..................................... 2,500 $30.8438
All Employees (including All Current........................ 948,083 $30.8438
Officers who are not Executive Officers, 28,334 $22.8750
as a Group) 5,417 $27.9375
21,750 $22.8125
</TABLE>
- ---------
(1) Mr. Teter was President, Chief Executive Officer and Chief Operating Officer
until February 19, 1997, at which time he became Chairman, Chief Executive
Officer and President. Mr. Teter died on December 18, 1999.
(2) Mr. Lauer was not a Director of the Company in 1999.
(3) Nominee for election as a Director of the Company.
PART I -- KEY EMPLOYEES
The Company's Executive Officers as well as its other Officers and key employees
are eligible to receive grants of stock options under the 1990 Plan. The number
of options granted under the 1990 Stock Option Plan is based on a periodic
comparison of option grants to persons holding 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.
As of March 5, 2000, options to purchase an aggregate of 2,048,545 common shares
were available for future grants under Part I of the 1990 Plan.
The common shares offered under the 1990 Plan may be either authorized but
unissued common shares or treasury shares. The number of common shares issuable
under the 1990 Plan will be adjusted to include any additional common shares
which may result from any share distributions effected in the future by the
Board of Directors, although no such distributions are contemplated at this
time. If an option expires or terminates for any reason without having been
exercised in full, the unpurchased common shares will remain available for
issuance under the 1990 Plan. Options granted to key employees may be either
non-qualified stock options ("Non-Qualified Options") or incentive stock options
("ISOs") as defined under Section 422 of the Internal Revenue Code of 1986, as
amended ("Code").
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<PAGE> 23
The material terms of the 1990 Plan are summarized in the following paragraphs.
This summary is qualified in its entirety by reference to the copy of the 1990
Plan, as amended, attached to this Proxy Statement as the Annex.
PURCHASE PRICE
The purchase price for all common shares covered by each option granted is not
less than one hundred percent (100%) of the fair market value of the common
shares on the date of the grant. In the case of any ISO granted to an individual
who, on the effective date of the grant, owns shares possessing more than ten
percent (10%) of the total combined voting power of the Company, the exercise
price per share must be at least one hundred ten percent (110%) of the fair
market value of a common share on the date of the grant. Fair market value is
defined as 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 grant date (the "Market
Price"). On March 3, 2000, the Market Price for the common shares of the Company
was $15.56.
The purchase price for common shares covered by an option must be paid in full
at the time of exercise of the option by cash or check in United States Dollars,
by the delivery of common shares of the Company having a fair market value on
the date of exercise equal to the exercise price or by tender of other property
acceptable to the Compensation Committee of the Board of Directors (the
"Committee").
AUTHORITY OF THE COMMITTEE
The 1990 Plan is administered by the Committee, which consists of not less than
three members of the Board. All members of the Committee are qualified to
administer the stock option plans for purposes of Securities and Exchange
Commission Rule 16b-3. Presently, the members of the Committee are Messrs.
Nutter (Chairman), Knowles, Mrs. Shackelford and Mrs. Hill.
The Committee has the authority to select the individuals, including foreign
nationals, to whom, and the time or times at which, options will be granted, the
number of common shares to be subject to each grant, the exercise price, and the
duration of leaves of absence which may be granted to participants without
constituting a termination of their employment for purposes of the 1990 Plan.
The Committee also has the authority to impose waiting periods or vesting
requirements as conditions of a grant. In addition, the Committee has the
authority to determine the term of the options, up to a maximum of ten years,
and each option will be exercisable as determined by the Committee.
The Committee cannot make any adjustment (other than in connection with a stock
dividend, recapitalization or other transaction where an adjustment is permitted
or required under the terms of the 1990 Plan) or amendment of the exercise price
of an option previously granted, whether through amendment, cancellation or
replacement grants, or any other means, unless the Company's shareholders have
approved such adjustment or amendment.
At any time after an option granted under Part I of the 1990 Plan becomes
exercisable, the Committee has the right, in its sole discretion and without the
consent of an optionee, to cancel the option and pay to the optionee the excess
of the fair market value of the common shares covered by such option over the
option exercise price at the date the Committee provides written notice of its
intention to exercise such right. Such amount may be paid in cash, in common
shares of the Company, or partly in cash and partly in common shares of the
Company, as the Committee deems advisable. To the extent payment is made in
common shares, the number of common shares is determined by dividing the amount
of the payment to be made by the fair market value of the common shares on the
date of the notice of election to the optionee. For purposes of this provision,
fair market value is equal to the mean of the high and the low prices at which
common shares of the Company were traded on the New York Stock Exchange on the
relevant date.
19
<PAGE> 24
NUMBER OF OPTIONS
No optionee can be granted options under the 1990 Plan in any one fiscal year
covering more than five percent (5%) of the maximum number of common shares
authorized to be issued under the 1990 Plan (as specified in the plan document).
No individual may be granted ISOs under the 1990 Plan if such grant would cause
the aggregate fair market value (determined as of the date the ISOs are granted)
of the common shares with respect to which ISOs are exercisable for the first
time by such optionee during any calendar year under all stock option plans
maintained by the Company and its subsidiaries to exceed $100,000.
EXERCISE AFTER TERMINATION OF EMPLOYMENT
During an optionee's lifetime, options are exercisable only by the optionee. For
options granted on or before February 23, 1994, options are not transferable and
expire upon termination of the optionee's employment for any reason other than
death or disability, in which event the estate of the deceased optionee (or the
optionee in the event of disability) has the right to exercise his or her
options for a period of six months after the date of death or disability,
including any options which become exercisable during such six month period (but
in no event later than the date of expiration of the option term).
For options granted after February 23, 1994, all options held by the optionee
will become immediately exercisable on the date of death or disability, and the
estate of the deceased optionee (or the optionee in the event of disability)
will have the right to exercise his or her options for a period of one year
after the date of death or disability (but in no event later than the date of
expiration of the option term). In addition, an optionee will have the right to
exercise Non-Qualified Options for a period of 48 months and ISOs for a period
of three months after the date the optionee retires, including any options which
become exercisable during such three or 48 month periods (but in no event later
than the date of expiration of the option term). Further, optionees whose
employment with the Company or its subsidiaries is terminated in connection with
a disposition of one or more restaurants will have the right to exercise
Non-Qualified Options for a period of one year and ISOs for a period of three
months following termination of employment, including any options which become
exercisable during such three month or one year periods (but in no event later
than the date of expiration of the option term).
ADJUSTMENTS
In the event any dividend upon the common shares payable in shares is declared
by the Company, or in case of any subdivision or a combination of the
outstanding common shares, the aggregate number of common shares to be delivered
upon exercise of all options granted under the 1990 Plan will be increased or
decreased proportionately so that there will be no change in the aggregate
purchase price payable upon exercise of the options. In the event of any other
recapitalization or any reorganization, merger, consolidation or any change in
the corporate structure or stock of the Company, the Committee will make such
adjustment, if any, as it may deem appropriate to reflect accurately the terms
of the options as to the number and kind of shares deliverable upon subsequent
exercising of the options and in the option prices under the options.
CHANGE IN CONTROL
In the event of a "change in control" (as defined in the 1990 Plan), options
granted and outstanding become immediately exercisable notwithstanding the date
of exercise fixed in the grant of such options.
AMENDMENT OR TERMINATION
The Board of Directors may amend or terminate each of the stock option plans at
any time, provided that the Board may not make any change in an outstanding
option which will impair the rights of the optionee therein, without the consent
of the optionee.
20
<PAGE> 25
FEDERAL INCOME TAX CONSEQUENCES --
Based on current provisions of the Code and the existing regulations thereunder,
the anticipated federal income tax consequences in respect of options granted
under the 1990 Plan are as described below. The following discussion is not
intended to be a complete statement of applicable law and is based upon the
federal income tax laws as in effect on the date hereof.
-- ISOS
An optionee who is granted an ISO does not recognize taxable income either on
the date of grant or on the date of exercise. Upon the exercise of an ISO, the
difference between the fair market value of the common shares of the Company
received and the option price is a tax preference item potentially subject to
the alternative minimum tax. However, on the later sale or other disposition of
the common shares, generally only the difference between the fair market value
of the common shares on the exercise date and the amount realized on the sale or
disposition is includable in alternative minimum taxable income.
Upon disposition of common shares acquired from exercise of an ISO, long-term
capital gain or loss is generally recognized in an amount equal to the
difference between the amount realized on the sale or disposition and the
exercise price. However, if the optionee disposes of the common shares within
two years of the date of grant or within one year of the date of the transfer of
the common shares to the optionee (a "Disqualifying Disposition"), then the
optionee will recognize ordinary income, as opposed to capital gain, at the time
of disposition. In general, the amount of ordinary income recognized will be
equal to the lesser of (a) the amount of gain realized on the disposition, or
(b) the difference between the fair market value of the common shares received
on the date of exercise and the exercise price. Any remaining gain or loss is
treated as a short-term or long-term capital gain or loss, depending upon the
period of time the common shares have been held. The Company is not entitled to
a tax deduction upon either exercise of an ISO or disposition of common shares
acquired pursuant to such exercise, except to the extent that the optionee
recognizes ordinary income in a Disqualifying Disposition.
If an optionee pays the exercise price, in whole or in part, with previously
acquired common shares, the exchange should not affect the ISO tax treatment of
the exercise. Upon such exchange, and except as otherwise described herein, no
gain or loss is recognized by the optionee upon delivering previously acquired
common shares to the Company for payment of the exercise price. The common
shares received by the optionee, equal in number to the previously acquired
common shares exchanged therefor, will have the same basis and holding period
for long-term capital gain purposes as the previously acquired common shares.
The optionee, however, will not be able to utilize the prior holding period for
the purpose of satisfying the ISO statutory holding period requirements. Common
shares received by the optionee in excess of the number of previously acquired
common shares will have a basis of zero and a holding period which commences as
of the date the common shares are transferred to the optionee upon exercise of
the ISO. If the exercise of any ISO is effected using common shares previously
acquired through the exercise of an ISO, the exchange of such previously
acquired common shares will be considered a disposition of such common shares
for the purpose of determining whether a Disqualifying Disposition has occurred.
-- NON-QUALIFIED OPTIONS
An optionee receiving a Non-Qualified Option does not recognize taxable income
on the date of grant of the Non-Qualified Option, provided that the
Non-Qualified Option does not have a readily ascertainable fair market value at
the time it is granted. In general, the optionee must recognize ordinary income
at the time of exercise of the Non-Qualified Option in the amount of the
difference between the fair market value of the common shares of the Company on
the date of exercise and the option price. The ordinary income recognized will
constitute compensation for which tax withholding generally will be required.
The amount of ordinary income recognized by an optionee will be deductible by
the Company in the year that the optionee recognizes the income if the Company
complies with the applicable withholding requirement.
21
<PAGE> 26
Common shares acquired upon exercise of a Non-Qualified Option will have a tax
basis equal to their fair market value on the exercise date or other relevant
date on which ordinary income is recognized, and the holding period for the
common shares generally will begin on the date of exercise or such other
relevant date. Upon subsequent disposition of the common shares, the optionee
will recognize long-term capital gain or loss if the optionee has held the
common shares for more than one year prior to disposition, or short-term capital
gain or loss if the optionee has held the common shares for one year or less.
If an optionee pays the exercise price, in whole or in part, with previously
acquired common shares, the optionee will recognize ordinary income in the
amount by which the fair market value of the common shares received exceeds the
exercise price. The optionee will not recognize gain or loss upon delivering
such previously acquired common shares to the Company. Common shares received by
an optionee, equal in number to the previously acquired common shares exchanged
therefor, will have the same basis and holding period for long-term capital gain
purposes as the previously acquired common shares. Common shares received by an
optionee in excess of the number of such previously acquired common shares will
have a basis equal to the fair market value of such additional common shares as
of the date ordinary income is recognized. The holding period for such
additional common shares will commence as of the date of exercise or such other
relevant date.
PART II -- NON-EMPLOYEE DIRECTORS
Part II of the 1990 Plan governs the automatic grant of options to the
Non-Employee Directors of the Company. Only Non-Qualified Options may be granted
to Non-Employee Directors.
As of March 5, 2000, options to purchase an aggregate of 61,102 common shares
were available for future grants under Part II of the 1990 Plan. The common
shares offered under Part II of the 1990 Plan may be either authorized but
unissued common shares or treasury shares. The number of common shares issuable
under Part II will be adjusted to include any additional common shares which may
result from any share distributions effected in the future by the Board of
Directors. If an option expires or terminates for any reason without having been
exercised in full, the unpurchased common shares will remain available for
issuance under Part II of the 1990 Plan.
The following is a brief summary of certain provisions of Part II of the 1990
Plan, which summary is qualified in its entirety by reference to the copy of the
1990 Plan, as amended, attached to this Proxy Statement as the Annex.
NUMBER AND TERM OF OPTIONS
Under Part II of the 1990 Plan, each year, each Non-Employee Director is
automatically granted options to purchase 2,500 common shares. Such 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 term of
ten years. Twenty-five percent (25%) of the options granted each year become
exercisable on each of the first four anniversaries of the grant date for such
options.
Under Part II of the 1990 Plan as currently in effect, options granted pursuant
to Part II of the 1990 Plan and outstanding for more than six months become
immediately exercisable notwithstanding the date of exercise fixed in the grant
of such options in the event that the Company is a party to a plan or agreement
for merger or consolidation or reclassification of its securities or the
exchange of its securities for the securities of another person which acquires
the Company's assets or which is in control (as defined in Section 368(c) of the
Internal Revenue Code of 1986, as amended) of a person which acquires the
Company's assets, where the terms of such plan or agreement are binding upon all
shareholders of the Company, except to the extent that dissenting shareholders
may be entitled to relief under Section 1701.85 of the Ohio Revised Code. If the
proposal to amend the 1990 Plan is adopted, then upon the occurrence of a
"change in control" as defined in Section 18 of the 1990 Plan options granted
pursuant to Part II of the 1990 Plan and outstanding would become immediately
exercisable notwithstanding the date of exercise fixed in the grant of such
options. Part I of the 1990 Plan and other Company benefit plans, including the
Key Executive Agreements (which are described beginning on
22
<PAGE> 27
page 14), already contain the definition of "change in control" which the
Company proposes to adopt for Part II of the 1990 Plan. By adopting a uniform
definition of "change in control", the Company avoids the possibility that a
future transaction would constitute a change in control under one part of the
1990 Plan but not under the other part.
PURCHASE PRICE
The purchase price for all common shares covered by each option granted under
Part II of the 1990 Plan is one hundred percent (100%) of the fair market value
of the common shares on the date of the grant. Fair market value is determined
in the same manner as Part I of the 1990 Plan (see page 19). The manner of
payment for common shares covered by an option granted pursuant to Part II of
the 1990 Plan is also the same (see page 19).
ADMINISTRATION
Part II of the 1990 Plan will be administered by the Committee. The authority of
the Committee with respect to options granted to Non-Employee Directors is
limited to the making of administrative decisions and interpretations of Part II
of the 1990 Plan.
EXERCISE FOLLOWING TERMINATION OF STATUS AS A DIRECTOR
During an optionee's lifetime, options are exercisable only by the optionee. For
options granted on or before February 23, 1994, options expire at such time as
an optionee is no longer a Non-Employee Director or employed by the Company
other than by reason of death or disability, in which event the estate of the
deceased optionee (or the optionee in the case of disability) has a right to
exercise the options granted under Part II of the 1990 Plan for a period of six
months after the date of death or disability (but in no event later than the
date of expiration of the option term).
For options granted after February 23, 1994, options will be exercisable for a
period of 48 months if the optionee retires as a Non-Employee Director or an
employee of the Company, and all options held will become immediately
exercisable and may be exercised for a period of one year after the date of
death or disability, as applicable (but in no event later than the date of
expiration of the option term). Retirement will be defined as termination of
membership on the Company's Board of Directors at or after attaining age 55 with
at least ten years of service as a member of the Board, other than by reason of
death or disability or for cause.
AMENDMENT OR TERMINATION
The Board of Directors may amend or terminate Part II of the 1990 Plan at any
time, provided that no change in outstanding options which will impair the
rights of an optionee may occur without the consent of the optionee. In
addition, no amendment which will (i) materially increase the benefits accruing
to participants, (ii) materially increase the number of common shares which may
be issued, (iii) materially modify the requirements as to eligibility or
participation, or (iv) otherwise amend Part II of the 1990 Plan in such manner
that shareholder approval is necessary to comply with any legal, tax or
regulatory requirement, including any approval requirement which is a
prerequisite for exemptive relief from Section 16(b) of the Exchange Act, may
occur without the approval of the shareholders of the Company.
At any time after an option granted under Part II of the 1990 Plan becomes
exercisable, the Board of Directors will have the right, in its sole discretion
and without the consent of the optionee, to cancel the option and pay the
optionee the excess of the fair market value of the common shares covered by
such option over the option exercise price at the date the Board provides
written notice of its intention to exercise such right. A Non-Employee Director
for whom the Board is considering making such buy-out payment cannot participate
in such decision. Payments of buy-out amounts, the number of common shares to be
issued where payment is made in common shares, and the method for determining
the fair
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<PAGE> 28
market value of such common shares are determined in the same manner as with
respect to options granted to key employees under Part I of the 1990 Plan (see
page 19).
FEDERAL INCOME TAX CONSEQUENCES
All of the options granted under Part II of the 1990 Plan are Non-Qualified
Options. The federal income tax treatment for such Non-Qualified Options is the
same for both the Company and each optionee as set forth in the discussion of
Non-Qualified Options granted under Part I of the 1990 Plan to key employees of
the Company, except that tax withholding is not required upon the exercise of
Non-Qualified Options by a Non-Employee Director.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the common shares
represented in person or by proxy is necessary to approve the proposal to amend
the 1990 Plan. 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 for each plan is the same as a "no" vote. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSAL TO AMEND THE 1990 PLAN. Unless
otherwise indicated, the persons named in the Proxy will vote all Proxies in
favor of the proposal to amend the 1990 Plan.
- --------------------------------------------------------------------------------
APPROVAL OF AN AMENDMENT TO THE COMPANY'S REGULATIONS WHICH WOULD PERMIT
ELECTRONIC PROXY VOTING
Section 1.11 of the Company's Regulations presently permits a shareholder to
vote by proxy, if the proxy is in writing and executed by the shareholder.
Effective September 13, 1999, the Ohio General Corporation Law was amended to
expand the methods a shareholder can use to grant a proxy. The Ohio General
Corporation Law now permits a shareholder to grant a proxy by any verifiable
communication authorized by the person granting the proxy. Any transmission that
creates a record capable of authentication that appears to have been transmitted
by the person granting a proxy is permitted, and would include electronic mail
and telephone, as well as traditional written proxies. The Company's Regulations
currently do not provide for a shareholder to grant a proxy by electronic mail,
telephone or other electronic media. The amendment to the Regulations would
expressly authorize the shareholders to utilize the more modern forms of proxy
voting now permitted by the Ohio General Corporation Law.
The Board of Directors of the Company has approved, and recommended that the
shareholders of the Company adopt, an amendment to Section 1.11 of the
Regulations to permit a shareholder to use electronic mail, telephone and other
methods to grant a proxy. The proposed amendment to the Regulations would
provide that a shareholder could grant a proxy by any method authorized by Ohio
law. The text of Section 1.11 would read as follows:
SECTION 1.11. PROXIES. At meetings of the shareholders, any
shareholder of record entitled to vote thereat may be represented and
may vote by proxy or proxies appointed by an instrument in writing
signed by such shareholder or appointed in any other manner permitted
by Ohio law. Any such instrument in writing or record of any such
appointment shall be filed with or received by the secretary of the
meeting before the person holding such proxy shall be allowed to vote
thereunder. No appointment of a proxy is valid after the expiration
of eleven months after it is made unless the writing or other
communication which appoints such proxy specifies the date on which
it is to expire or the length of time it is to continue in force.
Approval of the proposed amendment is being sought because the Ohio General
Corporation Law and the Regulations require the approval of the shareholders for
any amendment to the Regulations. If adopted by the shareholders, the proposed
amendment to the Regulations will become effective immediately without any
additional action by the Company.
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<PAGE> 29
The affirmative vote of the holders of not less than a majority of the Company's
outstanding common shares is required to amend the Regulations. Under Ohio law
and the Company's Regulations, abstentions and broker non-votes are counted as
present; and the effect of an abstention or non-vote is the same as a "no" vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THE AMENDMENT TO THE
COMPANY'S REGULATIONS. Unless otherwise indicated, the persons named in the
Proxy will vote all Proxies in favor of approving the proposed amendment.
- --------------------------------------------------------------------------------
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 2001, a shareholder
proposal pursuant to Securities and Exchange Commission Rule 14a-8 must be
received by the Company no later than November 14, 2000. 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 2001, 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 28, 2001, 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/ Leon M. McCorkle, Jr.
LEON M. McCORKLE, JR.
Secretary
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ANNEX
WENDY'S INTERNATIONAL, INC.
1990 STOCK OPTION PLAN
(REFLECTS AMENDMENTS THROUGH FEBRUARY 11, 2000)
PART I -- KEY EMPLOYEES
Section 1. PURPOSE. This Wendy's 1990 Stock Option Plan (hereinafter
referred to as the "Plan") is intended as a means whereby key employees
(hereinafter referred to as "Employee" or "Employees" and "Optionee" or
"Optionees") of Wendy's International, Inc. (hereinafter referred to as the
"Company") or its subsidiaries (hereinafter referred to as the "Subsidiaries")
can each enlarge his proprietary interest in the Company, thereby encouraging
the judgment, initiative and efforts of the Employees for the successful conduct
of the Company's business. The Plan is also intended to create common interests
between the Employees and the other shareholders of the Company, and to assist
the Company in attracting, retaining and motivating Employees.
Section 2. ADMINISTRATION OF THE PLAN. The Board of Directors of the
Company shall appoint a Compensation Committee (hereinafter referred to as the
"Committee") of not less than three (3) Directors to administer the Plan. The
members of the Committee shall serve at the pleasure of the Board, which shall
have the power at any time, or from time to time, to remove members from the
Committee or to add members thereto. All members of the Committee shall be
qualified to administer the Plan as contemplated by Securities and Exchange
Commission Rule 16b-3 as amended or superseded from time to time. The Committee
shall construe and interpret the Plan, establish such operating guidelines and
rules as it deems necessary for the proper administration of the Plan and make
such determinations and take such other action in connection with the Plan as it
deems necessary and advisable. It shall determine the individuals to whom and
the time or times at which Options shall be granted, the number of shares to be
subject to each Option, the Option price and the duration of leaves of absence
which may be granted to participants without constituting a termination of their
employment for purposes of the Plan. Any such construction, interpretation,
rule, determination or other action taken by the Committee pursuant to the Plan
shall be final, binding and conclusive on all interested parties, including the
Company and all former, present and future Employees of the Company.
Actions by a majority of the Committee at a meeting at which a quorum is
present, or actions approved in writing by all of the members of the Committee,
shall be the valid acts of the Committee. No member of the Board of Directors or
the Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it.
The Committee shall have no authority to make any adjustment (other than in
connection with a stock dividend, recapitalization or other transaction where an
adjustment is permitted or required under the terms of this Plan) or amendment
of the exercise price of an Option previously granted under this Plan, whether
through amendment, cancellation or replacement grants, or other means, unless
the Company's shareholders shall have approved such adjustment or amendment.
Section 3. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN. Subject to any
adjustment as provided in the Plan, the shares to be offered under the Plan may
be, in whole or in part, authorized but unissued Common Shares of the Company,
or issued Common Shares which shall have been reacquired by the Company and held
by it as treasury shares. The aggregate number of Common Shares to be delivered
upon exercise of all Options granted under the Plan shall not exceed 23,455,000,
plus the amount of any additional Common Shares which may result from any share
distributions effected after the approval of this Plan by the Board of Directors
of the Company. If any Option granted hereunder shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares with
respect thereto shall again be available for other Options to be granted under
the Plan unless the Plan shall have been terminated.
Section 4. SELECTION OF OPTIONEES. The Committee, from time to time,
subject to the terms and provisions of the Plan, may grant Options to any
present and future full-time key employees of the Company and of its present and
future Subsidiaries. In determining the persons to whom Options shall be granted
and the number of shares to be covered by each Option, the Committee may take
into account the nature of the services rendered by such persons, their present
and potential contribution to the success and growth of the Company and its
Subsidiaries, and such other factors as the Committee, in its discretion, shall
deem relevant. Any person who has been granted an Option under a prior stock
option plan of the Company may be granted an additional Option or Options under
the Plan if the Committee shall so determine.
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Section 5. OPTION PRICE. The purchase price for the shares covered by each
Option granted shall be not less than one hundred percent (100%) of the fair
market value of the shares on the date of the grant of the Option. Such fair
market value shall be equal to the mean of the high and low prices at which
Common Shares of the Company are traded on the New York Stock Exchange on such
date.
Section 6. OPTION REQUIREMENTS. The Options granted pursuant to the Plan
shall be authorized by the Committee and shall be evidenced in writing in a form
recommended by the Committee and approved by the Board of Directors and shall
include the following terms and conditions:
(a) OPTIONEE. Each Option shall state the name of the Optionee.
(b) NUMBER OF SHARES. Each Option shall state the number of shares to which
that Option pertains. During any fiscal year of the Company, no Optionee
shall be granted Options covering more than five percent (5%) of the
maximum number of Common Shares which may be issued upon exercise of
Options granted under the Plan.
(c) PURCHASE PRICE. Each Option shall state the Option price, which shall
be not less than one hundred percent (100%) of the fair market value of the
shares covered by such Option on the date of grant of such Option. See
Section 5, Option Price, and Section 27, date of grant.
(d) PAYMENT. The purchase price for the Options being exercised must be
paid in full at the time of exercise in a manner acceptable to the
Committee. In addition, in order to enable the Company to meet any
applicable foreign, federal (including FICA), state and local withholding
tax requirements, an Optionee shall also be required to pay the amount of
tax to be withheld at the time of exercise. No Common Shares will be
delivered to any Optionee until all such amounts have been paid.
(e) LENGTH OF OPTION. Each Option shall be granted for a period to be
determined by the Committee but in no event to exceed more than ten (10)
years. However, subject to Sections 9 and 10, each Option shall be
exercisable only during such portion of its term as the Committee shall
determine, and only if the Optionee is employed by the Company or a
Subsidiary of the Company at the time of such exercise.
(f) EXERCISE OF OPTION. With respect to Options offered pursuant to this
Plan to an Employee who is subject to Section 16 of the Securities Exchange
Act of 1934 ("Section 16 of the Exchange Act"), no option can be exercised
for at least six (6) months after the date of grant except in the case of
death or Disability as set forth in Section 10 where the Option is
otherwise exercisable. Otherwise each Optionee shall have the right to
exercise his or her Option in the manner specified in this Plan or in the
agreement evidencing granting of such Option.
Section 7. METHOD OF EXERCISE OF OPTIONS. Each Option shall be exercised
pursuant to the terms of such Option and pursuant to the terms of the Plan by
giving written notice to the Company at its principal place of business or other
address designated by the Company, accompanied by cash, check, shares, or other
property acceptable to the Committee, in payment of the Option price for the
number of shares specified and paid for. From time to time the Committee may
establish procedures relating to effecting such exercises. No fractional shares
shall be issued as a result of exercising an Option. The Company shall make
delivery of such shares as soon as possible; provided, however, that if any law
or regulation requires the Company to take action with respect to the shares
specified in such notice before issuance thereof, the date of delivery of such
shares shall then be extended for the period necessary to take such action.
Section 8. NON-TRANSFERABILITY OF OPTIONS. Except as set forth in Section
10, an Option is exercisable during an Optionee's lifetime only by the Optionee.
The Options shall not be transferable except by will or the laws of descent and
distribution, and shall terminate as provided in this Plan.
Section 9. EARLIER TERMINATION OF OPTIONS. Except as set forth in Section
10, upon the termination of the Optionee's employment for any reason whatsoever,
the Options will terminate as to all shares covered by Options which have not
been exercised as of the date of such termination.
Section 10.
(a) EXERCISE UPON DEATH OR DISABILITY. In the event an Optionee dies while
employed by the Company or a Subsidiary, then all Options held by the
Optionee shall become immediately exercisable as of the date of death, and
the estate of the deceased Optionee shall have the right to exercise any
rights the Optionee would otherwise have under this Plan for a period of
one year after the date of the Optionee's death, with exercise to be made
as set forth in Section 7.
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In the event an Optionee becomes Disabled while employed by the Company or
a Subsidiary, then all Options held by the Optionee shall become
immediately exercisable as of the date the Optionee becomes Disabled, and
the Optionee (or, in the event the Optionee is incapacitated and unable to
exercise Options, the Optionee's legal guardian or legal representative
whom the Committee deems appropriate based on applicable facts and
circumstances) shall have the right to exercise any rights the Optionee
would otherwise have under this Plan for a period of one year after the
date the Optionee becomes Disabled, with exercise to be made as set forth
in Section 7.
(b) EXERCISE UPON RETIREMENT. In the event an Optionee's employment with
the Company and its Subsidiaries is terminated by reason of the Optionee's
retirement, the Optionee shall have the right to exercise any rights the
Optionee would otherwise have under this Plan for a period of 48 months
after the date the Optionee retires in the case of non-qualified stock
options and for a period of three months after the date the Optionee
retires in the case of Incentive Stock Options, in each case with exercise
to be made as set forth in Section 7. In the event that an Optionee does
not exercise the Optionee's Incentive Stock Options prior to the expiration
of the three-month period after the date the Optionee retires, such Options
shall be treated as non-qualified stock options upon exercise by the
Optionee after such three-month period. For purposes of this Section 10(b),
"retirement" shall mean termination of employment at or after attaining age
55 with at least ten (10) years of service (as defined in the Company's
qualified retirement plans), other than by reason of death or Disability or
for cause.
(c) EXERCISE UPON TERMINATION OF EMPLOYMENT IN CONNECTION WITH A
DISPOSITION OF RESTAURANTS. In the event an Optionee's employment with the
Company and its Subsidiaries is terminated without cause in connection with
a disposition of one or more restaurants by the Company or its
Subsidiaries, the Optionee shall have the right to exercise any rights the
Optionee would otherwise have under this Plan for a period of one year
following the Optionee's termination of employment in the case of
non-qualified stock options and for a period of three months following the
Optionee's termination of employment in the case of Incentive Stock
Options, in each case with exercise to be made as set forth in Section 7.
Section 11. TYPES OF STOCK OPTIONS. The Options granted under the Plan may
be non-qualified stock options or Incentive Stock Options (as defined in Section
422A of the Internal Revenue Code of 1986, as amended).
Notwithstanding Section 4, above, no Incentive Stock Option shall be
granted to an individual owning stock possessing more than ten percent (10%) of
the total combined voting power of the Company, or its parent or subsidiary
corporations unless (i) the Option price at the time such Option is granted is
equal to at least one hundred ten percent (110%) of the fair market value of the
shares subject to the Option, and (ii) such Option by its terms is not
exercisable after the expiration of five (5) years from the date such Option is
granted. Further, the aggregate fair market value (determined at the time the
Option is granted) of the Common Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (under all such plans of the Company and its Subsidiaries) shall not exceed
one hundred thousand dollars ($100,000.00).
Section 12. EFFECT OF CHANGE IN COMMON SHARES SUBJECT TO THE PLAN. In the
event any dividend upon the Common Shares payable in shares is declared by the
Company, or in case of any subdivision or combination of the outstanding Common
Shares, the aggregate number of Common Shares to be delivered upon exercise of
all Options granted under the Plan shall be increased or decreased
proportionately so that there will be no change in the aggregate purchase price
payable upon the exercise of the Options. In the event of any other
recapitalization or any reorganization, merger, consolidation or any change in
the corporate structure or stock of the Company, the Committee shall make such
adjustment, if any, as it may deem appropriate to reflect accurately the terms
of the Options as to the number and kind of shares deliverable upon subsequent
exercising of the Options and in the Option prices under the Options.
Section 13. LISTING AND REGISTRATION OF COMMON SHARES. If at any time the
Board of Directors shall determine that listing, registration or qualification
of the Common Shares covered by the Option upon any securities exchange or under
any state or federal law or the consent or the approval of any governmental
regulatory body is necessary or desirable as a condition of or in connection
with the purchase of Common Shares under the Option, the Option may not be
exercised in whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board. Any person exercising an Option
shall make such representations and agreements and furnish such information as
the Board or the Committee may request to assure compliance with the foregoing
or any other applicable legal requirements.
Section 14. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
shall impose no obligation upon the Optionee to exercise such Option.
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Section 15. MISCONDUCT. In the event that an Optionee has (i) used for
profit or disclosed to unauthorized persons, confidential information or trade
secrets of the Company or its Subsidiaries, or (ii) breached any contract with
or violated any fiduciary obligation to the Company or its Subsidiaries, or
(iii) engaged in unlawful trading in the securities of the Company or its
Subsidiaries or of another company based on information gained as a result of
that Optionee's employment with the Company or its Subsidiaries, then that
Optionee shall forfeit all rights to any unexercised Options granted under the
Plan and all of that Optionee's outstanding Options shall automatically
terminate and lapse, unless the Committee shall determine otherwise.
Section 16. FOREIGN EMPLOYEES. Without amending the Plan, the Committee
may grant Options to eligible Employees who are foreign nationals on such terms
and conditions different from those specified in this Plan as may in the
judgment of the Committee be necessary or desirable to foster and promote
achievement of the purposes of the Plan, and, in furtherance of such purposes,
the Committee may make such modifications, amendments, procedures, and the like
as may be necessary or advisable to comply with provisions of laws of other
countries in which the Company or its Subsidiaries operate or have employees.
Section 17. BUY OUT OF OPTION GAINS. At any time after any Option becomes
exercisable, the Committee shall have the right to elect, in its sole discretion
and without the consent of the holder thereof, to cancel such Option and pay to
the Optionee the excess of the fair market value of the Common Shares covered by
such Option over the Option price of such Option at the date the Committee
provides written notice (the "Buy Out Notice") of the intention to exercise such
right. Buy outs pursuant to this provision shall be effected by the Company as
promptly as possible after the date of the Buy Out Notice. Payments of buy out
amounts may be made in cash, in Common Shares, or partly in cash and partly in
Common Shares, as the Committee deems advisable. To the extent payment is made
in Common Shares, the number of shares shall be determined by dividing the
amount of the payment to be made by the fair market value of a Common Share at
the date of the Buy Out Notice. In no event shall the Company be required to
deliver a fractional Common Share in satisfaction of this buy out provision.
Payments of any such buy out amounts shall be made net of any applicable
foreign, federal (including FICA), state and local withholding taxes. For the
purposes of this Section 17, fair market value shall be equal to the mean of the
high and low prices at which Common Shares of the Company are traded on the New
York Stock Exchange on the relevant date.
Section 18. NO RIGHTS TO OPTIONS OR EMPLOYMENT. No Employee or other
person shall have any claim or right to be granted an Option under the Plan.
Having received an Option under the Plan shall not give an Employee any right to
receive any other grant under the Plan. An Optionee shall have no rights to or
interest in any Option except as set forth herein. Neither the Plan nor any
action taken herein shall be construed as giving any Employee any right to be
retained in the employ of the Company or its Subsidiaries.
Section 19. CHANGE IN CONTROL. In the event of a Change in Control, as
defined below, then Options granted and outstanding pursuant to the Plan,
notwithstanding the date of exercise fixed in the grant of such Options, shall
become immediately exercisable and each Optionee shall be entitled to receive,
upon payment of the amount required for exercise of each Option, securities or
cash consideration, or both, equal to those the Optionee would have been
entitled to receive under such plan or agreement if the Optionee had already
exercised such Option.
For purposes of this Plan, a "Change in Control" shall mean the occurrence
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) 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
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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 Company") 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 Company, or
a corporation beneficially directly or indirectly owning a majority of
the Voting Securities of the Surviving Company, 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 a Subsidiary, or (iv)
any Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of thirty percent (30%) or
more of the then outstanding Voting Securities or common stock of the
Company, has Beneficial Ownership of thirty percent (30%) or more of
the combined voting power of the Surviving Company 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.
Section 20. AMENDMENT OR TERMINATION. The Board of Directors may amend or
terminate the Plan at any time, provided that the Board of Directors shall not
(except as provided in Sections 9, 10 and 12 hereof) make any change in the
Options which will impair the rights of the Optionee therein, without the
consent of the Optionee.
Section 21. OTHER ACTIONS. This Plan shall not restrict the authority of
the Committee, the Board of Directors or of the Company or its Subsidiaries for
proper corporate purposes to grant or assume stock options, other than under the
Plan, to or with respect to any Employee or other person.
Section 22. COSTS AND EXPENSES. Except as provided in Section 6(d) hereof
with respect to taxes, the costs and expenses of administering the Plan shall be
borne by the Company, and shall not be charged to any grant nor to any Employee
receiving a grant.
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Section 23. PLAN UNFUNDED. The Plan shall be unfunded. Except for
reserving a sufficient number of authorized shares to the extent required by law
to meet the requirements of the Plan, the Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure payment of any grant under the Plan.
Section 24. LAWS GOVERNING PLAN. This Plan shall be construed under and
governed by the laws of the State of Ohio.
Section 25. CAPTIONS. The captions to the several sections hereof are not
a part of this Plan, but are merely guides or labels to assist in locating and
reading the several sections hereof.
Section 26. EFFECTIVE DATE. The Plan shall become effective on the date it
is approved by the Board of Directors of the Company.
Section 27. DEFINITIONS. Unless the context clearly indicates otherwise,
the following terms, when used in this Plan, shall have the meaning set forth
below:
(a) The "date of grant" or "grant date" of an Option shall be the date on
which an Option is granted under the Plan.
(b) "Option" means the right granted under the Plan to an Optionee to
purchase a Common Share of the Company at a fixed price for a specified
period of time.
(c) "Option price" means the price at which a Common Share covered by an
Option granted hereunder may be purchased.
(d) With regard to any particular Employee, "Disabled" shall have (i) the
meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended, in the context of determining the period during which Incentive
Stock Options granted to such Employee may be exercised and (ii) the
meaning set forth in the Company's long term disability program applicable
to such Employee in the context of determining the period during which non-
qualified stock options granted such Employee may be exercised.
PART II: NON-EMPLOYEE DIRECTORS
Section 1. PURPOSE. Part II of the Wendy's 1990 Stock Option Plan
(hereinafter referred to as the "Plan") is intended as a means whereby
Non-Employee Directors (hereinafter referred to as "Optionee" or "Optionees") of
Wendy's International, Inc. (hereinafter referred to as the "Company") can each
enlarge his proprietary interest in the Company, thereby encouraging the
judgment, initiative and efforts of the Non-Employee Directors for the
successful conduct of the Company's business. The Plan is also intended to
create common interests between the Non-Employee Directors and the other
shareholders of the Company, and to assist the Company in attracting, retaining
and motivating the Non-Employee Directors.
Section 2. ADMINISTRATION OF THE PLAN. The Board of Directors of the
Company shall appoint a Compensation Committee (hereinafter referred to as the
"Committee") of not less than three (3) Directors to administer the Plan. The
members of the Committee shall serve at the pleasure of the Board, which shall
have the power at any time, or from time to time, to remove members from the
Committee or to add members thereto. All members of the Committee shall be
qualified to administer the Plan as contemplated by Securities and Exchange
Commission Rule 16b-3 as amended or superseded from time to time. The Committee
shall construe and interpret the Plan, establish such operating guidelines and
rules as it deems necessary for the proper administration of the Plan and make
such determinations and take such other action in connection with the Plan as it
deems necessary and advisable. Any such construction, interpretation, rule,
determination or other action taken by the Committee pursuant to the Plan shall
be final, binding and conclusive on all interested parties, including the
Company and all former, present and future Non-Employee Directors of the
Company.
Actions by a majority of the Committee at a meeting at which a quorum is
present, or actions approved in writing by all of the members of the Committee,
shall be the valid acts of the Committee. No member of the Board of Directors or
the Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it.
The Committee shall have no authority to make any adjustment (other than in
connection with a stock dividend, recapitalization or other transaction where an
adjustment is permitted or required under the terms of this Plan) or amendment
of the exercise price of an Option previously granted under this Plan, whether
through amendment, cancellation or replacement grants, or other means, unless
the Company's shareholders shall have approved such adjustment or amendment.
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Section 3. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN. Subject to any
adjustment as provided in the Plan, the shares to be offered under the Plan may
be, in whole or in part, authorized but unissued Common Shares of the Company,
or issued Common Shares which shall have been reacquired by the Company and held
by it as treasury shares. The aggregate number of Common Shares to be delivered
upon exercise of all Options granted under the Plan shall not exceed 245,000,
plus the amount of any additional Common Shares which may result from any share
distributions effected after the approval of this Plan by the Board of Directors
of the Company. If any Option granted hereunder shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares with
respect thereto shall again be available for other Options to be granted under
the Plan unless the Plan shall have been terminated.
Section 4. STOCK OPTION GRANTS.
(a) Each Non-Employee Director of the Company on the effective date of the
Plan shall be granted the number of Options equal to three (3) times the
number of Options calculated for each such Director as follows: 50% of the
amount paid to such Director in 1990 as director's fees (including
quarterly retainer fees and Board meeting fees but excluding committee
meeting fees and expense reimbursements), divided by the Option exercise
price and rounded to the nearest whole share.
(b) In 1992 and 1993, each year, the number of Options to be granted to
each Non-Employee Director of the Company shall be equal to 50% of the
amount paid to such Director during the preceding fiscal year as director's
fees (including quarterly retainer fees and Board meeting fees but
excluding committee meeting fees and expense reimbursements), divided by
the Option exercise price and rounded to the nearest whole share. Such
Options shall be granted on the date on which the regularly scheduled Board
meeting is held during the Company's third fiscal quarter. In the event
that an insufficient number of shares remains available under the Plan for
issuance to all Non-Employee Directors in a fiscal year, then unless the
Plan is amended to provide additional shares or the Company adopts another
stock option plan under which the Non-Employee Directors can participate,
the Non-Employee Directors shall participate on a prorata basis.
(c) Commencing in 1994, each year, each Non-Employee Director of the
Company shall be granted Options to purchase 1,100 Common Shares. Such
Options shall be granted on the date on which the regularly scheduled Board
meeting is held during the Company's third fiscal quarter. In the event
that an insufficient number of shares remains available under the Plan for
issuance to all Non-Employee Directors in a fiscal year, then unless the
Plan is amended to provide additional shares or the Company adopts another
stock option plan under which the Non-Employee Directors can participate,
the Non-Employee Directors shall participate on a prorata basis.
(d) Commencing in 1997, each year, each Non-Employee Director of the
Company shall be granted Options to purchase 2,500 Common Shares. Such
Options shall be granted on the date on which the regularly scheduled Board
meeting is held during the Company's third fiscal quarter. In the event
that an insufficient number of shares remains available under the Plan for
issuance to all Non-Employee Directors in a fiscal year, then unless the
Plan is amended to provide additional shares or the Company adopts another
stock option plan under which the Non-Employee Directors can participate,
the Non-Employee Directors shall participate on a prorata basis.
Section 5. OPTION PRICE. The purchase price for the shares covered by each
Option granted shall be the fair market value of the shares on the date of the
grant of the Option. Such fair market value shall be equal to the mean of the
high and low prices at which Common Shares of the Company are traded on the New
York Stock Exchange on such date.
Section 6. OPTION REQUIREMENTS. The Options granted pursuant to the Plan
shall be evidenced in writing in a form recommended by the Committee and
approved by the Board of Directors and shall include the following terms and
conditions:
(a) OPTIONEE. Each Option shall state the name of the Optionee.
(b) NUMBER OF SHARES. Each Option shall state the number of shares to which
that Option pertains.
(c) PURCHASE PRICE. Each Option shall state the Option price, which shall
be one hundred percent (100%) of the fair market value of the shares
covered by such Option on the date of grant of such Option. See Section 5,
Option Price, and Section 26, date of grant.
(d) PAYMENT. The purchase price for the Options being exercised must be
paid in full at the time of exercise in a manner acceptable to the
Committee. In addition, in order to enable the Company to meet any
applicable foreign, federal (including FICA), state and local withholding
tax requirements, an Optionee shall also be required to pay
A-7
<PAGE> 38
the amount of tax to be withheld at the time of exercise. No Common Shares
will be delivered to any Optionee until all such amounts have been paid.
(e) LENGTH OF OPTION. Each Option shall be granted for a period of ten (10)
years. However, subject to Sections 9 and 10, each Option shall be
exercisable only during such portion of its term as hereinafter set forth
and only if the Optionee is either a Non-Employee Director of the Company
or is employed by the Company or a Subsidiary of the Company at the time of
such exercise.
(f) EXERCISE OF OPTION. Twenty-five (25%) percent of the Options covered by
each grant shall become exercisable on each of the four anniversaries of
the grant date for such Options. Otherwise, each Optionee shall have the
right to exercise his or her Options in the manner specified in this Plan.
Notwithstanding any provision in the Plan to the contrary, the Options
shall not be exercisable in whole or in part unless and until the Plan is
approved by the shareholders of the Company.
Section 7. METHOD OF EXERCISE OF OPTIONS. Each Option shall be exercised
pursuant to the terms of such Option and pursuant to the terms of the Plan by
giving written notice to the Company at its principal place of business or other
address designated by the Company, accompanied by cash, check, shares, or other
property acceptable to the Committee in payment of the Option price for the
number of shares specified and paid for. From time to time the Committee may
establish procedures relating to effecting such exercises. No fractional shares
shall be issued as a result of exercising an Option. The Company shall make
delivery of such shares as soon as possible; provided, however, that if any law
or regulation requires the Company to take action with respect to the shares
specified in such notice before issuance thereof, the date of delivery of such
shares shall then be extended for the period necessary to take such action.
Section 8. NON-TRANSFERABILITY OF OPTIONS. Except as set forth in Section
10, an Option is exercisable during an Optionee's lifetime only by the Optionee.
The Options shall not be transferable except by will or the laws of descent and
distribution, and shall terminate as provided in this Plan.
Section 9. EARLIER TERMINATION OF OPTIONS. Except as set forth in Section
10 of this Plan, if the Optionee ceases to be a Non-Employee Director of the
Company or an employee of the Company or its Subsidiaries for any reason
whatsoever, the Options will terminate as to all shares covered by Options which
have not been exercised as of such date.
Section 10.
(a) EXERCISE UPON DEATH OR DISABILITY. In the event an Optionee dies while
either a Non-Employee Director of the Company or while employed by the
Company or a Subsidiary, then all Options held by the Optionee shall become
immediately exercisable as of the date of death, and the estate of the
deceased Optionee shall have the right to exercise any rights the Optionee
would have under this Plan for a period of one year after the date of the
Optionee's death, with exercise to be made as set forth in Section 7.
In the event an Optionee becomes Disabled while either a Non-Employee
Director of the Company or while employed by the Company or a Subsidiary,
then all Options held by the Optionee shall become immediately exercisable
as of the date the Optionee becomes Disabled, and the Optionee (or, in the
event the Optionee is incapacitated and unable to exercise Options, the
Optionee's legal guardian or legal representative whom the Committee deems
appropriate based on applicable facts and circumstances) shall have the
right to exercise any rights the Optionee would otherwise have under this
Plan for a period of one year after the date the Optionee becomes Disabled,
with exercise to be made as set forth in Section 7.
(b) EXERCISE UPON RETIREMENT. In the event an Optionee retires as a
Non-Employee Director or as an employee of the Company and its
Subsidiaries, the Optionee shall have the right to exercise any rights the
Optionee would otherwise have under this Plan for a period of 48 months
after the date of such retirement, with exercise to be made as set forth in
Section 7. For purposes of this Section 10(b), "retirement" shall mean
termination of membership on the Company's Board of Directors at or after
attaining age 55 with at least ten (10) years of service as a member of the
Board, other than by reason of death or Disability or for cause, and
"termination for cause" shall mean termination of membership on the Board
of Directors on account of any fraud, intentional misrepresentation,
embezzlement or misappropriation or conversion of assets or opportunities
of the Company or its Subsidiaries.
Section 11. TYPES OF STOCK OPTIONS. The Options granted under the Plan
shall be non-qualified stock options.
Section 12. EFFECT OF CHANGE IN COMMON SHARES SUBJECT TO THE PLAN. In the
event any dividend upon the Common Shares payable in shares is declared by the
Company, or in case of any subdivision or combination of the outstanding Common
Shares, the aggregate number of Common Shares to be delivered upon exercise of
all Options
A-8
<PAGE> 39
granted under the Plan shall be increased or decreased proportionately so that
there will be no change in the aggregate purchase price payable upon the
exercise of the Options. In the event of any other recapitalization or any
reorganization, merger, consolidation or any change in the corporate structure
or stock of the Company, the Board of Directors shall make such adjustment, if
any, as it may deem appropriate to reflect accurately the terms of the Options
as to the number and kind of shares deliverable upon subsequent exercising of
the Options and in the Option prices under the Options.
Section 13. LISTING AND REGISTRATION OF COMMON SHARES. If at any time the
Board of Directors shall determine that listing, registration or qualification
of the Common Shares covered by the Option upon any securities exchange or under
any state or federal law or the consent or the approval of any governmental
regulatory body is necessary or desirable as a condition of or in connection
with the purchase of Common Shares under the Option, the Option may not be
exercised in whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board. Any person exercising an Option
shall make such representations and agreements and furnish such information as
the Board or the Committee may request to assure compliance with the foregoing
or any other applicable legal requirements.
Section 14. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
shall impose no obligation upon the Optionee to exercise such Option.
Section 15. MISCONDUCT. In the event that an Optionee has (i) used for
profit or disclosed to unauthorized persons, confidential information or trade
secrets of the Company or its Subsidiaries, or (ii) breached any contract with
or violated any fiduciary obligation to the Company or its Subsidiaries, or
(iii) engaged in unlawful trading in the securities of the Company or its
Subsidiaries or of another company based on information gained as a result of
that Optionee serving as a Non-Employee Director of the Company, then that
Optionee shall forfeit all rights to any unexercised Options granted under the
Plan and all of that Optionee's outstanding Options shall automatically
terminate and lapse, unless the Committee shall determine otherwise.
Section 16. BUY OUT OF OPTION GAINS. At any time after any Option becomes
exercisable, the Board of Directors (excluding any Director who holds Options
for which the buy out election is being considered) shall have the right to
elect, in its sole discretion and without the consent of the holder thereof, to
cancel such Option and pay to the Optionee the excess of the fair market value
of the Common Shares covered by such Option over the Option price of such Option
at the date the Board provides written notice (the "Buy Out Notice") of the
intention to exercise such right. Buy outs pursuant to this provision shall be
effected by the Company as promptly as possible after the date of the Buy Out
Notice. Payments of buy out amounts may be made in cash, in Common Shares, or
partly in cash and partly in Common Shares, as the Board deems advisable. To the
extent payment is made in Common Shares, the number of shares shall be
determined by dividing the amount of the payment to be made by the fair market
value of a Common Share at the date of the Buy Out Notice. In no event shall the
Company be required to deliver a fractional Common Share in satisfaction of this
buy out provision. Payments of any such buy out amounts shall be made net of any
applicable foreign, federal (including FICA), state and local withholding taxes.
For the purposes of this Section 16, fair market value shall be equal to the
mean of the high and low prices at which Common Shares of the Company are traded
on the New York Stock Exchange on the relevant date.
Section 17. NO OTHER RIGHTS. An Optionee shall have no rights to or
interest in any Option except as set forth herein. Neither the Plan nor any
action taken herein shall be construed as giving any Optionee any right to
remain as a Director of the Company.
Section 18. CHANGE IN CONTROL. In the event of a Change in Control, as
defined below, then Options granted and outstanding pursuant to the Plan,
notwithstanding the date of exercise fixed in the grant of such Options, shall
become immediately exercisable and each Optionee shall be entitled to receive,
upon payment of the amount required for exercise of each Option, securities or
cash consideration, or both, equal to those the Optionee would have been
entitled to receive under such plan or agreement if the Optionee had already
exercised such Option.
For purposes of this Plan, a "Change in Control" shall mean the occurrence
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,
A-9
<PAGE> 40
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) 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 Company") 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 Company, or
a corporation beneficially directly or indirectly owning a majority of
the Voting Securities of the Surviving Company, 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 a Subsidiary, or (iv)
any Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of thirty percent (30%) or
more of the then outstanding Voting Securities or common stock of the
Company, has Beneficial Ownership of thirty percent (30%) or more of
the combined voting power of the Surviving Company 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.
Section 19. AMENDMENT OR TERMINATION. The Board of Directors may amend or
terminate the Plan at any time, provided that the Board of Directors shall not
(except as provided in Sections 9, 10 and 12 hereof) make any change in the
Options which will impair the rights of the Optionee therein, without the
consent of the Optionee, and further
A-10
<PAGE> 41
provided that any amendment which would (i) materially increase the benefits
accruing to participants under the Plan, (ii) materially increase the number of
Common Shares which may be issued under the Plan, (iii) materially modify the
requirements as to eligibility or participation in the Plan, or (iv) otherwise
amend the Plan in such manner where shareholder approval is necessary to comply
with any legal, tax or regulatory requirement, including any approval
requirement which is a prerequisite for exemptive relief from Section 16(b) of
the Securities Exchange Act of 1934, shall not be made without the approval of
the shareholders of the Company.
Section 20. OTHER ACTIONS. This Plan shall not restrict the authority of
the Committee, the Board of Directors or of the Company or its Subsidiaries for
proper corporate purposes to grant or assume stock options, other than under the
Plan, to or with respect to any Optionee or other person.
Section 21. COSTS AND EXPENSES. Except as provided in Section 6(d) hereof
with respect to taxes, the costs and expenses of administering the Plan shall be
borne by the Company, and shall not be charged to any grant nor to any Optionee
receiving a grant.
Section 22. PLAN UNFUNDED. The Plan shall be unfunded. Except for
reserving a sufficient number of authorized shares to the extent required by law
to meet the requirements of the Plan, the Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure payment of any grant under the Plan.
Section 23. LAWS GOVERNING PLAN. This Plan shall be construed under and
governed by the laws of the State of Ohio.
Section 24. CAPTIONS. The captions to the several sections hereof are not
a part of this Plan, but are merely guides or labels to assist in locating and
reading the several sections hereof.
Section 25. EFFECTIVE DATE. The Plan shall become effective on the date it
is approved by the Board of Directors of the Company.
Section 26. DEFINITIONS. Unless the context clearly indicates otherwise,
the following terms, when used in this Plan, shall have the meaning set forth
below:
(a) The "date of grant" or "grant date" of an Option shall be the date on
which an Option is granted under the Plan.
(b) The phrase "Non-Employee Director" means a member of the Board of
Directors of the Company who is not an employee of the Company or any of
its Subsidiaries.
(c) "Option" means the right granted under the Plan to an Optionee to
purchase a Common Share of the Company at a fixed price for a specified
period of time.
(d) "Option price" means the price at which a Common Share covered by an
Option granted hereunder may be purchased.
(e) "Subsidiaries" means the subsidiaries of Wendy's International, Inc.
(f) With regard to any particular Employee, "Disabled" shall have the
meaning set forth in the Company's long term disability program generally
applicable to officers of the Company.
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<PAGE> 42
(Intentionally Left Blank)
<PAGE> 43
[WENDY'S LOGO]
WENDY'S
INTERNATIONAL, INC.
TWO QUALITY BRANDS
ONE GREAT COMPANY
99
Financial Statements
and Other Information
Table of Contents
Management's Review
and Outlook ...........................AA-1
Consolidated Statements
of Income .............................AA-8
Consolidated Balance Sheets ...........AA-9
Consolidated Statements
of Cash Flows ........................AA-10
Consolidated Statements of
Shareholders' Equity .................AA-11
Consolidated Statements
of Comprehensive Income ..............AA-12
Notes to the Consolidated
Financial Statements .................AA-13
Management's Statement of
Responsibility for Financial
Statements, Report of
Independent Accountants ..............AA-24
Officers and Directors ...............AA-25
Market for Common Stock
and Related Stockholder Matters ......AA-26
Selected Financial Data ..............AA-26
Safe Harbor Statement ................AA-27
<PAGE> 44
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S REVIEW AND OUTLOOK
RESULTS OF OPERATIONS
1999 OVERVIEW
Wendy's International, Inc. (the Company) had another successful year in 1999.
Same-store sales increased at domestic Wendy's (7.9%), Wendy's of Canada (3.1%
in Canadian dollars), Canadian Tim Hortons (10.5% in Canadian dollars), and U.S.
Hortons (13.9%). The Wendy's domestic operating margin grew to 16.7% in 1999
from 15.6% in 1998 and 14.8% in 1997. Growth of sales and profits accelerated in
the core markets of Wendy's in North America and Tim Hortons (Hortons) in
Canada. The Company benefited from the strategic initiatives established in 1997
and 1998. Highlighted below are some of the specific results of these
initiatives during 1999.
- - 7.2 million shares were repurchased for $187.3 million, bringing the two-year
total to 16.5 million shares for $397.8 million. The aggregate authorization
to repurchase shares is up to $600 million. The Company expects to continue
repurchasing shares under this program.
- - As part of the Company's goal of increasing return on assets, 99 rental
properties were disposed of during 1999, bringing the two-year total to 244
properties. Also in 1999, notes receivable totaling $85.8 million were repaid
through franchisee refinancing. A total of $133.8 million in notes receivable
were repaid under this program since it was initiated in 1998.
- - In 1998, charges were incurred for international issues. International assets
in the United Kingdom were impaired, and accordingly were reduced by a $9.1
million pretax charge. During 1999, substantially all company operated
restaurants were closed in the United Kingdom. Also in 1998, the Company
recorded a pretax charge of $24.8 million to write down underperforming and
non-recoverable assets in Argentina and to provide for an estimated settlement
with the franchisee. During 1999, a franchisee settlement was completed and
Argentina was established as a company operated market.
The Company reported diluted earnings per share (EPS) of $1.32 in 1999, $.95 in
1998, and $.97 in 1997. Both 1998 and 1997 earnings were reduced by significant
charges which included $25.2 million after tax ($.18 per share) in 1998 for
international charges (see Note 2 to the consolidated financial statements and
the "Write-Down of Certain International Assets and Related Charges" discussion
which follows), 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).
The chart below shows the impact of the non-recurring charges and gains from the
sale of assets on the reported earnings:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Diluted EPS $1.32 $ .95 $ .97
Non-recurring charges -- .18 .36
Asset sale gains* (.06) (.10) (.36)
- ---------------------------------------------------------
Diluted EPS without non-recurring
charges and asset sale gains $1.26 $1.03 $ .97
- ---------------------------------------------------------
</TABLE>
* Asset gains include the sale of restaurants, rental properties and investments
and fee income on notes receivable refinancings.
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 were $1.3 billion, $1.2 billion and $1.3 billion in
1999, 1998 and 1997, respectively. This was an increase of 3.6% in 1999 and an
8.1% decrease in 1998. Average unit net sales increased 9.4% in 1999, the
highest increase in 15 years, compared with 5.7% in 1998. Same-store sales
increased 7.9% in company operated units in 1999 and 2% in 1998. The average
number of Wendy's company operated domestic restaurants decreased by 35 in 1999,
177 in 1998 and 46 in 1997.
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>
- ------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------
<S> <C> <C> <C>
Company $1,284,000 $1,174,000 $1,111,000
Franchise $1,102,000 $1,031,000 $1,017,000
Total domestic $1,138,000 $1,062,000 $1,042,000
- ------------------------------------------------------------
</TABLE>
The average number of transactions in domestic company operated Wendy's
increased approximately 5.7% in 1999 compared with 3.5% in 1998 and 2.8% in
1997. Domestic selling prices increased .5% during the year, while 1998 and 1997
increased .8% and 1.4%, respectively.
TIM HORTONS
Retail sales include sales from company operated 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 17.5% to
$232.5 million (17.9% in local
AA-1
<PAGE> 45
currency) in 1999 and 14.5% to $198.0 million (22.8% in local currency) in 1998.
This reflected the increase in the number of Hortons' franchised restaurants
serviced, positive same-store sales growth and the additional week of operations
in 1998. Hortons' Canadian same-store sales growth, in local currency, was
approximately 10.5% in 1999, 10.2% in 1998 and 8.0% in 1997. Retail sales from
company operated units increased 7.5% to $74.8 million in 1999 and increased
63.7% in 1998 to $69.6 million. The 1998 increase primarily reflects the opening
of new restaurants in the United States.
INTERNATIONAL WENDY'S
International Wendy's retail sales primarily represents sales from company
operated restaurants in Canada. Canadian Wendy's same-store sales for company
operated restaurants, in local currency, increased 3.1% in 1999 following a 2.5%
increase in 1998.
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 and amounted to $1.1 million in 1999, $1.8 million in 1998 and $1.0
million in 1997. Management reviews reserves on an ongoing basis and believes
they are adequate for franchise-related receivables.
Royalties, before reserves, increased $15.4 million or 10.1% in 1999, and $17.2
million or 12.8% in 1998. This was a result of an average of 184 more franchise
domestic Wendy's restaurants being open in 1999 and an average of 304 more in
1998, and one additional week of operations in 1998. Average sales at franchise
restaurants increased 6.8% in 1999 and 1.4% in 1998.
Pretax gains from franchising Wendy's restaurants amounted to $8.2 million in
1999 for 24 restaurants sold, compared with $2.4 million in 1998 for 171
restaurants and $80.5 million in 1997 for 228 restaurants. Additionally, pretax
gains resulting from the sale of properties which were previously leased to
franchisees by Wendy's were $6.5 million in 1999, $18.0 million in 1998 and
$475,000 in 1997. Franchise fees were $3.9 million in 1999, $3.9 million in 1998
and $4.0 million in 1997. Fees from the refinancing of notes receivable amounted
to $1.7 million in 1999 and $977,000 in 1998.
Rental income from restaurants leased to franchisees decreased $2.5 million to
$35.2 million in 1999 compared with an increase of $8.1 million to $37.7 million
in 1998, reflecting the sale of rental properties and an extra week of
operations in 1998.
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 19.0% in 1999 to $31.8 million and 16.0%
in 1998 to $26.7 million. This reflected the increase in the number of Canadian
franchise restaurants open and the positive same-store sales growth in Canada,
in local currency, of 10.5%, 10.2% and 8.0% in 1999, 1998 and 1997,
respectively. Franchise fees were $34.0 million in 1999, $26.5 million in 1998
and $30.3 million in 1997.
Rental income from restaurants leased to franchisees was $88.2 million in 1999
compared with $75.7 million in 1998 and $65.0 million 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 1999, 1,277 restaurants were
leased to franchisees, versus 1,116 in 1998 and 1,046 in 1997.
INTERNATIONAL WENDY'S
International Wendy's royalties were $8.5 million, $8.9 million and $9.3 million
in 1999, 1998 and 1997, respectively. Wendy's of Canada royalties, before
reserves, increased to $6.6 million in 1999, or 17.3% as 17 new franchise stores
were opened, five stores were acquired from the Company, and same-store
franchise unit sales increased, in local currency, 3.9%. In 1998, Canadian
royalties increased to $5.6 million or 15.4% reflecting 23 new stores, 21
acquired stores and, in local currency, a 2.5% increase in same-store sales. The
increase in 1999 Canadian royalties was offset by the impact of a decrease in
Wendy's other international stores open, with 25 international franchise
restaurants converted to company operated restaurants and another 49 units
closed. The decrease in international royalties in 1998 primarily reflected
adverse currency changes as the number of stores open remained constant.
AA-2
<PAGE> 46
COST OF SALES AND RESTAURANT OPERATING COSTS
DOMESTIC WENDY'S
Domestic Wendy's cost of sales decreased to 58.6% of Wendy's domestic retail
sales in 1999 from 58.9% in 1998 and 59.1% in 1997. Domestic food costs, as a
percent of domestic retail sales, were 29.1% in 1999, 28.7% in 1998 and 28.9% in
1997. The increase in 1999 food costs as a percent of retail sales reflected
higher beef and chicken costs during 1999. The improvement in the 1998 food
costs, as a percent of retail sales, reflected lower beef and lettuce costs and
the impact of salad bar removals during 1998.
Domestic Wendy's labor costs were 26.0% of domestic retail sales in 1999,
compared with 26.4% in 1998 and 26.3% in 1997. Average wage rates increased 5.7%
in 1999 and 5.8% in 1998. 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 offset by higher average sales per
restaurant. Sales per labor hour increased to $29.70 in 1999 compared with
$27.90 in 1998, reflecting a 6.5% increase in productivity following a 4.7%
increase in 1998.
Domestic Wendy's restaurant operating costs, as a percent of domestic retail
sales, were 24.7% in 1999, 25.5% in 1998 and 26.1% in 1997. The reduced
percentage in 1999 reflects lower salaries and benefits, utility and insurance
costs while 1998 reflected lower utility and marketing costs, 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 16.7% for 1999, compared with
15.6% in 1998 and 14.8% in 1997. The 1999 margin is the highest in 14 years. The
improvement in both years reflects higher average sales and favorable restaurant
operating costs as discussed above. The following chart details the margin:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1999 1998 1997
% OF SALES % of Sales % of Sales
- ---------------------------------------------------------------
<S> <C> <C> <C>
Retail sales 100.0% 100.0% 100.0%
Cost of sales 58.6 58.9 59.1
Company restaurant
operating costs 24.7 25.5 26.1
- ---------------------------------------------------------------
Domestic company
operating margin 16.7% 15.6% 14.8%
- ---------------------------------------------------------------
</TABLE>
TIM HORTONS
The Hortons' Canadian warehouse cost of sales increased 16.6% (17.0% in local
currency) to $186.2 million in 1999 and 14.7% (23.0% in local currency) to
$159.7 million in 1998 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 $55.5 million, $54.5 million and $32.2 million in 1999, 1998
and 1997, respectively, reflecting the increase in the number of restaurants in
the United States and higher average sales per restaurant.
INTERNATIONAL WENDY'S
Canadian cost of sales remained relatively constant at 63.1% of retail sales in
1999, 63.3% in 1998 and 63.2% in 1997. Canadian company restaurant operating
costs, as a percent of retail sales, were 25.3%, 24.7% and 25.5% for 1999, 1998
and 1997, respectively. International Wendy's restaurants outside of Canada are
not profitable at the store level.
OPERATING COSTS
DOMESTIC WENDY'S
Domestic Wendy's operating costs include rent expense and other costs related to
properties subleased to franchisees and costs related to operating and
maintaining the bakery. Rent expense was $10.1 million in 1999, $9.8 million in
1998 and $7.6 million in 1997. The 1999 increase reflects higher percentage rent
due to higher retail sales. The 1998 increase reflected the growth in the number
of properties being leased and then subleased to franchisees. There were 170
total restaurants leased by the Company and then subleased to franchisees in
1999 versus 247 in 1998 and 200 in 1997.
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 was $26.9 million in 1999, $23.8 million in 1998 and $21.6 million
in 1997 reflecting the growth in the number of properties being leased and then
subleased to Canadian franchisees, as well as higher percentage rent due to
higher retail sales. There were 952 total restaurants leased by Hortons and then
subleased to
AA-3
<PAGE> 47
franchisees at year-end 1999 versus 866 in 1998 and 765 in 1997. Cost of
equipment increased 28.7% or $5.3 million in 1999 but decreased 8.8% to $18.6
million in 1998 reflecting an increased number of restaurants franchised in 1999
following a decrease in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $9.4 million in 1999 to $192.9
million. As a percent of revenues, expenses were 9.3% in 1999, 9.4% in 1998 and
11.4% in 1997. Increases in 1999 expenses included performance-based bonuses and
increased professional fees for outside consultants. In 1998, general and
administrative expenses increased $23.2 million after adjusting 1997 for the
$72.7 million non-recurring pretax charges for various strategic initiatives
(see Note 3 to the consolidated financial statements). The increase in 1998
included professional services for technology projects, development initiatives,
charges for legal issues, spending to support Hortons expansion into the United
States and an additional week of operations. In addition to higher expenses in
1998, the percentage increase also reflected the revenue reductions from closing
and franchising Wendy's restaurants throughout the prior three years.
WRITE-DOWN OF CERTAIN INTERNATIONAL ASSETS AND RELATED CHARGES
In 1998, 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 was $7.2 million, $2.7 million and $6.9 million in 1999, 1998 and
1997, respectively. The 1999 total reflected more write-offs and dispositions of
underperforming assets and investments. The decrease in 1998 from the prior year
reflected lower charges for store closures, remodeling and conversion costs, as
well as a pay out for an international arbitration settlement in 1997.
INTEREST
Net interest expense included interest income of $19.0 million in 1999 compared
with $28.0 million in 1998 and $25.3 million in 1997. Interest income decreased
in 1999 primarily due to significantly lower levels of notes receivable
outstanding. Interest expense was $29.1 million in 1999, $30.0 million in 1998
and $28.9 million in 1997, which includes distributions on the company-obligated
mandatorily redeemable preferred securities.
INCOME TAXES
The effective income tax rate for 1999 was 38.0% compared with 40.6% for 1998
and 40.5% for 1997. The decrease in the tax rate for 1999 when compared with the
prior two years primarily reflects the impact of the $33.9 million international
pretax charge in 1998 and the $72.7 million non-recurring pretax charge in 1997.
Before the non-recurring charges in 1998 and 1997, the effective income tax
rates were 38.5% and 38.2%, respectively.
FINANCIAL POSITION
OVERVIEW
The Company maintains a strong balance sheet to support system growth and
financial flexibility. The debt-to-equity ratio has remained very consistent
over the last three years and was 23% at year-end 1999 and 1998
(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 increased $45.7 million from 1998 to $1.9 billion. Property and
equipment increased $108.4 million reflecting a greater number of company
operated restaurants in addition to capitalized costs in connection with the new
enterprise-wide and store management information systems. Notes receivable
decreased $103.0 million primarily due to a plan to monetize assets with overall
returns lower than the Company's cost of capital. A total of $187.3 million of
cash was used to repurchase 7.2 million common shares in 1999. Return on average
assets was 16.2% in 1999 and 12.8% in 1998, with 1998 reflecting significant
non-recurring charges.
Total shareholders' equity was reduced $2.6 million, primarily reflecting the
treasury shares purchased in 1999 somewhat offset by a $137.3 million increase
in retained earnings. Return on average equity was 15.4% in 1999 and 11.0% in
1998 with 1998 reflecting significant non-recurring charges.
CASH FLOW
Cash provided by operating activities was $291.3 million in 1999, compared with
$233.8 million in 1998 and $223.4 million in 1997. Cash proceeds of $100.2
million were realized in 1999 primarily from the sale of Wendy's
AA-4
<PAGE> 48
company operated restaurants and sale of properties previously leased to
franchisees, while $114.9 million was provided in 1998 and $93.9 million was
provided in 1997. The Company also received $103.7 million, $68.7 million and
$17.3 million in principal payments of notes receivable in 1999, 1998 and 1997,
respectively, of which $85.8 million and $48.0 million in 1999 and 1998,
respectively, was due to franchisee refinancing (see Note 1 to the consolidated
financial statements).
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, and during 1999 and 1998, repurchase of
common stock. The Company repaid $17.0 million in long-term obligations during
the last three years. In 1999 and 1998, the Company repurchased common stock for
$187.3 million and $210.6 million, respectively.
During 1999, capital expenditures amounted to $248 million. New restaurant
expenditures amounted to $120 million; $57 million was spent for improvements to
existing restaurants; and $71 million was spent for other additions. Plans for
2000 are to open up to 335 new Wendy's restaurants, of which approximately 85
will be company operated Wendy's sites. Hortons plans to open up to 185 new
restaurants, primarily franchised. Capital expenditures are expected to be
approximately $280 million in 2000.
Cash flow from operations, cash and investments on hand, possible asset sales,
and cash available through existing revolving credit agreements and through the
possible issuance of securities should provide for the Company's projected cash
requirements through 2000, 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 largest coffee and donut restaurant chain in Canada and at
year-end 1999 had 1,709 restaurants open in Canada and 108 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
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 up to 170 Canadian Hortons in 2000. Hortons will continue gradual
new unit development in the United States, and plans to open 15 stores in 2000.
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 1999, 32 Wendy's opened in
Canada, bringing total restaurants to 293 at year end. In 2000, the Company
plans to open 35 Wendy's restaurants in Canada.
At year-end 1999, there were 366 international Wendy's open outside Canada, with
37 restaurants opened and 61 restaurants closed in 1999. International growth
outside Canada continues to be primarily through franchising, but company
operated units are also planned. In 1999, the Company acquired restaurant sites
in Argentina from its former joint venture partner and is now operating the
stores. During 1999, the Company closed substantially all company operated
restaurants in the United Kingdom. The Company plans on opening up to 35 new
Wendy's in international markets outside North America in 2000, with the primary
focus on Latin America. International operations in Canada are profitable,
however, company owned operations in Argentina are not yet profitable.
MANAGEMENT'S OUTLOOK
The strategic initiatives implemented in 1998 and 1999 are focused on increasing
shareholder value. These initiatives included growing same-store sales,
improving store-level productivity to increase margins, disposing of
underperforming restaurants, writing down underperforming and non-recoverable
assets, accelerating restaurant development in North America, repurchasing
common shares and implementing a new enterprise-wide information system.
AA-5
<PAGE> 49
Management intends to allocate resources to improve long-term return on assets
and invested capital. The Company also intends to remain focused on established
operational strategies of exceeding customer expectations, fostering a
performance-driven culture, delivering a balanced message of brand equity plus
value in marketing and growing 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 in the domestic Wendy's business in
2000, particularly with labor costs. The Company intends to effectively 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. A total of 482 new
restaurants were added in 1999. Current plans call for up to 520 new units to
open in 2000. The primary focus will be on core operations of Wendy's in North
America and Hortons in Canada with the majority of units being traditional
sites. The Company expects pretax gains generated from selling company
restaurants or other asset sale transactions to be at or less than gains in
recent years.
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.
Hortons is not currently profitable in the United States. The Company's strategy
is to enhance brand awareness, increase same-store sales, build customer loyalty
and attract additional franchisees. In 2000, the Company will limit new
development to approximately 15 new units in the United States.
The Company is focused on improving its international operations. Most of
Wendy's development outside North America is with franchisees who can be
affected by adverse economic and political conditions, such as those recently
experienced in Asia. Economic and competitive pressures remain very challenging
in Europe, Latin America and the Middle East. The Company recently acquired the
Wendy's restaurants in Argentina, which are currently not profitable. Although
management believes it can generate profits from the Argentina operations there
are no assurances that this will happen. Likewise, although the Canadian economy
remains strong, the Canadian dollar weakened in the two years prior to 1999, 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 to recognize the year 2000 in calculating and processing information.
During 1999 a new enterprise-wide information system was substantially
implemented which included software that was year 2000 compliant. The Company
also modified, tested and implemented existing store management systems and
substantially all other information systems. The Company has not experienced
problems with its information systems related to the year 2000 issue.
The modifications and related expenses to existing software were $4.1 million,
of which $2.4 million was expensed through 1998. The remainder was expensed in
1999. The new information system is estimated to cost approximately $50 to $60
million, a substantial portion of which has been or will be capitalized. All
costs have been and are expected to be funded by cash flows from operations.
The Company is not aware of significant year 2000 issues involving various third
parties with which it has a significant relationship, including food and paper
suppliers, restaurant equipment suppliers, banks, franchisees and other
entities.
Despite the Company's extensive efforts to address potential year 2000 issues,
the installation of a new enterprise-wide information system, and modifications
to other systems, unanticipated problems during the early months of 2000 are
possible. These problems, which the Company believes are unlikely, could
(depending on their scope and magnitude) have a material adverse effect on
results of operations, financial condition and/or liquidity.
AA-6
<PAGE> 50
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, 2000. The Company is in the process of
evaluating the impact of this statement.
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements", was issued in December 1999 and is effective for the Company's
quarter ending April 2, 2000. SAB 101 is applicable to the Company where it
functions as a lessor and the rentals are based on the lessee achieving a
certain sales level (contingent rentals). SAB 101 requires that contingent rents
be recorded as revenue in the period that the contingency is resolved. Emerging
Issues Task Force Issue No. 98-9 (EITF 98-9), "Accounting for Contingent Rent",
was also issued during 1999 and is effective for the Company's quarter ending
April 2, 2000. EITF 98-9 requires that contingent rent expense be recognized
based on the probability of achieving a certain sales level. The Company does
not believe either standard will have a material impact on its quarterly or
annual financial statements.
SAFE HARBOR STATEMENT
Certain information contained in the Financial Statements and Other Information
section of 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 the Financial Statements and Other
Information section of the Proxy Statement for the 2000 Annual Meeting of
Shareholders.
WENDY'S AND TIM HORTONS RESTAURANTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
WENDY'S COMPANY
TOTAL WENDY'S OPERATED WENDY'S FRANCHISED
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Open at beginning of year 5,333 5,207 4,933 1,036 1,202 1,315 4,297 4,005 3,618
Opened 315 299 371 88 68 97 227 231 274
Closed (121) (173) (97) (20) (70) (15) (101) (103) (82)
Acquisitions within the
system 56 178 261 32 7 33 24 171 228
Dispositions within the
system (56) (178) (261) (24) (171) (228) (32) (7) (33)
- ---------------------------------------------------------------------------------------------------------------------------------
Open at end of year 5,527 5,333 5,207 1,112 1,036 1,202 4,415 4,297 4,005
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
TOTAL HORTONS
- -------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Open at beginning of year 1,667 1,578 1,384
Opened 167 161 213
Closed (17) (72) (19)
- -------------------------------------------------------------
Open at end of year 1,817 1,667 1,578
- -------------------------------------------------------------
</TABLE>
AA-7
<PAGE> 51
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Fifty-two weeks ended January 2, 2000, fifty-three weeks ended January 3, 1999
and fifty-two weeks ended December 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Retail sales $1,671,624 $1,586,145 $1,651,689
Franchise revenues 400,620 362,094 385,641
- ----------------------------------------------------------------------------------------------
2,072,244 1,948,239 2,037,330
- ----------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 1,046,380 995,966 1,026,026
Company restaurant operating costs 367,346 359,815 389,534
Operating costs 81,706 67,318 63,175
General and administrative expenses (Note 3) 192,857 183,486 232,983
Depreciation and amortization of property and
equipment 97,917 95,396 95,638
Write-down of certain international assets and
related charges (Note 2) 33,893
Other expense 7,193 2,665 6,899
Interest, net 10,159 2,039 3,604
- ----------------------------------------------------------------------------------------------
1,803,558 1,740,578 1,817,859
- ----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 268,686 207,661 219,471
INCOME TAXES 102,101 84,303 88,972
- ----------------------------------------------------------------------------------------------
NET INCOME $ 166,585 $ 123,358 $ 130,499
- ----------------------------------------------------------------------------------------------
BASIC EARNINGS PER COMMON SHARE $1.37 $.96 $.99
- ----------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE $1.32 $.95 $.97
- ----------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $.24 $.24 $.24
- ----------------------------------------------------------------------------------------------
BASIC SHARES 122,032 128,353 131,595
- ----------------------------------------------------------------------------------------------
DILUTED SHARES 131,039 137,089 140,738
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-8
<PAGE> 52
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 2, 2000 and January 3, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 210,785 $ 160,743
Accounts receivable, net 71,763 74,737
Notes receivable, net 7,749 19,952
Deferred income taxes 19,267 23,177
Inventories and other 40,271 35,085
- --------------------------------------------------------------------------------------
349,835 313,694
- --------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 1,389,154 1,280,794
NOTES RECEIVABLE, NET 35,538 126,366
GOODWILL, NET 48,306 50,723
DEFERRED INCOME TAXES 22,390 15,090
OTHER ASSETS 38,374 51,280
- --------------------------------------------------------------------------------------
$1,883,597 $1,837,947
- --------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 126,487 $ 101,100
Accrued expenses
Salaries and wages 35,214 27,228
Taxes 37,577 31,105
Insurance 37,061 34,944
Other 43,422 49,636
Current portion of long-term obligations 4,448 5,399
- --------------------------------------------------------------------------------------
284,209 249,412
- --------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS
Term debt 204,788 205,371
Capital leases 44,231 40,676
- --------------------------------------------------------------------------------------
249,019 246,047
- --------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 69,516 60,707
OTHER LONG-TERM LIABILITIES 15,414 13,714
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: 134,856,000 and 133,415,000
shares, respectively 11,941 11,796
Capital in excess of stated value 398,580 370,288
Retained earnings 1,068,883 931,603
Accumulated other comprehensive expense (14,443) (33,355)
- --------------------------------------------------------------------------------------
1,464,961 1,280,332
Treasury stock, at cost: 16,626,000 and 9,410,000
shares, respectively (399,522) (212,265)
- --------------------------------------------------------------------------------------
1,065,439 1,068,067
- --------------------------------------------------------------------------------------
$1,883,597 $1,837,947
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-9
<PAGE> 53
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fifty-two weeks ended January 2, 2000, fifty-three weeks ended January 3, 1999
and fifty-two weeks ended December 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 166,585 $ 123,358 $ 130,499
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 102,969 100,218 104,529
Deferred income taxes 5,258 (12,767) 802
Gain from property dispositions, net (11,715) (6,646) (20,044)
Net reserves for receivables and other contingencies 1,490 1,982 352
Changes in operating assets and liabilities, net of
effects of acquisitions and dispositions of
restaurants
Accounts and notes receivable 940 (489) (21,101)
Inventories and other (7,919) (1,883) (1,476)
Accounts payable and accrued expenses 23,332 27,553 6,391
Decrease in other assets 2,130 1,330 12,048
Other, net 8,214 1,180 11,402
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 291,284 233,836 223,402
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from property dispositions 100,160 114,944 93,893
Capital expenditures (247,797) (241,509) (294,552)
Acquisition of franchises (1,725) (4,775) (10,226)
Principal payments of notes receivable 103,728 68,658 17,265
Other investing activities 3,057 (11,549) (7,359)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (42,577) (74,231) (200,979)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 22,826 14,397 30,567
Repurchase of common stock (187,257) (210,553)
Principal payments on long-term obligations (4,929) (5,998) (6,089)
Dividends paid on common stock (29,305) (30,970) (31,595)
- -------------------------------------------------------------------------------------------------
Net cash used in financing activities (198,665) (233,124) (7,117)
- -------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 50,042 (73,519) 15,306
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 160,743 234,262 218,956
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 210,785 $ 160,743 $ 234,262
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 29,291 $ 29,592 $ 29,186
- -------------------------------------------------------------------------------------------------
Income taxes paid 84,188 73,573 79,941
- -------------------------------------------------------------------------------------------------
Capital lease obligations incurred 5,527 4,998 6,811
- -------------------------------------------------------------------------------------------------
Notes receivable from restaurant dispositions 525 28,603 70,839
- -------------------------------------------------------------------------------------------------
Acquisition of franchises
- -------------------------------------------------------------------------------------------------
Fair value of assets acquired 1,725 4,775 19,106
- -------------------------------------------------------------------------------------------------
Cash paid 1,725 4,775 10,226
- -------------------------------------------------------------------------------------------------
Liabilities assumed 8,880
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-10
<PAGE> 54
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fifty-two weeks ended January 2, 2000, fifty-three weeks ended January 3, 1999
and fifty-two weeks ended December 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK AT STATED VALUE
Balance at beginning of period $ 11,796 $ 11,595 $ 11,315
Exercise of options 145 101 280
Conversion of exchangeable shares 100
- ---------------------------------------------------------------------------------------------------
Balance at end of period 11,941 11,796 11,595
- ---------------------------------------------------------------------------------------------------
CAPITAL IN EXCESS OF STATED VALUE
Balance at beginning of period 370,288 353,327 312,570
Exercise of options, including tax benefits 28,292 17,061 40,757
Conversion of exchangeable shares (100)
- ---------------------------------------------------------------------------------------------------
Balance at end of period 398,580 370,288 353,327
- ---------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 931,603 839,215 740,311
Net income 166,585 123,358 130,499
Dividends paid (29,305) (30,970) (31,595)
- ---------------------------------------------------------------------------------------------------
Balance at end of period 1,068,883 931,603 839,215
- ---------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE EXPENSE (14,443) (33,355) (18,191)
- ---------------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance at beginning of period (212,265) (1,712) (1,712)
Purchase of common stock (187,257) (210,553)
- ---------------------------------------------------------------------------------------------------
Balance at end of period (399,522) (212,265) (1,712)
- ---------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY $1,065,439 $1,068,067 $1,184,234
- ---------------------------------------------------------------------------------------------------
COMMON SHARES
Balance issued at beginning of period 117,965 115,946 113,148
Exercise of options 1,441 1,019 2,798
Conversion of exchangeable shares 1,000
- ---------------------------------------------------------------------------------------------------
Balance issued at end of period 119,406 117,965 115,946
- ---------------------------------------------------------------------------------------------------
TREASURY SHARES
- ---------------------------------------------------------------------------------------------------
Balance at beginning of period (9,410) (129) (129)
Purchase of common stock (7,216) (9,281)
- ---------------------------------------------------------------------------------------------------
Balance at end of period (16,626) (9,410) (129)
- ---------------------------------------------------------------------------------------------------
COMMON SHARES ISSUED AND OUTSTANDING 102,780 108,555 115,817
- ---------------------------------------------------------------------------------------------------
COMMON SHARES ISSUABLE UPON CONVERSION OF EXCHANGEABLE
SHARES (1,000 shares purchased and converted in 1998) 15,450 15,450 16,450
- ---------------------------------------------------------------------------------------------------
COMMON SHARES ISSUED AND OUTSTANDING, INCLUDING
EXCHANGEABLE SHARES 118,230 124,005 132,267
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-11
<PAGE> 55
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fifty-two weeks ended January 2, 2000, fifty-three weeks ended January 3, 1999
and fifty-two weeks ended December 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $166,585 $123,358 $130,499
OTHER COMPREHENSIVE INCOME (EXPENSE)
Translation adjustments 17,098 (15,057) (11,741)
Other (net of taxes of $1,370, $90 and $536,
respectively) 1,814 (107) (738)
- --------------------------------------------------------------------------------------------
18,912 (15,164) (12,479)
- --------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $185,497 $108,194 $118,020
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
AA-12
<PAGE> 56
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 1999, the
Company and its franchise owners operated 5,527 restaurants under the name
"Wendy's" in 50 states and in 33 other countries and territories. Additionally,
the Company and its franchise owners operated 1,709 restaurants in Canada and
108 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 1999
and 1997 fiscal years consisted of 52 weeks and the 1998 fiscal year consisted
of 53 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
1999 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 $19.9 million and $19.6 million at January 2, 2000 and
January 3, 1999, 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 costs associated with the
construction of new restaurants are 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) 1999 1998
<S> <C> <C>
- -------------------------------------------------------
Land $ 312,908 $ 317,895
Buildings 640,607 564,338
Leasehold improvements 411,350 374,541
Restaurant equipment 390,069 358,327
Other equipment 120,630 104,609
Capital leases 62,133 63,502
- -------------------------------------------------------
1,937,697 1,783,212
- -------------------------------------------------------
Accumulated depreciation and
amortization (548,543) (502,418)
- -------------------------------------------------------
$1,389,154 $1,280,794
- -------------------------------------------------------
</TABLE>
The Company capitalizes certain internally developed software costs which are
amortized over a ten-year period. At January 2, 2000 and January 3, 1999,
capitalized software development costs, net of accumulated amortization,
amounted to $33.2 million and $22.0 million, respectively.
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 $26.8 million and $23.4 million at January 2, 2000 and January 3, 1999,
respectively.
AA-13
<PAGE> 57
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 permitted such lender to contact the Company's
franchisees having notes payable to the Company. Under the agreement, the lender
could offer to refinance such notes, generally on terms more favorable to the
franchisees than existing terms. The Company was paid a fee by the lender for
each individual note refinancing. In 1999 and 1998, a total of $82.0 million and
$30.0 million, respectively, in notes receivable was refinanced. Fee income from
the refinancings amounted to $1.7 million and $977,000 in 1999 and 1998,
respectively. Additionally, in 1999 and 1998, other note refinancings amounted
to $3.8 million and $18.0 million, respectively. The fee income is recorded in
franchise revenues.
ADVERTISING COSTS
The Company expenses advertising costs as incurred.
FRANCHISE OPERATIONS
The Company grants franchises to independent operators who in turn pay a
technical assistance fee and franchise fees which may include equipment,
royalties, and in some cases, rents for each restaurant opened. A technical
assistance fee is recorded as income when each restaurant commences operations.
Royalties, based upon a percent of monthly 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 2, 2000, the Company and its franchise owners operated 293 Wendy's
restaurants and 1,709 Tim Hortons restaurants in Canada. Additionally, 366
Wendy's restaurants were operated by the Company and its franchise owners in
other foreign countries and territories. The functional currency of each foreign
subsidiary is the respective local currency. 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. Total translation adjustments included in accumulated
other comprehensive expense at January 2, 2000 and January 3, 1999 were $14.4
million and $31.5 million, respectively.
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.
Diluted computations include assumed conversions of stock options, net of shares
repurchased from proceeds, and company-obligated mandatorily redeemable
preferred securities, when dilutive, and the elimination of related expenses,
net of income taxes.
The computation of basic and diluted earnings per common share for each year is
shown below:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Income for
computation of
basic earnings per
common share $166,585 $123,358 $130,499
Interest savings, net
of taxes, on
assumed conversions 6,289 6,359 6,034
- -------------------------------------------------------
Income for
computation of
diluted earnings
per common share $172,874 $129,717 $136,533
- -------------------------------------------------------
Weighted average
shares for
computation of
basic earnings per
common share 122,032 128,353 131,595
- -------------------------------------------------------
Dilutive stock
options 1,434 1,163 1,570
Assumed conversions 7,573 7,573 7,573
- -------------------------------------------------------
Weighted average
shares for
computation of
diluted earnings
per common share 131,039 137,089 140,738
- -------------------------------------------------------
Basic earnings per
common share $1.37 $.96 $.99
- -------------------------------------------------------
Diluted earnings per
common share $1.32 $.95 $.97
- -------------------------------------------------------
</TABLE>
AA-14
<PAGE> 58
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 included $24.8 million for
the write-down of underperforming and nonrecoverable assets in Argentina and a
related franchisee settlement. The charge also included $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. During 1999, the Company decided to shut down its United
Kingdom operations. This decision did not result in any gain or loss.
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) 1999 1998
<S> <C> <C>
- ------------------------------------------------------
Notes, unsecured, and mortgages
payable with a weighted
average interest rate of 7.9%,
due in installments through
2010 $ 11,812 $ 12,657
6.35% Notes, due
December 15, 2005 97,466 97,133
7% Debentures, due December 15,
2025 96,586 96,543
- ------------------------------------------------------
205,864 206,333
Current portion (1,076) (962)
- ------------------------------------------------------
$204,788 $205,371
- ------------------------------------------------------
</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 and current interest rates for all term debt, the
fair value was approximately $195 million at January 2, 2000 and $215 million at
January 3, 1999.
The combined aggregate amounts of future maturities for all term debt are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS)
<S> <C>
- ------------------------------------------------------
2000 $ 1,076
2001 966
2002 1,017
2003 998
2004 4,221
Later years 197,586
- ------------------------------------------------------
$205,864
- ------------------------------------------------------
</TABLE>
The Company has an unused revolving credit facility totaling $167 million at
January 2, 2000. 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%.
AA-15
<PAGE> 59
Net interest expense for each year consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Total interest
charges $ 19,167 $ 19,845 $ 18,936
Distributions on
trust preferred
securities 9,973 10,164 9,973
Interest income (18,981) (27,970) (25,305)
- -------------------------------------------------------
$ 10,159 $ 2,039 $ 3,604
- -------------------------------------------------------
</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 $192 million at January 2, 2000 and $208 million at January 3,
1999.
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) 1999 1998
<S> <C> <C>
- ------------------------------------------------------
Buildings $ 62,133 $ 63,502
Accumulated depreciation (23,167) (26,873)
- ------------------------------------------------------
$ 38,966 $ 36,629
- ------------------------------------------------------
</TABLE>
At January 2, 2000, 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>
- --------------------------------------------------------
2000 $ 7,508 $ 55,943
2001 6,901 52,698
2002 6,652 49,917
2003 6,366 46,854
2004 6,114 41,951
Later years 53,518 223,553
- --------------------------------------------------------
Total minimum lease payments 87,059 $470,916
- --------------------------------------------------------
Amount representing interest (39,456)
- -------------------------------------------
Present value of net minimum
lease payments 47,603
Current portion (3,372)
- -------------------------------------------
$ 44,231
- -------------------------------------------
</TABLE>
Total minimum lease payments have not been reduced by minimum sublease rentals
of $3.9 million under capital leases, and $239.9 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) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Minimum rents $60,020 $55,376 $56,512
Contingent rents 19,401 16,409 13,737
- -------------------------------------------------------
$79,421 $71,785 $70,249
- -------------------------------------------------------
</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
AA-16
<PAGE> 60
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 direct financing leases, included in
other assets, consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
<S> <C> <C>
- ------------------------------------------------------
Total minimum lease receipts $14,841 $ 23,217
Estimated unguaranteed
residual value 1,988 2,667
Amount representing
unearned interest (6,954) (12,093)
Current portion, included in
accounts receivable (739) (901)
- ------------------------------------------------------
$ 9,136 $ 12,890
- ------------------------------------------------------
</TABLE>
At each year end assets leased under operating leases consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
<S> <C> <C>
- ------------------------------------------------------
Land $ 122,342 $ 134,680
Buildings 334,198 333,965
Equipment 35,476 36,861
- ------------------------------------------------------
492,016 505,506
Accumulated depreciation (107,098) (105,450)
- ------------------------------------------------------
$ 384,918 $ 400,056
- ------------------------------------------------------
</TABLE>
At January 2, 2000, future minimum lease receipts were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FINANCING OPERATING
(IN THOUSANDS) LEASES LEASES
<S> <C> <C>
- ---------------------------------------------------------
2000 $ 1,771 $ 50,497
2001 1,474 49,125
2002 1,408 46,489
2003 1,356 43,998
2004 1,439 38,272
Later years 7,393 108,236
- ---------------------------------------------------------
$14,841 $336,617
- ---------------------------------------------------------
</TABLE>
Rental income for each year is included in franchise revenues and amounted to:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Minimum rents $ 50,761 $ 42,162 $39,643
Contingent rents 78,873 72,821 55,968
- -------------------------------------------------------
$129,634 $114,983 $95,611
- -------------------------------------------------------
</TABLE>
NOTE 7 INCOME TAXES
The provision for income taxes each year consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Current
Federal $ 55,574 $ 59,315 $54,114
State and local 5,115 6,155 7,254
Foreign 36,154 31,600 26,802
- -------------------------------------------------------
96,843 97,070 88,170
- -------------------------------------------------------
Deferred
Federal 2,327 (8,935) (3,421)
State and local 241 (926) 265
Foreign 2,690 (2,906) 3,958
- -------------------------------------------------------
5,258 (12,767) 802
- -------------------------------------------------------
$102,101 $ 84,303 $88,972
- -------------------------------------------------------
</TABLE>
Income before income taxes for foreign operations was $94.7 million, $69.9
million and $68.9 million for 1999, 1998 and 1997, respectively.
AA-17
<PAGE> 61
The temporary differences which give rise to deferred tax assets and liabilities
at each year end consisted of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(IN THOUSANDS) 1999 1998
<S> <C> <C>
- ---------------------------------------------------------
Deferred tax assets
Lease transactions $ 3,634 $ 3,584
Reserves not currently deductible 17,553 15,097
Foreign operations 13,944 19,703
All other 6,584 6,349
- ---------------------------------------------------------
41,715 44,733
- ---------------------------------------------------------
Valuation allowance (6,370)
- ---------------------------------------------------------
$41,715 $38,363
- ---------------------------------------------------------
Deferred tax liabilities
Lease transactions $ 3,735 $ 5,207
Property and equipment basis
differences 36,565 27,914
Installment sales 4,972 14,590
Capitalized expenses deducted for
tax 13,571 7,147
All other 10,731 5,945
- ---------------------------------------------------------
$69,574 $60,803
- ---------------------------------------------------------
</TABLE>
Deferred tax assets for foreign operations have been established primarily for
net operating loss carryovers and excess capital allowances. In 1998, the
deferred tax assets related to operations in the United Kingdom were offset by a
valuation allowance. In 1999, the valuation allowance was written off against
the deferred tax assets related to the United Kingdom operations.
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) 1999 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------
Income taxes at statutory
rate $ 94,040 $72,681 $76,815
Effect of foreign operations 1,917 6,122 8,891
State and local taxes, net
of federal benefit 3,481 3,399 4,888
Other 2,663 2,101 (1,622)
- ----------------------------------------------------------
Income taxes at effective
rate $102,101 $84,303 $88,972
- ----------------------------------------------------------
</TABLE>
Cumulative undistributed earnings of foreign subsidiaries, for which no U.S.
income or foreign withholding taxes have been recorded, approximated $57 million
at January 2, 2000. The additional taxes payable on the earnings of foreign
subsidiaries, if remitted, would be substantially offset by U.S. tax credits for
foreign taxes already paid.
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. In 1999, the Board
of Directors approved an increase in the repurchase program of up to $250
million, bringing the total to up to $600 million. This additional authorization
is for the repurchase of common stock over an 18 to 24-month period (from
September 1999). Total common shares repurchased during 1999 and 1998 pursuant
to the plan were 7.2 million common shares and 9.3 million common shares for a
total of $187 million and $211 million, respectively.
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-
AA-18
<PAGE> 62
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 6.3 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 28, 1999, July 30, 1998 and July 30, 1997, approximately
578,000 options, 744,000 options and 572,000 options were granted to eligible
employees at an exercise price of $30.84 per share, $22.34 per share and $27.13
per share, respectively.
In addition, the Board of Directors also adopted the 1990 Stock Option Plan
(1990 Plan) on August 2, 1990. An 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 28, 1999, July 30, 1998 and July 30, 1997, approximately 1.9 million
options, 1.7 million options and 1.6 million options were granted under the 1990
Plan at an exercise price of $30.84 per share, $22.34 per share and $27.13 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 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
Granted 2,520 30.58
Exercised (1,441) 15.83
Canceled (454) 22.71
- ---------------------------------------------------------
Balance at January 2, 2000 11,315 $22.45
- ---------------------------------------------------------
</TABLE>
Options exercisable to purchase common shares totaled 5.8 million, 5.2 million
and 4.4 million at January 2, 2000, January 3, 1999 and December 28, 1997,
respectively. Shares reserved under the plans at each year end were 13.9 million
in 1999, 14.9 million in 1998 and 15.4 million in 1997.
The following tables summarize stock options outstanding and exercisable at
January 2, 2000:
<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>
- ------------------------------------------------
$ 6 - $18 3,008 5.0 $15.28
18 - 23 4,058 7.3 20.70
23 - 28 1,824 7.6 27.03
28 - 31 2,425 9.6 30.84
- ------------------------------------------------
$ 6 - $31 11,315 7.2 $22.45
- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
(SHARES IN THOUSANDS) OPTIONS EXERCISABLE
- -----------------------------------------
WEIGHTED
RANGE OF AVERAGE
EXERCISE OPTIONS EXERCISE
PRICES EXERCISABLE PRICE
<S> <C> <C>
- -----------------------------------------
$ 6 - $18 2,652 $15.00
18 - 23 2,208 19.49
23 - 28 895 27.07
28 - 31 0
- -----------------------------------------
$ 6 - $31 5,755 $18.60
- -----------------------------------------
</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 1999,
1998 and 1997, respectively: (1) dividend yield of .9%, 1.1% and 1.1%, (2)
expected volatility of 32%, 32% and 28%, (3) risk-free interest rate of 5.8%,
4.6% and 5.8% and (4) expected lives of four years. The per share weighted
average fair value of options granted during 1999, 1998 and 1997 was $9.74,
$6.46 and $7.73, 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) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Net income $158.6 $117.2 $126.3
Basic earnings per common
share $1.30 $.91 $.96
Diluted earnings per common
share $1.26 $.90 $.94
- -------------------------------------------------------
</TABLE>
The impact of applying SFAS 123 in this pro forma disclosure is not indicative
of future results. SFAS 123
AA-19
<PAGE> 63
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 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 1999 and 1998, the Company acquired seven Wendy's restaurants each year
in various markets for $1.7 million and $4.8 million, respectively.
Additionally, the Company took title to 21 Wendy's restaurants in Argentina
during 1999 incidental to a franchisee settlement (see Note 2).
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.
Goodwill acquired totaled $1.1 million, $3.1 million and $4.8 million for 1999,
1998 and 1997, respectively.
NOTE 10 DISPOSITIONS
The Company franchised 24, 171 and 228 existing Wendy's restaurants during 1999,
1998 and 1997, respectively. These transactions resulted in pretax gains of
approximately $8.2 million, $2.4 million and $80.5 million in 1999, 1998 and
1997, respectively. In addition, the Company sold properties which were
previously leased to franchisees which resulted in pretax gains of $6.5 million,
$18.0 million and $475,000 in 1999, 1998 and 1997, respectively. These pretax
gains are included in franchise revenues.
Notes receivable related to dispositions were $35.0 million at January 2, 2000
and $130.1 million at January 3, 1999.
NOTE 11 COMMITMENTS AND CONTINGENCIES
At January 2, 2000 and January 3, 1999, the Company's reserves established for
doubtful royalty receivables were $1.6 million and $3.0 million, respectively.
Reserves related to possible losses on notes receivable, real estate,
guarantees, claims and contingencies involving franchisees totaled $6.1 million
at January 2, 2000 and $17.3 million at January 3, 1999. These reserves are
included in accounts receivable, notes receivable and other accrued expenses.
The decline in the reserves during 1999 substantially all relates to the
franchisee settlement in Argentina (see Note 2).
The Company has guaranteed certain leases and debt payments of franchise owners
amounting to $30.9 million. In the event of default by a franchise owner, the
Company generally retains the right to acquire possession of the related
restaurants. In the United Kingdom, the Company is contingently liable for an
additional $29.0 million related to leases. These leases have been assigned to
unrelated third parties.
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
AA-20
<PAGE> 64
the opinion of the Company that the ultimate resolution of such matters will not
materially affect the Company's financial condition or earnings.
NOTE 12 RETIREMENT PLANS
The change in projected benefit obligation for each year consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
<S> <C> <C>
- ------------------------------------------------------
Balance at beginning of year $58,727 $51,360
Service cost 3,260 5,041
Interest cost 4,021 3,739
Plan participants' contributions 3,189 2,930
Actuarial (loss) gain (640) 3,390
Benefits and expenses paid (6,594) (7,733)
- ------------------------------------------------------
$61,963 $58,727
- ------------------------------------------------------
</TABLE>
The change in fair value of plan assets for each year consisted of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
<S> <C> <C>
- ------------------------------------------------------
Balance at beginning of year $58,360 $53,659
Actual return on plan assets 11,534 7,060
Company contributions 4,000 3,685
Plan participants' contributions 3,189 2,930
Benefits and expenses paid (6,594) (8,974)
- ------------------------------------------------------
$70,489 $58,360
- ------------------------------------------------------
</TABLE>
Prepaid benefit cost at each year end consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1999 1998
<S> <C> <C>
- -------------------------------------------------------
Funded status $ 8,526 $ (367)
Unrecognized actuarial (gain) loss (3,515) 4,566
Unrecognized prior service cost 15 22
- -------------------------------------------------------
$ 5,026 $4,221
- -------------------------------------------------------
</TABLE>
In determining the present value of benefit obligations, discount rates of 7.50%
and 6.25% were used in 1999 and 1998, respectively. The expected long-term rate
of return on assets used was 8.5% in 1999 and 1998. In 1999, an age graded scale
was used in determining the rate of compensation increase. In 1998, the assumed
rate of increase in compensation levels was 8.0%. Plan assets as of January 2,
2000 and January 3, 1999 consisted of debt and equity instruments and cash
equivalents. During 1999, the Company recognized a $1.3 million reduction in net
periodic pension cost resulting from changes made in actuarial methodologies and
assumptions.
Net periodic pension cost for each year end consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------
Service cost $ 3,260 $ 5,041 $ 4,583
Interest cost 4,021 3,739 3,575
Expected return on plan
assets (5,176) (4,706) (4,213)
Net amortization 1,090 715 1,372
- ------------------------------------------------------
$ 3,195 $ 4,789 $ 5,317
- ------------------------------------------------------
</TABLE>
The Company provided for profit sharing and supplemental retirement benefits of
$6.2 million, $4.5 million and $4.4 million for 1999, 1998 and 1997,
respectively.
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 1999, 1998
and 1997, the Company contributed $29.1 million, $26.7 million and $32.4
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 may be used in national or local advertising. WNAP made
reimbursements to the Company totaling $3.3 million, $3.1 million and $2.9
million for 1999, 1998 and 1997, 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 gross sales to TNAP.
AA-21
<PAGE> 65
At January 2, 2000 and January 3, 1999, the Company's payables to WNAP, the Ad
Fund and TNAP amounted to $4.2 million and $2.3 million, respectively. None of
these entities are consolidated.
Total advertising expense of the Company, including amounts contributed to WNAP,
the Ad Fund, TNAP, local advertising costs and other marketing and advertising
expenses, amounted to $57.1 million, $55.4 million and $60.9 million in 1999,
1998 and 1997, 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>
- -------------------------------------------------------------------------
1999
REVENUES $1,472,314 $464,578 $135,352 $2,072,244
INCOME BEFORE INCOME
TAXES 276,581 86,769 1,075 364,425
CAPITAL EXPENDITURES 150,715 76,596 20,486 247,797
TOTAL ASSETS 1,282,000 430,317 99,190 1,811,507
- -------------------------------------------------------------------------
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 1,391,734 318,971 68,902 1,779,607
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
</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) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Income before income
taxes $364,425 $293,108 $294,888
Corporate charges (95,739) (85,447) (75,417)
- -------------------------------------------------------
Consolidated income
before income taxes $268,686 $207,661 $219,471
- -------------------------------------------------------
</TABLE>
Corporate charges include certain overhead costs and net interest expense.
A reconciliation of total reportable segment assets to consolidated total assets
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(IN THOUSANDS) 1999 1998
<S> <C> <C>
- --------------------------------------------------------
Total assets $1,811,507 $1,779,607
Corporate assets 72,090 58,340
- --------------------------------------------------------
Consolidated total assets $1,883,597 $1,837,947
- --------------------------------------------------------
</TABLE>
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>
- -------------------------------------------------------------------
1999
DEPRECIATION AND
AMORTIZATION $66,892 $18,643 $6,573 $92,108
GAINS (LOSSES) FROM
ASSET DISPOSITIONS,
NET 15,612 (3,577) 740 12,775
- -------------------------------------------------------------------
1998
Depreciation and
amortization $69,003 $15,965 $6,773 $91,741
Gains from asset
dispositions, net 20,631 785 21,416
- -------------------------------------------------------------------
1997
Depreciation and
amortization $74,416 $11,047 $6,978 $92,441
Gains from asset
dispositions, net 80,440 495 80,935
- -------------------------------------------------------------------
</TABLE>
AA-22
<PAGE> 66
A reconciliation of total reportable segment depreciation and amortization
expense to consolidated depreciation and amortization expense follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------
Depreciation and
amortization $ 92,108 $ 91,741 $ 92,441
Corporate charges 10,861 8,477 12,088
- -------------------------------------------------------
Consolidated
depreciation and
amortization
expense $102,969 $100,218 $104,529
- -------------------------------------------------------
</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>
- -------------------------------------------------------------------
1999
REVENUES $1,524,911 $515,417 $31,916 $2,072,244
LONG-LIVED ASSETS 1,103,805 325,700 7,955 1,437,460
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
</TABLE>
NOTE 15 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
QUARTER FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1999 1998 1999 1998 1999 1998(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $476,543 $455,573 $528,550 $529,964 $533,399 $485,175 $533,752 $477,527
Gross profit(2) 125,160 107,125 156,543 144,851 148,709 140,584 146,400 132,580
Net income 32,003 23,834 49,532 45,603 44,460 42,935 40,590 10,986
Basic earnings per common share .26 .18 .40 .35 .37 .34 .34 .09
Diluted earnings per common share .25 .18 .39 .34 .35 .33 .33 .09
- -------------------------------------------------------------------------------------------------------------------------------
</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)Total revenues less cost of sales, company restaurant operating costs and
operating costs.
AA-23
<PAGE> 67
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 the Financial
Statements and Other Information furnished with the Company's Proxy Statement
for the 2000 Annual Meeting of Shareholders. The consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States, 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 2,
2000, 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 2, 2000, 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/ Frederick R. Reed
Frederick R. Reed
Chief Financial Officer
/s/ Lawrence A. Laudick
Lawrence A. Laudick
Senior Vice President, General Controller and Assistant Secretary
REPORT OF INDEPENDENT ACCOUNTANTS
FEBRUARY 11, 2000
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 Subsidiaries at January 2, 2000 and January
3, 1999, and the results of their operations and their cash flows for the
periods ended January 2, 2000, January 3, 1999 and December 28, 1997, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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
AA-24
<PAGE> 68
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS
R. DAVID THOMAS
Senior Chairman of the Board and Founder, Director
FREDERICK R. REED
Chief Financial Officer, Director
JOHN T. SCHUESSLER
President and Chief Operating Officer, U.S. Operations
Director
GEORGE CONDOS
Executive Vice President
RONALD E. MUSICK
Executive Vice President, Director
EDWARD L. AUSTIN
Senior Vice President
EMIL J. BROLICK
Senior Vice President
JOHN F. BROWNLEY
Senior Vice President and Treasurer
KATHIE T. CHESNUT
Senior Vice President
DONALD F. CALHOON
Senior Vice President
JOYCE L. EUFEMI
Senior Vice President
STEPHEN D. FARRAR
Senior Vice President
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, General Counsel and
Secretary
KATHLEEN A. MCGINNIS
Senior Vice President
THOMAS J. MUELLER
Senior Vice President
JAMES J. RIEGER
Senior Vice President
JACK C. WHITING
Senior Vice President
DIRECTORS AND OFFICERS
OF TIM HORTONS
RONALD V. JOYCE
Senior Chairman and Co-Founder,
Tim Hortons, Director
PAUL D. HOUSE
President and Chief Operating Officer, Tim Hortons
Director
OUTSIDE DIRECTORS
THE HONORABLE ERNEST S. HAYECK
National Judicial College Faculty,
Retired Judge, Trial Court of Massachusetts
Director
JANET HILL
Vice President,
Alexander & Associates, Inc.
Director
THOMAS F. KELLER
R.J. Reynolds
Professor of Business Administration,
Fuqua School of Business, Duke University
Dean, Fuqua School of Business Europe
Director
TRUE H. KNOWLES
Retired President/Chief Operating Officer, Dr Pepper Company, and Retired
Executive V.P., Dr Pepper/ Seven-Up Companies, Inc.
Director
ANDREW G. MCCAUGHEY
Former Chairman/Chief Executive Officer, Scott's
Hospitality Inc.
Director
FIELDEN B. NUTTER, SR.
President of F.B. Nutter Leasing Co.
Director
JAMES V. PICKETT
Chairman, The Pickett Realty Advisors Inc.,
Principal, Stonehenge Holdings, Inc.
Director
THEKLA R. SHACKELFORD
Owner/President, School Selection Consulting
Director
AA-25
<PAGE> 69
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>
1999 HIGH LOW CLOSE
----------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $30.00 $21.00 $28.4375
Second Quarter 30.50 25.6875 28.50
Third Quarter 31.6875 24.25 26.50
Fourth Quarter 26.8125 19.6875 20.8125
</TABLE>
<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>
At February 28, 2000, the Company had approximately 86,000 shareholders of
record.
DIVIDENDS DECLARED PER SHARE
<TABLE>
<CAPTION>
QUARTER 1999 1998
- --------------------------------------------------------------
<S> <C> <C>
First $.06 $.06
Second .06 .06
Third .06 .06
Fourth .06 .06
</TABLE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998(1) 1997(2) 1996 1995(3)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATIONS (IN MILLIONS)
Retail sales $1,672 1,586 1,652 1,567 1,462
Revenues $2,072 1,948 2,037 1,897 1,746
Income before income taxes $ 269 208 219 255 165
Net income $ 167 123 130 156 110
FINANCIAL POSITION (IN MILLIONS)
Total assets $1,884 1,838 1,942 1,781 1,509
Property and equipment, net $1,389 1,281 1,266 1,208 1,007
Long-term obligations $ 249 246 250 242 337
Company-obligated mandatorily redeemable preferred
securities $ 200 200 200 200
Shareholders' equity $1,065 1,068 1,184 1,057 819
OTHER DATA (IN MILLIONS)
Systemwide sales -- Wendy's $6,017 5,555 5,226 4,784 4,495
Systemwide sales -- Hortons $1,080 895 772 646 541
Capital expenditures $ 248 242 295 307 218
PER SHARE DATA
Net income -- basic $ 1.37 .96 .99 1.23 .93
Net income -- diluted $ 1.32 .95 .97 1.19 .88
Dividends $ .24 .24 .24 .24 .24
Market price at year end $20.81 21.81 22.88 20.88 21.25
</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 primarily all related to
special profit sharing contributions made at Hortons.
AA-26
<PAGE> 70
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 1999 Summary Annual Report and this Financial
Statements and Other Information furnished with the Company's Proxy Statement
for the 2000 Annual Meeting of Shareholders, particularly information regarding
future economic performance and finances, and plans, expectations and objectives
of management, is forward looking. The following factors, in addition to other
possible factors not listed, could affect the Company's actual results and cause
such results to differ materially from those expressed in forward-looking
statements:
Competition. The quick-service restaurant industry is intensely competitive with
respect to price, service, location, personnel and type and quality of food. The
Company and its franchisees compete with international, regional and local
organizations primarily through the quality, variety and value perception of
food products offered. The number and location of units, quality and speed of
service, attractiveness of facilities, effectiveness of advertising and
marketing programs, and new product development by the Company and its
competitors are also important factors. The Company anticipates that intense
competition will continue to focus on pricing. Certain of the Company's
competitors have substantially larger marketing budgets.
Economic, Market and Other Conditions. The quick-service restaurant industry is
affected by changes in national, regional, and local economic conditions,
consumer preferences and spending patterns, demographic trends, consumer
perceptions of food safety, weather, traffic patterns and the type, number and
location of competing restaurants. Factors such as inflation, food costs, labor
and benefit costs, legal claims, and the availability of management and hourly
employees also affect restaurant operations and administrative expenses. The
ability of the Company and its franchisees to finance new restaurant
development, improvements and additions to existing restaurants, and the
acquisition of restaurants from, and sale of restaurants to franchisees is
affected by economic conditions, including interest rates and other government
policies impacting land and construction costs and the cost and availability of
borrowed funds.
Importance of Locations. The success of Company and franchised restaurants is
dependent in substantial part on location. There can be no assurance that
current locations will continue to be attractive, as demographic patterns
change. It is possible the neighborhood or economic conditions where restaurants
are located could decline in the future, thus resulting in potentially reduced
sales in those locations.
Government Regulation. The Company and its franchisees are subject to various
federal, state, and local laws affecting their business. The development and
operation of restaurants depend to a significant extent on the selection and
acquisition of suitable sites, which are subject to zoning, land use,
environmental, traffic, and other regulations. Restaurant operations are also
subject to licensing and regulation by state and local departments relating to
health, sanitation and safety standards, federal and state labor laws (including
applicable minimum wage requirements, overtime, working and safety conditions,
and citizenship requirements), federal and state laws which prohibit
discrimination and other laws regulating the design and operation of facilities,
such as the Americans with Disabilities Act of 1990. Changes in these laws and
regulations, particularly increases in applicable minimum wages, may adversely
affect financial results. The operation of the Company's franchisee system is
also subject to regulation enacted by a number of states and rules promulgated
by the Federal Trade Commission. The Company cannot predict the effect on its
operations, particularly on its relationship with franchisees, of the future
enactment of additional legislation regulating the franchise relationship.
Growth Plans. The Company plans to increase the number of systemwide Wendy's and
Tim Hortons restaurants open or under construction. There can be no assurance
that the Company or its franchisees will be able to achieve growth objectives or
that new restaurants opened or acquired will be profitable.
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.
AA-27
<PAGE> 71
International Operations. The Company's business outside of the United States is
subject to a number of additional factors, including international economic and
political conditions, differing cultures and consumer preferences, currency
regulations and fluctuations, diverse government regulations and tax systems,
uncertain or differing interpretations of rights and obligations in connection
with international franchise agreements and the collection of royalties from
international franchisees, the availability and cost of land and construction
costs and the availability of experienced management, appropriate franchisees,
and joint venture partners. Although the Company believes it has developed the
support structure required for international growth, there is no assurance that
such growth will occur or that international operations will be profitable.
Disposition of Restaurants. The disposition of company operated restaurants to
new or existing franchisees is part of the Company's strategy to develop the
overall health of the system by acquiring restaurants from, and disposing of
restaurants to, franchisees where prudent. The expectation of gains from future
dispositions of restaurants depends in part on the ability of the Company to
complete disposition transactions on acceptable terms.
Transactions to Improve Return on Investment. The sale of real estate previously
leased to franchisees is generally part of the program to improve the Company's
return on invested capital. There are various reasons why the program might be
unsuccessful, including changes in economic, credit market, real estate market
or other conditions, and the ability of the Company to complete sale
transactions on acceptable terms and at or near the prices estimated as
attainable by the Company.
Year 2000. Despite the Company's extensive efforts to assess potential year 2000
issues, the installation of a new enterprise-wide information system, and
modifications of other systems, unanticipated problems during the early months
of 2000 are possible. These problems, which the Company believes are unlikely,
could (depending on their scope and magnitude) 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 1999 Summary Annual Report and this Financial Statements and Other
Information furnished with the Company's Proxy Statement for the 2000 Annual
Meeting of Shareholders, or to update them to reflect events or circumstances
occurring after the date of these materials were first furnished to
shareholders, or to reflect the occurrence of unanticipated events.
AA-28
<PAGE> 72
(Intentionally Left Blank)
<PAGE> 73
MAP TO WENDY'S INTERNATIONAL, INC.
ANNUAL MEETING OF SHAREHOLDERS
COLUMBUS, OHIO
[MAP TO ANNUAL MEETING]
WEDNESDAY, MAY 3, 2000
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> 74
[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
Wednesday, May 3, 2000, beginning at 10 a.m., local time.
We will elect directors, ratify the selection of independent public accountants,
approve a proposal to amend the Company's 1990 Stock Option Plan, approve an
amendment to the Company's Regulations which would permit electronic proxy
voting, 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. 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,
R. DAVID THOMAS
Senior Chairman of the Board and Founder
[2 ARROWS POINTING DOWN GRAPHIC] [2 ARROWS POINTING DOWN GRAPHIC]
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
[X] PLEASE MARK YOUR VOTES AS THIS EXAMPLE
FOR WITHHELD
1. ELECTION [ ] [ ] NOMINEES: JAMES V. PICKETT
OF THOMAS F. KELLER
DIRECTORS RONALD V. JOYCE
ANDREW G. MCCAUGHEY
DAVID P. LAUER
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
____________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
NOMINEES AND FOR PROPOSALS 2, 3 AND 4
FOR AGAINST ABSTAIN
2. APPROVAL OF INDEPENDENT [ ] [ ] [ ]
PUBLIC ACCOUNTANTS
3. APPROVAL OF PROPOSAL TO [ ] [ ] [ ]
AMEND THE 1990 STOCK OPTION
PLAN
4. APPROVAL OF AMENDMENT TO THE [ ] [ ] [ ]
COMPANY'S REGULATIONS WHICH WOULD PERMIT ELECTRONIC PROXY VOTING
5. 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 DO NOT PLAN [ ]
I PLAN TO ATTEND [ ] TO ATTEND
THE MEETING THE 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.
<PAGE> 75
WENDY'S INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR ANNUAL
MEETING MAY 3, 2000
THE UNDERSIGNED HEREBY CONSTITUTES AND APPOINTS R. DAVID THOMAS, FREDERICK R.
REED AND LEON M. MCCORKLE, JR., 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
WEDNESDAY, MAY 3, 2000, 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 APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS, FOR APPROVAL OF THE PROPOSAL TO
AMEND THE 1990 STOCK OPTION PLAN, AND FOR APPROVAL OF AN AMENDMENT TO THE
COMPANY'S REGULATIONS WHICH WOULD PERMIT ELECTRONIC PROXY VOTING.
COMMENTS: (Change of address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(IF YOU HAVE WRITTEN IN THE ABOVE SPACE, PLEASE MARK THE CORRESPONDING BOX ON
THE REVERSE SIDE OF THE CARD)
SEE
REVERSE
SIDE
