Br a n d B
Growth
1995
3
&
4
uildin g
Global
Departments
1992
Growth
Rekindled
2
1989
Foundation
Building
INSIDE COVER
Financial Highlights
INSIDE COVER
About Wendy’s
LIFT THIS COVER
Five-Year Selected Financial Data
LIFT THIS COVER
Investor Information at a Glance
2
Letter to Shareholders
4
Business Overview
18
Executive Management & Directors
20
Corporate Responsibility
21
Management’s Review and Outlook
26
Consolidated Financial Statements
30
Notes to Financial Statements
37
Quarterly Financial Data
38
Management’s Statement of Responsibility
39
Officers
40
Corporate/Shareholder Information
1
1986
Consolidation
& Reevaluation
e
d
’
Y
n S
About Wendy’s
Our mission is to deliver total quality. We and our franchisees operate 4,667
Wendy’s restaurants in the United States and 33 other countries, along with
1,197 Tim Hortons restaurants primarily in Canada. Founded in 1969, Wendy’s
serves the best hamburgers in the business, as well as offering a wide variety
of other fresh, healthy food – salads, the Super Value Menu, chicken sandwiches,
baked potatoes and chili. Tim Hortons was founded in 1964 and merged with
Wendy’s International, Inc. in 1995. Tim Hortons offers coffee and a full line of
fresh baked goods, as well as soups and sandwiches, and enjoys a reputation
for very high quality.
Financial Highlights
Systemwide sales
1995 Shareholder Report
W e n d y's I n t e r n a t i o n a l, I n c .
We n d y ’s I n t e r n a t i o n a l , I n c .
®
4288 West Dublin Granville Road
P.O. Box 256
Dublin, Ohio 43017-0256
– Wendy’s
– Tim Hortons
Number of Restaurants – Wendy’s
– Tim Hortons
Average Unit Sales
– Wendy’s
– Tim Hortons*
Revenues
Net Income
Pro forma
Excluding special charges
Shareholders’ Equity
Long-term Debt to Equity Ratio
* Standard Units
This annual report is printed on
recycled and recyclable paper
1995
1994
1993
$ 4,494,844,000
$ 541,266,000
4,667
1,197
$
986,000
$
641,000
$ 1,746,280,000
$ 110,070,000
$ 126,369,000
$ 141,734,000
$ 818,779,000
41%
$4,227,212,000
$ 440,350,000
4,411
943
$
988,000
$
623,000
$1,591,587,000
$ 97,432,000
$ 113,474,000
$ 113,474,000
$ 701,927,000
21%
$3,924,083,000
$ 377,411,000
4,168
721
$
966,000
$
596,000
$ 1,482,385,000
$ 80,517,000
$ 93,424,000
$ 93,424,000
$ 623,793,000
32%
Br a n d B
Growth
1995
3
&
4
uildin g
Global
Departments
1992
Growth
Rekindled
2
1989
Foundation
Building
INSIDE COVER
Financial Highlights
INSIDE COVER
About Wendy’s
LIFT THIS COVER
Five-Year Selected Financial Data
LIFT THIS COVER
Investor Information at a Glance
2
Letter to Shareholders
4
Business Overview
18
Executive Management & Directors
20
Corporate Responsibility
21
Management’s Review and Outlook
26
Consolidated Financial Statements
30
Notes to Financial Statements
37
Quarterly Financial Data
38
Management’s Statement of Responsibility
39
Officers
40
Corporate/Shareholder Information
1
1986
Consolidation
& Reevaluation
e
d
’
Y
n S
About Wendy’s
Our mission is to deliver total quality. We and our franchisees operate 4,667
Wendy’s restaurants in the United States and 33 other countries, along with
1,197 Tim Hortons restaurants primarily in Canada. Founded in 1969, Wendy’s
serves the best hamburgers in the business, as well as offering a wide variety
of other fresh, healthy food – salads, the Super Value Menu, chicken sandwiches,
baked potatoes and chili. Tim Hortons was founded in 1964 and merged with
Wendy’s International, Inc. in 1995. Tim Hortons offers coffee and a full line of
fresh baked goods, as well as soups and sandwiches, and enjoys a reputation
for very high quality.
Financial Highlights
Systemwide sales
1995 Shareholder Report
W e n d y's I n t e r n a t i o n a l, I n c .
We n d y ’s I n t e r n a t i o n a l , I n c .
®
4288 West Dublin Granville Road
P.O. Box 256
Dublin, Ohio 43017-0256
– Wendy’s
– Tim Hortons
Number of Restaurants – Wendy’s
– Tim Hortons
Average Unit Sales
– Wendy’s
– Tim Hortons*
Revenues
Net Income
Pro forma
Excluding special charges
Shareholders’ Equity
Long-term Debt to Equity Ratio
* Standard Units
This annual report is printed on
recycled and recyclable paper
1995
1994
1993
$ 4,494,844,000
$ 541,266,000
4,667
1,197
$
986,000
$
641,000
$ 1,746,280,000
$ 110,070,000
$ 126,369,000
$ 141,734,000
$ 818,779,000
41%
$4,227,212,000
$ 440,350,000
4,411
943
$
988,000
$
623,000
$1,591,587,000
$ 97,432,000
$ 113,474,000
$ 113,474,000
$ 701,927,000
21%
$3,924,083,000
$ 377,411,000
4,168
721
$
966,000
$
596,000
$ 1,482,385,000
$ 80,517,000
$ 93,424,000
$ 93,424,000
$ 623,793,000
32%
Five-Year Selected Financial Data
1995
1994
1993
1992*
1991
Operations (In millions)
Systemwide sales
Wendy’s
Tim Hortons
Retail sales
Revenues
Income before income taxes
Pro forma(1)
Excluding special charges(2)
Net income
Pro forma(1)
Excluding special charges(2)
Capital expenditures
$ 4,494.8
$ 541.3
$ 1,461.9
$ 1,746.3
$ 165.1
$ 194.8
$ 214.8
$ 110.1
$ 126.4
$ 141.7
$ 217.5
4,227.2
440.4
1,365.7
1,591.6
150.3
179.2
179.2
97.4
113.5
113.5
172.4
3,924.1
377.4
1,288.5
1,482.4
118.2
141.5
141.5
80.5
93.4
93.4
137.2
3,612.9
340.5
1,207.0
1,381.0
103.8
121.5
121.5
66.5
76.3
76.3
139.5
3,223.6
308.1
1,038.6
1,186.6
78.9
96.7
96.7
51.9
61.8
61.8
86.3
$ 1,509.2
$ 1,006.7
$ 337.2
$ 818.8
1,214.8
865.2
144.9
701.9
1,100.3
786.7
200.6
623.8
1,013.4
745.3
233.7
552.9
965.9
682.2
239.6
504.2
Per Share Data
Net income – fully diluted
Pro forma (1)
Excluding special charges(2)
Dividends
$
$
$
$
.88
1.01
1.12
.24
.79
.92
.92
.24
.67
.77
.77
.24
.56
.64
.64
.24
.45
.53
.53
.24
Ratios
Domestic company operating profit margin
Pretax profit margin(2)
Return on average assets(2) (3)
Return on average equity(2)
Long-term debt to equity
Debt to total capitalization
%
%
%
%
%
%
15.1
12.3
17.1
18.3
41
29
15.7
11.3
17.5
16.7
21
17
14.9
9.5
15.6
15.7
32
24
14.2
8.8
14.9
14.3
42
30
13.3
8.1
13.6
12.5
48
32
1,200
2,997
1,168
2,826
1,132
2,657
1,117
2,490
1,080
2,408
111
359
4,667
1,197
5,864
96
321
4,411
943
5,354
92
287
4,168
721
4,889
91
264
3,962
628
4,590
82
234
3,804
546
4,350
Restaurant Data
Domestic Wendy’s open at year-end
Company
Franchise
International Wendy’s open at year-end
Company
Franchise
Total Wendy’s
Tim Hortons
Total Units
Average net sales per domestic
Wendy’s restaurant (In thousands)
Company
Franchise
Total domestic
Average sales per Tim Hortons standard
restaurant (In thousands)
$
$
$
1,014
974
986
1,001
982
988
978
960
966
924
907
912
874
843
852
$
641
623
596
607
621
Other Data
Primary shares (In thousands)
Registered shareholders at year-end
Number of employees at year-end
($Millions)
endy’s
Investor
Information
ataGlance
5,000
$4,495
4,500
4,000
3,500
F I N A N C I A L I N F O R M AT I O N
3,000
2,500
2,000
Financial Position (In millions)
Total assets
Property and equipment, net
Long-term obligations
Shareholders’ equity
W
122,041
63,000
47,000
120,588
57,000
45,000
119,247
56,000
44,000
117,864
56,000
43,000
115,836
53,000
40,000
(1) To give effect to the add back of profit sharing expense to an officer of Tim Hortons.
(2) To give effect to the add back of profit sharing expense and in 1995 other special charges as discussed in Note 1 to the Consolidated Financial Statements.
(3) Return on average assets is computed using income before income taxes and interest charges.
* Fiscal year 1992 includes 53 weeks.
91
92
93
94
95
TIM HORTONS SYSTEMWIDE
SALES GROWTH
KEY POINTS
þ With an increasingly diversified base
for growth, two very strong brands, and
solid financial and people resources,
Wendy’s has the means to continue its
track record of above average growth.
($Millions)
$541
550
500
450
400
350
þ Wendy’s is a strong brand. Consumer
ranking attributes, such as quality and
overall satisfaction, remain very high
as we continue our long-term brand
building strategies.
300
250
91
þ Domestic average sales per Wendy’s
company-operated restaurant have
increased each year since 1987.
92
93
94
95
þ With its broad menu and its variety of
buildings, carts and kiosks, Tim Hortons
has excellent flexibility and could
increase its penetration in Canada to
2,000 restaurants by the year 2000.
þ Domestic Wendy’s new restaurant
development has grown to 263 new
stores this year, achieving a 6 percent
growth rate.
þ Acceleration of Wendy’s restaurant
development outside of the United
States is planned. Steps have been
taken over the past two years to create
a solid foundation of staff and logistics
to support growth.
þ The very successful TV commercials
featuring founder Dave Thomas continue
to achieve high awareness scores among
consumers, amplifying the effectiveness
of our advertising dollars.
þ The merger with Tim Hortons brings a
second very strong brand with high quality
attributes to the Wendy’s portfolio.
þ With $214 million in cash and short-term
investments, a debt to equity ratio of
41% and a $165 million cash flow from
operations, Wendy’s has ample financial
resources to continue its growth plans.
þ Tim Hortons systemwide sales have grown
in excess of 20 percent in recent years.
þ The five year compounded total return to
shareholders has been 30 percent.
SHARE OF QSR SANDWICH
CATEGORY
WENDY’S AND THE
QUICK-SERVICE RESTAURANT
(QSR) INDUSTRY
Wendy’s participates in the
quick-service segment of the
restaurant industry. (Note: Total
restaurant industry sales were
$171.1 billion in 1995.)
Wendy’s considers its major
competition the quick-service
sandwich restaurants.
Wendy’s market share grew
0.1% to 9.8% of this category
in 1995.
HAVE YOU VISITED ANY
OF THESE
“NONTRADITIONAL”
WENDY’S UNITS?
WENDY’S SYSTEMWIDE
SALES GROWTH
55.9%
Other Major
Chains*
* McDonald’s, Burger King & Hardee’s
QUICK-SERVICE RESTAURANT
SALES GROWTH
($ Billions)
$97.9
$93.2
$88.8
$84.5
91
G E N E R A L I N F O R M AT I O N
Consumer inquiries, concerns and
information requests:
(614) 764-3100
Media inquiries:
Corporate Communications
(614) 764-3413
Franchise inquiries:
Wendy’s: (614) 764-8434
Tim Hortons: (905) 845-6511
Store location inquiries:
(614) 764-6800
9.8% Wendy's
34.3%
Smaller Chains
95
Investor Relations:
• Published information requests:
(614) 764-3105
• Internet via InvestQuestTM:
World Wide Web:
http://www.investquest.com
• Fax-on-Demand:
InvestQuestTM: (614) 844-3860
P.R. Newswire: 1-800-758-5804
(refer to code 962050)
• General inquiries:
Marsha Gordon (614) 764-3019
• Analysts and portfolio managers:
Investor Relations (614) 764-3044
Shareholder Newsline:
A recorded message containing
current news releases and financial
information is available 24 hours a day,
seven days a week. (614) 764-3105.
Videotapes:
Two videotapes are available for
investment clubs and other interested
groups. A corporate identity video or a
financial update video is available by
writing or calling the Investor Relations
Department at the Corporate Office.
Please specify which video you would
like to receive.
$81.3
Source: CREST— Consumer Reports on Eating Share Trends
C O R P O R AT E O F F I C E
Wendy’s International, Inc.
4288 West Dublin Granville Road
P.O. Box 256
Dublin, Ohio 43017-0256
(614) 764-3100
Wendy’s/Tim Hortons combination units
– Hopkins, MN and throughout Canada
University of Florida – Gainesville
University of Michigan – Ann Arbor
Atlanta International Airport
Houston Intercontinental Airport
Portland International Airport
University of Kentucky – Lexington
Exxon (various locations throughout U.S.)
NONTRADITIONAL UNITS
Pilot Oil (various locations throughout U.S.)
Wendy’s at The Ohio State
QuikTrip – (various locations throughout U.S.)
University Medical Center.
Wal-Mart Stores (various locations throughout U.S.)
Rutgers University – Piscataway and
New Brunswick, N J
U.S. Marine Base – Camp Lejeune, NC
U.S. Navy Bases – Italy and Iceland
The Ohio State University – Columbus
University of Texas – Austin
University of Oklahoma – Norman
Michigan State University – E. Lansing
Mississippi State University – Starkville
University of Toledo – Ohio
West Virginia University – Morgantown
Eastern Michigan University – Ypsilanti
University of California – Santa Barbara
The Ohio State University Medical Center
Miami Valley Hospital – Dayton, OH
Harper Hospital – Detroit, MI
Memorial Medical Center
– Savannah, GA
OWN YOUR SHARE
OF AMERICA
Wendy’s and over 200 publicly
traded companies support the
“Own Your Share of America”
campaign. The campaign,
initiated in 1992 by the National
Association of Investors
Corporation (NAIC), educates
and encourages individuals to
invest in common stock.
Five-Year Selected Financial Data
1995
1994
1993
1992*
1991
Operations (In millions)
Systemwide sales
Wendy’s
Tim Hortons
Retail sales
Revenues
Income before income taxes
Pro forma(1)
Excluding special charges(2)
Net income
Pro forma(1)
Excluding special charges(2)
Capital expenditures
$ 4,494.8
$ 541.3
$ 1,461.9
$ 1,746.3
$ 165.1
$ 194.8
$ 214.8
$ 110.1
$ 126.4
$ 141.7
$ 217.5
4,227.2
440.4
1,365.7
1,591.6
150.3
179.2
179.2
97.4
113.5
113.5
172.4
3,924.1
377.4
1,288.5
1,482.4
118.2
141.5
141.5
80.5
93.4
93.4
137.2
3,612.9
340.5
1,207.0
1,381.0
103.8
121.5
121.5
66.5
76.3
76.3
139.5
3,223.6
308.1
1,038.6
1,186.6
78.9
96.7
96.7
51.9
61.8
61.8
86.3
$ 1,509.2
$ 1,006.7
$ 337.2
$ 818.8
1,214.8
865.2
144.9
701.9
1,100.3
786.7
200.6
623.8
1,013.4
745.3
233.7
552.9
965.9
682.2
239.6
504.2
Per Share Data
Net income – fully diluted
Pro forma (1)
Excluding special charges(2)
Dividends
$
$
$
$
.88
1.01
1.12
.24
.79
.92
.92
.24
.67
.77
.77
.24
.56
.64
.64
.24
.45
.53
.53
.24
Ratios
Domestic company operating profit margin
Pretax profit margin(2)
Return on average assets(2) (3)
Return on average equity(2)
Long-term debt to equity
Debt to total capitalization
%
%
%
%
%
%
15.1
12.3
17.1
18.3
41
29
15.7
11.3
17.5
16.7
21
17
14.9
9.5
15.6
15.7
32
24
14.2
8.8
14.9
14.3
42
30
13.3
8.1
13.6
12.5
48
32
1,200
2,997
1,168
2,826
1,132
2,657
1,117
2,490
1,080
2,408
111
359
4,667
1,197
5,864
96
321
4,411
943
5,354
92
287
4,168
721
4,889
91
264
3,962
628
4,590
82
234
3,804
546
4,350
Restaurant Data
Domestic Wendy’s open at year-end
Company
Franchise
International Wendy’s open at year-end
Company
Franchise
Total Wendy’s
Tim Hortons
Total Units
Average net sales per domestic
Wendy’s restaurant (In thousands)
Company
Franchise
Total domestic
Average sales per Tim Hortons standard
restaurant (In thousands)
$
$
$
1,014
974
986
1,001
982
988
978
960
966
924
907
912
874
843
852
$
641
623
596
607
621
Other Data
Primary shares (In thousands)
Registered shareholders at year-end
Number of employees at year-end
($Millions)
endy’s
Investor
Information
ataGlance
5,000
$4,495
4,500
4,000
3,500
F I N A N C I A L I N F O R M AT I O N
3,000
2,500
2,000
Financial Position (In millions)
Total assets
Property and equipment, net
Long-term obligations
Shareholders’ equity
W
122,041
63,000
47,000
120,588
57,000
45,000
119,247
56,000
44,000
117,864
56,000
43,000
115,836
53,000
40,000
(1) To give effect to the add back of profit sharing expense to an officer of Tim Hortons.
(2) To give effect to the add back of profit sharing expense and in 1995 other special charges as discussed in Note 1 to the Consolidated Financial Statements.
(3) Return on average assets is computed using income before income taxes and interest charges.
* Fiscal year 1992 includes 53 weeks.
91
92
93
94
95
TIM HORTONS SYSTEMWIDE
SALES GROWTH
KEY POINTS
þ With an increasingly diversified base
for growth, two very strong brands, and
solid financial and people resources,
Wendy’s has the means to continue its
track record of above average growth.
($Millions)
$541
550
500
450
400
350
þ Wendy’s is a strong brand. Consumer
ranking attributes, such as quality and
overall satisfaction, remain very high
as we continue our long-term brand
building strategies.
300
250
91
þ Domestic average sales per Wendy’s
company-operated restaurant have
increased each year since 1987.
92
93
94
95
þ With its broad menu and its variety of
buildings, carts and kiosks, Tim Hortons
has excellent flexibility and could
increase its penetration in Canada to
2,000 restaurants by the year 2000.
þ Domestic Wendy’s new restaurant
development has grown to 263 new
stores this year, achieving a 6 percent
growth rate.
þ Acceleration of Wendy’s restaurant
development outside of the United
States is planned. Steps have been
taken over the past two years to create
a solid foundation of staff and logistics
to support growth.
þ The very successful TV commercials
featuring founder Dave Thomas continue
to achieve high awareness scores among
consumers, amplifying the effectiveness
of our advertising dollars.
þ The merger with Tim Hortons brings a
second very strong brand with high quality
attributes to the Wendy’s portfolio.
þ With $214 million in cash and short-term
investments, a debt to equity ratio of
41% and a $165 million cash flow from
operations, Wendy’s has ample financial
resources to continue its growth plans.
þ Tim Hortons systemwide sales have grown
in excess of 20 percent in recent years.
þ The five year compounded total return to
shareholders has been 30 percent.
SHARE OF QSR SANDWICH
CATEGORY
WENDY’S AND THE
QUICK-SERVICE RESTAURANT
(QSR) INDUSTRY
Wendy’s participates in the
quick-service segment of the
restaurant industry. (Note: Total
restaurant industry sales were
$171.1 billion in 1995.)
Wendy’s considers its major
competition the quick-service
sandwich restaurants.
Wendy’s market share grew
0.1% to 9.8% of this category
in 1995.
HAVE YOU VISITED ANY
OF THESE
“NONTRADITIONAL”
WENDY’S UNITS?
WENDY’S SYSTEMWIDE
SALES GROWTH
55.9%
Other Major
Chains*
* McDonald’s, Burger King & Hardee’s
QUICK-SERVICE RESTAURANT
SALES GROWTH
($ Billions)
$97.9
$93.2
$88.8
$84.5
91
G E N E R A L I N F O R M AT I O N
Consumer inquiries, concerns and
information requests:
(614) 764-3100
Media inquiries:
Corporate Communications
(614) 764-3413
Franchise inquiries:
Wendy’s: (614) 764-8434
Tim Hortons: (905) 845-6511
Store location inquiries:
(614) 764-6800
9.8% Wendy's
34.3%
Smaller Chains
95
Investor Relations:
• Published information requests:
(614) 764-3105
• Internet via InvestQuestTM:
World Wide Web:
http://www.investquest.com
• Fax-on-Demand:
InvestQuestTM: (614) 844-3860
P.R. Newswire: 1-800-758-5804
(refer to code 962050)
• General inquiries:
Marsha Gordon (614) 764-3019
• Analysts and portfolio managers:
Investor Relations (614) 764-3044
Shareholder Newsline:
A recorded message containing
current news releases and financial
information is available 24 hours a day,
seven days a week. (614) 764-3105.
Videotapes:
Two videotapes are available for
investment clubs and other interested
groups. A corporate identity video or a
financial update video is available by
writing or calling the Investor Relations
Department at the Corporate Office.
Please specify which video you would
like to receive.
$81.3
Source: CREST— Consumer Reports on Eating Share Trends
C O R P O R AT E O F F I C E
Wendy’s International, Inc.
4288 West Dublin Granville Road
P.O. Box 256
Dublin, Ohio 43017-0256
(614) 764-3100
Wendy’s/Tim Hortons combination units
– Hopkins, MN and throughout Canada
University of Florida – Gainesville
University of Michigan – Ann Arbor
Atlanta International Airport
Houston Intercontinental Airport
Portland International Airport
University of Kentucky – Lexington
Exxon (various locations throughout U.S.)
NONTRADITIONAL UNITS
Pilot Oil (various locations throughout U.S.)
Wendy’s at The Ohio State
QuikTrip – (various locations throughout U.S.)
University Medical Center.
Wal-Mart Stores (various locations throughout U.S.)
Rutgers University – Piscataway and
New Brunswick, N J
U.S. Marine Base – Camp Lejeune, NC
U.S. Navy Bases – Italy and Iceland
The Ohio State University – Columbus
University of Texas – Austin
University of Oklahoma – Norman
Michigan State University – E. Lansing
Mississippi State University – Starkville
University of Toledo – Ohio
West Virginia University – Morgantown
Eastern Michigan University – Ypsilanti
University of California – Santa Barbara
The Ohio State University Medical Center
Miami Valley Hospital – Dayton, OH
Harper Hospital – Detroit, MI
Memorial Medical Center
– Savannah, GA
OWN YOUR SHARE
OF AMERICA
Wendy’s and over 200 publicly
traded companies support the
“Own Your Share of America”
campaign. The campaign,
initiated in 1992 by the National
Association of Investors
Corporation (NAIC), educates
and encourages individuals to
invest in common stock.
arrative Highlights
4
Global Brand Building – Continued Growth
With plenty of room for development in the United States, a newly
strengthened foundation for international growth, and a vigorous
new partner in Tim Hortons, Wendy’s has significantly expanded its
base for growth.
6
Creating the Wendy’s Difference
Having a sound strategy and sticking to it is a key to success in
business. Here is the four part strategy that has fueled our domestic
growth since 1989.
10
Building a Foundation for
Growth in Other Countries
ABOUT THE COVER
Two years ago we committed to accelerating the
penetration of Wendy’s outside of the U.S. With
new leadership, a solid organization, and an
improved infrastructure, this is how we
plan to proceed.
14
Tim Hortons – A High
Quality Partner
Tim Hortons is the second largest quick-service restaurant
chain in Canada. With its high quality image and its fast
growth, it is a perfect fit for Wendy’s. Read about how
Global Brand Building and Growth
the merger complements our strategies.
Growth Rekindled
Foundation Building
Consolidation & Reevaluation
LIFT COVER HERE
’86-’88 ’89-’91 ’92-’94 ’95+
Wendy's Investor Overview
FOUR PHASES OF GROWTH
Wendy’s growth rate has averaged more
Our cover symbolizes our progress through the first three
than 20% during the past six years. Here is
phases of our strategy to global brand building. During
a summary of the key reasons why that
1995 we continued to speed up the pace of development
growth could continue.
of new Wendy’s units in the United States, and we completed our second year of strengthening our staff and
support structure to significantly accelerate penetration
of the Wendy’s brand in other countries. We also added
a second strong growth brand to the Wendy’s portfolio
through our merger with Tim Hortons.
1
J a m e s W. N e a r
G o r d o n F. Te t e r
CHAIRMAN OF THE BOARD
P R E S I D E N T, C H I E F E X E C U T I V E O F F I C E R
AND CHIEF OPERATING OFFICER
Dear Shareholder:
W
e are pleased to report on the giant strides we took in 1995 to broaden and strengthen
our base for brand building on a global scale. As a result, we are now poised to take
advantage of opportunities for significant growth on four continents and with two
strong brands.
Domestically, 1995 has proven
to be an intensely competitive
year, pitted with discounting and
promotions. Undercutting prices
appears to have become a way
of life for our competitors. In this
environment we continue to
adhere to our long-term brand
building strategies. We offer everyday value to our customers in a
familiar and predictable fashion.
Our course served us well,
as our average unit volume for
domestic company operated
restaurants was $1,014,000, up
1.3 percent over last year. Our
domestic operating margins
declined slightly for the first
2
time in five years to 15.1 percent
primarily because of slower real
sales growth and increased labor
costs. We hope to see an improvement in labor costs in 1996.
At year end we had 423 new
Wendy’s restaurants open or under
construction, surpassing our target
of 400. During the year we saw an
increasing number of opportunities
to acquire competitors’ restaurants
for conversion to Wendy’s. We
reached an agreement to purchase
45 such locations in the New York
metropolitan area.
In the international arena
we continued to strengthen our
base for growth. The majority of
our new store growth outside
North America came from Asia.
We celebrated our 50th store opening
in Japan this year, and finished the
year with 54 units open. In Argentina
we have entered into a joint venture agreement with an operator of
a large local restaurant chain that
holds great promise for rapid
expansion of Wendy’s restaurants.
Our Wendy’s operations in
Canada had another fine year in
1995, with a 5.9 percent increase
in average company operated
restaurant volumes and a 9 percent
increase in number of units.
Our most exciting news of the
year out of Canada, however, was
our merger with Tim Hortons, a
1,197 unit restaurant chain that
excels in serving coffee and fresh
baked goods. Like Wendy’s, it has a
strong brand name that stands for
superb quality and service.
The transaction grew from a
relationship that started four years
ago, when we began to develop
combination units through a joint
venture. We have been very
impressed with how complementary
the two concepts are, with high
quality perceptions, commitments
to treating franchisees as partners,
and offsetting busy periods during
the day.
outside the United States. Our plan
is to make international operations
an increasing factor in our growth.
Tim Hortons brings us a third
strong source of growth. We believe
we can increase its size in Canada
alone to 2000 restaurants by the
year 2000, and we intend to explore
other opportunities for expanding
the Tim Hortons business.
Across our organization our
franchisees are key to our success.
These dedicated men and women
operate 72 percent of the Wendy’s
restaurants, and 97 percent of Tim
Hortons restaurants. They are our
business partners. They help us
develop and implement our strategies,
and they share in the risks and
rewards of our business. We are
fortunate to have an outstanding
group of franchisees, and to have
a unique relationship with them.
We are equally fortunate to
have the strong team that operates
and supports our 1,349 company
restaurants. Our people, both
employees and franchisees, are
among our greatest assets.
Finally, we thank you for your
support as both customers and
shareholders.
J A M E S W. N E A R
Chairman of the Board
G O R D O N F. T E T E R
President, Chief Executive Officer
and Chief Operating Officer
Internation
a
February 22, 1996
In
l,
c.
3
y’s
In December we took advantage
of favorable financial markets and
our strong balance sheet to secure
$200 million of new long-term
debt. A portion of this was used
to pay off $105 million of debt
that Tim Hortons had before the
merger. We expect that our cash
position at year-end, coupled with
our strong operating cash flow,
proceeds from the sale of restaurants,
and borrowing capacity, will be
sufficient to meet the requirements
that we foresee over the next two
years. We remain very strong financially, closing the year with a longterm debt to equity ratio of 41 percent.
This was a catch-up year for
our stock after a frustrating year in
1994. Our share price advanced
48 percent to close the year at $211/4.
This year also marked our 70th
consecutive quarterly dividend. The
annual rate was $.24 a share. While
we review the dividend rate each
year, we continue to believe most
shareholders prefer that a majority
of the income be reinvested for
growth. For the five years through
1995, we have seen an average total
return to shareholders of 30 percent.
As we look to the future we see
expanding opportunities for our
company. Increasingly Wendy’s will
be able to count on three drivers
for our growth. Our domestic
business will remain the principal
growth engine for some time to
come. The strength of our brand
means we can compete effectively
even in the most difficult environments. As the least penetrated of
the top three hamburger restaurant
chains, the opportunities clearly
exist for us to continue to accelerate
the pace of new restaurant development in the United States. With
our financial strength, combined
with this relative under-penetration,
we are in a great position to take
advantage of the increasing number
of competitive locations that are
coming available for conversion to
other concepts.
Over the past two years we
have strengthened the foundation
for Wendy’s business to expand
We
nd
We are pleased that the professionals who have guided Tim Hortons
until now will continue to be
involved. Ron Joyce, who built the
Tim Hortons chain, was named
Senior Chairman and Co-Founder
of The TDL Group Ltd., our principal
subsidiary company that operates
Tim Hortons. Paul House was
named President and Chief Operating
Officer. He has been with Tim
Hortons for over 10 years and has
a total of 24 years of restaurant
industry experience. Beginning on
page 14 of this report we discuss in
greater detail Tim Hortons and its
future development.
Before special charges which
include the compensation expense
described below, 1995 net income
was $141.7 million, up 24.9 percent
over the $113.5 million of pro
forma net income in 1994, and
earnings per share (fully diluted)
were $1.12, up 21.7 percent over
the $.92 pro forma earnings per
share (fully diluted) last year. In
1995 our pro forma net income was
$126.4 million and our pro forma
earnings per share (fully diluted)
was $1.01. Pro forma net income
and earnings per share reflect the
add back of compensation expense
to the sole shareholder of Tim
Hortons. No similar expense will
apply in the future. In addition,
during 1995 there were significant
special charges including legal,
accounting and other professional
fees related to the merger, reserves
provided for various potential
post-merger contingencies and
costs related to organizing Canadian
operations to blend the Wendy’s
and Hortons concepts.
G o r d o n Te t e r
WE ARE BUILDING NEW SOURCES OF
GROWTH TO COMPLEMENT OUR DOMESTIC
WENDY’S RESTAURANTS THROUGH OUR
INVESTMENTS IN INTERNATIONAL MARKETS
Strategic Overview
S
AND OUR MERGER WITH TIM HORTONS.
even years ago we decided the Wendy’s strategic plan would be to stay focused
on our four key strategies and to be consistent, yet flexible, in achieving our
goals. The validity of our resolve has been borne out by marked success
through the years.
In 1995 we added a significant
new element to the strategic mix
as a result of our merger with the
Canadian quick-service restaurant
chain, Tim Hortons. In the future
we expect our growth to be powered
by three vibrant elements: Wendy’s
domestic and international operations, and Tim Hortons. Each of
these strategic areas is positioned
to make a significant contribution
in future years to our global brand
building and growth.
During the year staying focused
on our strategic goals wasn’t always
easy. Our fiercely competitive environment became cluttered with
discount schemes. Despite the temptation to emulate someone else’s
game plan, we kept ourselves on
our playing field with a strong,
balanced strategic plan. Thus far,
our steady focus on our long-term
goals has proven to be a winner.
Our average domestic company
unit volumes have increased for
nine consecutive years. Mainly
that is a reflection of consumer
satisfaction with our program. It is
gratifying to know that they continue
to tell us that in the world of quick
service, Wendy’s is their favorite
restaurant, number one in the
quality and variety of food on our
menu, first in overall satisfaction,
and tops in other more specific
attributes, such as nutrition.
When customers visit Wendy’s
we want to be predictable and
familiar yet strive to exceed their
expectations. We believe, too, that
when customers and employees
alike are treated with respect, it
creates a strong performance-driven
culture and a solid base of people
throughout the system.
The number of new Wendy’s
units opened or under construction
reached 423 in 1995, an increase of
60 over last year, and we expect to
do even better in 1996. With some
475 new Wendy’s units open or
under construction by the end of
this year, our worldwide Wendy’s
system will surpass 5,000 stores
for the first time.
Our strong financial position
and our flexibility have permitted
us to continue to execute these
basic strategies and pursue exciting
opportunities. A prime example is
our recent merger with Canadianbased Tim Hortons, a quick-service,
W E N D Y ’ S R E S TA U R A N T S
With a solid base of people
and a strong balance sheet
we have the resources to
fuel our growth plans.
4
fresh coffee and baked goods operation. It is like Wendy’s in many ways,
from its high quality image to its
corporate culture. The merger adds
immediate income without compromising our financial strength, and it
augments our ability to continue
our 20 percent earnings growth rate.
In recent years, Tim Hortons
has been growing systemwide sales
in excess of 20 percent annually,
and we believe it can reach 2,000
units in Canada within five years.
It already is the leader in its market
segment.
We have been developing
combination restaurants with Tim
Hortons and will continue to do so
goods twice a day from a nearby
base, drive-through-only units, and
kiosks and mobile carts suitable for
high-traffic areas, such as universities
and airport terminals.
Our strategic plan also calls
for stepped up Wendy’s activity
in international markets in 1996.
We have spent several years
strengthening our franchise system
as well as restructuring and staffing
Wendy’s international operations.
That work is virtually complete,
giving us a strong, dedicated development team. Among their first
tasks will be to complete an exciting joint venture in Argentina. Over
the next three years, a large, local
quick-service restaurant chain will
join forces with Wendy’s to penetrate
the Argentine market.
Argentina could well serve as a
gateway to other South American
countries, particularly Chile.
Asia continues to be our
strongest overseas market, led
by Japan, where our
franchisee opened its
50thWendy’s restaurant
in 1995.
The global strategy is
exciting and holds tremendous
promise, as does Tim Hortons.
While the Wendy’s domestic
operation is still the engine
that powers the entire system,
our goal is for Tim Hortons and
our International Division to
become two additional strong
drivers of growth.
No matter what the setting,
we are confident we have a strong
brand, an equally strong people
base, and the focused strategies
to build on our success.
G R O W I N G A H E A LT H Y S Y S T E M
Wendy’s will continue
accelerating new restaurant
T O TA L S Y S T E M G R O W T H
Restaurants Open
1,197
4,667
94
943
4,411
93
721
4,168
92
628
3,962
91
546
3,804
5,864
5,354
4,889
4,590
4,350
’ 9 5 C A P I TA L E X P E N D I T U R E S
($ Millions)
$54
Remodels,
Retrofits,
Maintenance
$124
New
Restaurants
$40
Other
a
95
Internation
WENDY’S
In
l,
c.
5
y’s
in 1996. The combination units
have separate kitchens and front
counters and a shared dining area.
There’s very little overlap in our
businesses; Tim Hortons does
approximately 60 percent of its
business before Wendy’s opens. It’s
a superb match.
We will continue to exploit
the tremendous flexibility of Tim
Hortons, from its free-standing
buildings that include a bakery to
satellite units that receive fresh-baked
HORTONS
We
nd
openings in 1996.
A m e r i c a ’ s Fa v o r i t e
F O L L O W I N G A C O N S I S T E N T S T R A T E G Y,
OUR DOMESTIC WENDY’S RESTAURANTS
ARE STILL THE LARGEST CONTRIBUTOR
Domestic
S
TO OUR GROWTH.
ince Dave Thomas served his first hamburger 26 years ago, Wendy’s has
enjoyed a reputation for quality. It is a reputation well earned and justly
recognized. For 15 years, surveys by Restaurants & Institutions magazine named
Wendy’s America’s favorite quick-service hamburger chain.
In addition to being the consumer’s restaurant of choice, we believe in being
the franchisor of choice and the employer of choice. Our four-part strategy, which
we initiated in 1989 and have followed consistently since, is designed to help us
achieve and maintain our vision for Wendy’s.
NUTRITIOUS CHOICES
Wendy’s menu includes
nutritious choices like our salads,
baked potatoes, chili and grilled
chicken sandwiches.
6
The first part of our strategy is
to strive to operate our restaurants
in a manner that exceeds customer
expectations on each visit. We
never underestimate the importance
of operational excellence. That is
why our approach to management,
which includes such characteristics
as relatively narrow spans of control,
heavy investment in training,
exacting standards, and incentive
compensation systems, is to focus
on our vision of excellence.
Having modern, efficient
restaurants also is important in
exceeding customer expectations,
and we are making some major
changes in our properties. To improve
speed of service and convenience
for our customers, for example, we
have been adding a second pick-up
window for drive-through service.
During 1995 we added 130 second
pick-up windows through retrofits
on company restaurants, and we
project another 226 will be added
next year. By the end of 1996,
approximately 564 of our restaurants
will have been retrofitted to have
two pick-up windows, significantly
improving service.
In addition, we are continuing
to add to our drive-throughs
WenView™, an electronic menu
board. It has been a big hit with
our customers because WenView™
Discounting tends to erode profits
and brand equity. We prefer to
offer value in ways consistent with
building the strength of our brand.
One of the greatest assets we
have is the equity in our brand.
Another is Dave Thomas. He represents everything that is good about
our brand. Consumers can easily
identify with Dave Thomas because
he is very likable, approachable,
very honest, has real integrity, and
he is a genuine human being. In
our advertising, people can see that
and identify
with him.
Dave
Thomas will
continue to be
our advertising
spokesman in
1996. Our total
advertising
awareness ratings
approach or
surpass those
of our two
major competitors, both of whom
dramatically outspend us in terms
of media dollars. This speaks to
both the effectiveness of the Dave
Thomas advertising campaign as
well as to the efficiency with which
we spend our advertising dollars.
BUILDING BRAND EQUITY
Consumer scores confirm
that our strategies have
built a strong brand.
HIGHEST QUALITY FOOD
60%
50%
40%
30%
20%
10%
0%
92
93
94
95
Wendy’s
Other Major Quick-Service Hamburger Chains
MOST NUTRITIOUS FOOD
50%
40%
30%
20%
10%
0%
92
93
94
95
Wendy’s
Other Major Quick-Service Hamburger Chains
O V E R A L L S AT I S FA C T I O N
40%
30%
W E N V I E W™
20%
An electronic menu board
10%
92
93
94
95
Wendy’s
Other Major Quick-Service Hamburger Chains
Source: Independent Research Company
Tracking Study
a
accuracy.
0%
Internation
improving drive-through
In
l,
c.
7
y’s
displays the customer’s order,
We
nd
displays what was ordered and the
total price. This improves accuracy,
of course.
All new company-operated
restaurants since 1994 have
WenView™. We installed it at 203
existing units this year, and 309
restaurants are scheduled to have
WenView™ installed in 1996.
Building a strong, performancedriven base of people is our second
target. Our pursuit of this strategy
paid off in 1995, enabling us to take
on new opportunities and challenges
even while we
continued to
accelerate new
store development.
For example,
during the year
we saw an increasing number
of competitive
sites available for
conversion. We
agreed to acquire
45 restaurants belonging to a
competitor in the New York market.
After their conversion to Wendy’s,
our presence in that market will be
increased by approximately one
third. We could not do this effectively
and efficiently without a strong
management base in place.
We continued to follow our
marketing strategy of leveraging
our strong quality perception with
promotional sandwiches positioned
at the upper end of the price-quality
spectrum. In 1995 there were four
of these: Smoky Bacon Cheeseburger,
Monterey Ranch Chicken, Chicken
Cordon Bleu, and the extremely
popular Spicy Chicken Sandwich,
which appeared for the third time,
doing better each time.
We balance these check building
tactics with a daily, low price
approach to providing economical
options to our customers through
our Super Value Menu, our combination meals, and our $1.99 Kids’
Meal. This approach enables us to
compete in an environment in
which our competitors have heavily
discounted their flagship products.
The fourth key element of our
domestic strategy is to continue
aggressively but responsibly
increasing our market penetration
by adding new units. Among the
263 domestic units we opened this
year, 50 were at “special sites” —
locations such as retail centers,
hospitals and gasoline outlets.
As you drive across this land,
you are likely to see more and more
combination retail gasoline conve-
CONSTRUCTION COST COMPARISON
In Thousands
CG
OG
Building
$257
$244
Equipment
216
206
37
34
Signs
Landscape
Total
20
19
$530
$503
CG = Central Grill Building
OG = One Grill Building
T H E S I M U LT A N E O U S E Q U A T I O N
Stores Purchased from Franchisees and Sold to
Franchisees
G R O W I N G A H E A LT H Y S Y S T E M
Restaurant purchases and
sales with our franchisees have
helped us to build a stronger
Wendy’s system.
8
Purchases
97
22
33
33
83
Sales
30
44
86
49
120
91
94
93
92
95
nience stores and Wendy’s under
one roof or side-by-side. The combination units will be located at or
in retail service stations as well as at
existing truck stops. In fact, during
the next few years many truck stops,
as we know them, will give way to
“travel centers” that are as inviting
to families as they are to truckers.
Exxon, BP, Texaco, Shell, Pilot
Oil and Petro are among the oil
companies that are working with
Wendy’s to develop these locations.
At the end of 1995, we had established 47 Wendy’s restaurants in
concert with a service station or
“travel center”.
We also have added airport
sites. We will be putting a
Wendy’s in the Dallas-Fort Worth
International Airport in 1996, for
example, and two Wendy’s restaurants
opened this year in Atlanta’s airport,
just in time for the Olympic Games
in that city. We already have established units in the Portland,
Oregon and Houston airports.
T O TA L A D V E R T I S I N G AWA R E N E S S
100%
WENDY’S MESSAGE
TO THE CONSUMER
90%
80%
78%
70%
With Dave Thomas as
our spokesman, Wendy’s
60%
50%
advertising has been very
40%
effective. Our awareness
30%
92
93
94
95
Wendy’s
Other Major Quick-Service Hamburger Chains
Source: Independent Research Company
Tracking Study
scores compare well
with competitors who
It has been successful in boosting
the health of the system through
the buying and selling of restaurants between the company and
the franchise community. Where
necessary, purchased stores have
been remodeled and improved
and, in some cases, refranchised.
During 1995 we purchased 83
restaurants and franchised 120.
The strength of our Wendy’s
brand is central to our continued
success. We measure this brand
strength through quarterly
consumer surveys conducted by
an independent polling company.
We track consumer perceptions of
dimensions, such as the speed of
the service, cleanliness, quality and
taste. Several of these measures are
depicted on graphs on page seven.
Taken as a whole, these indicators reflect that, in the intensely
competitive market that existed
significantly outspend us
in advertising.
Execute Strategies With
WENDY’S MISSION
Evolving Tactics That Profitably
Deal With Change
BALANCED PRODUCTS & MARKETING
Deliver to the Customer a Satisfying Experience
We expect 25 to 30 new franchisees will join us in 1996, with a
significant number being minority
operators. Of the new franchisees
entering the system in 1995,
approximately one third were
minority operators. Sixty-three
minority franchisees operated 164
restaurants at year end. That is up
Grow a Healthy System
Foster a Performance-Driven Culture
in 1995, with many competitors
heavily engaging in discount and
promotional programs, Wendy’s
strategy of providing a familiar and
predictable experience continued to
build on the strength of our brand.
a
Check Driving
from 34 minority owners five years
ago, further strengthening and
diversifying the system.
We believe we provide a very
attractive program for franchisees.
In 1995 alone we had approximately
10,000 inquiries from individuals
interested in joining the Wendy’s
franchise system. That’s up 40 percent over three years ago.
To help our franchisees expand
with new stores, we maintain
relationships with nine financial
institutions that provide financing
for new stores, remodeling and
other needs. This year we added
a new program that enables both
new and existing franchisees to
finance new stores at very favorable rates.
An extremely important
element of the success of Wendy’s
and its franchise system continues
to be the “simultaneous equation”
program, a win-win situation for
the company and franchisees alike.
In
l,
c.
Internation
M E N U
Create the Wendy’s Difference
y’s
C O R E
Transaction Driving
Special
Tastes
We
nd
Value
Ideas
Around the World
OUR INVESTMENTS IN WENDY’S
I N T E R N AT I O N A L O R G A N I Z AT I O N
AND LOGISTICAL SUPPORT SET
T H E S TA G E F O R A C C E L E R AT E D
International
T
GROWTH IN FOREIGN LANDS.
wo years ago we undertook a mission to accelerate our pace of growth
outside the United States. Our three-year plan of development for these
markets is entering its third phase.
In 1994 we stepped back to assess our organization and the strength
of our operations in the field. Our aim was to ensure we were achieving
consistency and quality in our brand and that our operators in other lands
were motivated, focused and financially sound.
In 1995 we began building the London for the European-Middle
foundation for our growth strategies East region; and in Toronto for
Canadian operations.
and ensuring that we have the supEach of the regional organizaport structure required for growth.
tions have marketing, purchasing,
As we made our investment in
operations, engineering and other
qualified management with food
key support staff. In addition, trainservice or international experience,
ing has been shifted to
the obstacles we faced
International
within each region,
three years ago began to
Regions
with satellite training
disappear. We now have
centers in individual
a strong organization in
L AT I N A M E R I C A
locales as needed. As
the field, with a vice
a result, the four interpresident heading up
PACIFIC
national areas are
each of our four regional
poised to contribute in
offices: in Honolulu for
EUROPE
a meaningful way to
our Pacific region; in
our growing enterprise.
Miami for our Latin
CANADA
By the end of 1995
American operations; in
we had opened 70 new units and
placed under construction another
27, up from 50 new units and
14 under construction the previous
year. Development was paced by
POSITIONED FOR GLOBAL GROWTH
Regional offices in Toronto,
Honolulu, Miami and London
can provide the training, real
estate, marketing and other
10
ingredients for growth.
events in Canada and Asia. By
year end we had 54 units open in
Japan and a total of 470 restaurants
outside the continental United States.
We have strengthened the financial
footings of our franchisees and
formed exciting new relationships.
There’s little question that
Asia, our largest region, will be
the immediate growth engine for
international. Japan, Indonesia
and the Philippines all have large
populations and strong or emerging
middle classes, and thus give us
confidence that they can support
our expansion in those areas. These
nations are our prime targets. Of
the 50 or more new units planned
for Asia in 1996, three-fourths of
them will be in these three countries.
On average, a restaurant
approved for development internationally will open a year and a half
later. In Japan, however, units open
very quickly, so we expect this
market to grow the fastest in number
of stores. In doing so, we are mindful
of our commitment to “sparkle” in
all our restaurants by providing customers with the highest quality, the
most variety and the best service
throughout the world.
Other key Pacific Rim nations
where we expect new development
include New Zealand, Thailand and
Hong Kong. We have one unit in
the People’s Republic of China, at
Shenzhen near Hong Kong, and
may build another one or two in
1996. Right now, however, we are
cautiously monitoring developments
in mainland China.
Latin America also presents
an opportunity,
beginning with
Argentina, the fourth
largest country in the
region with a population of more than
33 million and a
gross national product
that ranks third in
South America.
We recently
signed an agreement
with the owners of
an established restaurant chain in
the Republic of Argentina for the
development of Wendy’s restaurants.
This arrangement leverages
the strength of both entities. We
provide capital for development
while our partner provides real
estate, local market knowledge
and restaurant operating skills.
An aggressive growth program
has been implemented; the first
unit opened mid-January 1996 in
Buenos Aires. The program includes
the conversion of the chain’s existing
restaurants and the development
WENDY’S MEANS QUALITY
Wendy’s high quality products
are consistent around the
world, complemented in some
instances by a few items that
appeal to local taste.
W E N D Y ’ S / T I M H O R T O N S C O M B I N AT I O N U N I T S
Our 5,000 square foot Canadian combi-
A Combination That Works
nation units feature separate kitchens
A
Murphy found it a natural and successful step to also operate a pair
of Wendy’s/Tim Hortons combination units in his home province of Prince
Edward Island. According to Murphy, “Sales at both Wendy’s and Tim
Hortons benefit from cross-marketing. Regular customers of one concept are
introduced to the other concept at the combination units.”
Development cost is generally lower for a combination unit than for
separate Wendy’s and Tim Hortons restaurants. Less land is required, and
it is cheaper to build one combined larger building. This means that both
concepts can enter areas together that might otherwise be impossible
because of high land costs. Also, investment returns can be higher.
Yet another benefit realized at the Wendy’s/Tim Hortons combination
units is greater employee efficiency and stability. Murphy says he is able to
offer eight-hour shifts instead of four, with some employees splitting their
shift between Wendy’s and Tim Hortons, changing uniforms in between.
Both brands are committed to freshness and quality, and with the
minimal amount of daypart overlap, Wendy’s and Tim Hortons are a
a
combination that works.
In
l,
c.
Internation
windows for both concepts.
Canadian franchisee of both Wendy’s and Tim Hortons, Danny
y’s
104 seat dining area, and drive-through
We
nd
for Wendy’s and Tim Hortons, a shared
A WENDY’S MILESTONE
Our franchisee in Japan
celebrated the opening of
the 50th Wendy’s in
Japan, and finished the
year with 54 restaurants.
50th
Wendy’s Opens In Japan
A
s Wendy’s Senior Chairman and Founder Dave Thomas walked into the
restaurant on a busy Tokyo street, he noticed an employee polishing the
Wendy’s sign outside. It sparkled in the bright sun.
Inside he was greeted, as are all customers, with a chorus of “Irasshaymase!”
(Welcome!) by the team of well-groomed, smiling young managers and crew
people. He looked around; the store was spotless. For Dave Thomas, the 50th
Wendy’s in Japan was nirvana – the perfect Wendy’s.
The restaurant, at 1-27-12 Hamamatsu-cho, is operated by franchisee Wenco
Japan, a subsidiary of the Daiei, Inc., one of the world’s largest retailers. Wenco
of new locations. We expect
to open more than 40
Wendy’s restaurants in the
next five years.
Argentina also serves
as a great jumping off
point for further expansion
into South America. Chile,
with its stable economy, is
attractive, as is Brazil with
its population of 160 million.
Its inflation rate has declined
markedly and its economy has
stabilized over the past two
years, so it deserves a new look.
Elsewhere in Latin
America, Mexico’s economy, seriously impaired by the devaluation
of the peso, makes it difficult to
lay immediate plans for long-range
development. The exception is along
the U.S. border and in resort areas
where the impact of devaluation
has been considerably softer.
London will be our base for
development in Europe and the
Middle East. Rather than build
large organizations, we are trying
opened its first store in Tokyo in 1980 and the 50th, October 2, 1995.
During the opening ceremonies, the store manager
personally pledged to his crew and to Wenco President
Toshihiko Taniguchi “that we will put all our effort
into providing the highest quality, made-to-order, juicy
hamburgers and other incomparable food, supplied
International
Growth Plans
faster than anybody, thus ensuring our Number One
position in the Hamamatsu area.”
There’s little question the manager felt challenged. Some Wenco Wendy’s
S TAT U S
have the highest sales averages in the system. One Tokyo store averages
$94,600 a week, or more than $4.5 million a year.
“This is just a beginning,” said
Mr. Taniguchi, who expects to have twice
as many units open by 1997.
PRIORITIES
S T R AT E G Y
12
to leverage strategic relationships
in the region, such as joint ventures.
With a strong foundation in place,
we believe we will be positioned
to step up regional activity, but at
the moment we feel significant
development in many European
and Middle East markets is still
two or three years off.
In the United Kingdom,
however, we recently have initiated
a development relationship for
England, Scotland and Wales, and
expect to have 20 Wendy’s open
or under construction by the end
of 1996. Most of these will be in
the London area. Other investment
opportunities in the United
Kingdom are being examined.
In North America, our Canadian
Wendy’s subsidiaries showed continued strength in 1995. Sales were
up a solid 5.9 percent, and a record
11 restaurants exceeded $2 million
Canadian in sales for the year, an increase of eight over 1994. We opened 28
new restaurants, including 14 Wendy’s/
Tim Hortons combination units.
We have plans for 25
Wendy’s/Tim Hortons combination restaurants in Canada’s 10
provinces in 1996. When added
to the 25 other restaurants that
Wendy’s has scheduled to open in
1996, which represents a 55 percent
increase over 1995.
With experienced, qualified
personnel now in place in our
international regions and here
at home, a fresh sparkle among
our franchisees, a dedication to
providing consistent quality
and service, and a strengthened
global system with exciting, new
alliances, we are determined that
our international Wendy’s operations will become a significant
contributor to Wendy’s growth.
55 L AT I N A M E R I C A R E G I O N
19
Puerto Rico
13
Central America
8
Mexico
11
Other Caribbean
4
Bahamas
165 PA C I F I C R E G I O N
54
Japan
31
Philippines
26
Korea
18
Indonesia
12
Taiwan
24
5 Others
47 E U R O P E A N R E G I O N
1996 and the 203 open at year end,
we will begin to take on significant
mass in Canada.
Our plan for international
growth, then, is 150 new units
open or under construction in
14
Saudi Arabia
8
Greece
7
United Kingdom
18
9 Others
203 C A N A D I A N R E G I O N
203
Canada
470 T O TA L
PACIFIC
CANADA
• Solid presence in the
Caribbean
• Solid presence in most
major markets
• Strongest penetration
of a single country
• South America
virtually undeveloped
• Largest opportunity
• Potential to more than
double penetration
• 100% franchised
EUROPE
• United Kingdom stores
presently company
operated
• Ontario, British
Columbia, Alberta
• United Kingdom,
Greece, Turkey
• Joint venture in new
countries
• Grow with existing
franchisees
• Grow with company
and franchised stores
• Expand franchising in
the United Kingdom
• Continue development
of combination units
with Tim Hortons
• Grow with existing
franchisees
• Grow with existing
franchisees in the
Caribbean and Central
America
Internation
• Japan, Indonesia,
Philippines
In
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13
y’s
• Argentina, Chile,
Puerto Rico
a
• 48% franchised
• 100% franchised
We
nd
L AT I N A M E R I C A
A Welcome Addition
T I M H O R T O N S , C A N A D A’ S
SECOND LARGEST QUICK-SERVICE
RESTAURANT CHAIN, ADDS A
NEW DIMENSION OF GROWTH TO
Tim Hortons
A
WENDY’S PORTFOLIO.
part from the scarlet tunics of the Royal Canadian Mounted Police, nothing
signifies quality, integrity and service to Canadian consumers more than the
bright, cardinal-red Tim Hortons signs throughout the northern nation.
Founded in 1964, it is far and away Canada’s largest quick-service
restaurant chain offering primarily coffee and fresh baked goods. At the end of
1995, there were 1,197 Tim Hortons restaurants, all but 38 of which were franchise
operations, and systemwide sales were $541 million.
A S TA N D A R D O F E X C E L L E N C E
Tim Hortons 3,000 square
foot standard units generally
have 73 seats and a drivethrough window. Kitchens in
these units can supply
multiple satellite units.
NUMBER OF UNITS OPEN
Tim Hortons
95
1,197
943
721
628
91
14
546
Wendy’s and Tim Hortons
completed a merger in the fourth
quarter of 1995. Wendy’s agreed to
issue 16.45 million common
shares in exchange for all of the
outstanding shares of Tim Hortons’
Canadian parent company. The
transaction was treated as a pooling
of interests. Wendy’s also assumed
about $105 million in debt in
connection with the transaction.
Upon the completion of the
merger, Ronald V. Joyce was named
Senior Chairman and Co-Founder
of The TDL Group Ltd., the principal
Wendy’s subsidiary that operates
Tim Hortons. Paul House, who
joined the company in 1985 as
Vice President of Marketing,
was named President and Chief
Operating Officer.
Wendy’s and Tim Hortons
began working together in 1992
when the first Wendy’s/Tim Hortons
combination restaurant opened
June 1 in the Niagara peninsula at
Beamsville, Ontario. A day later, it
seemed as though the entire town
Airport there are six outlets – one
“producing store” and five satellites.
The largest of the freestanding
units, of course, are the Wendy’s/Tim
Hortons combination restaurants,
which average 5,000 square feet.
Wendy’s and Tim Hortons share
a common dining room seating
104, but each has its own food
preparation and storage areas and
most have a pick-up window for
each restaurant.
The combination works
because approximately 85 percent
of Tim Hortons traffic takes place
before Wendy’s opens or during
the afternoon snack hours when
Wendy’s is less busy. At midday
and again at the dinner hour, the
heaviest traffic is at Wendy’s.
Throughout the Tim Hortons
system, approximately 71 percent
of the restaurants are leased or
subleased by Tim Hortons to the
franchisees. The senior management
of Tim Hortons actively participates
C A N A D A’ S FAV O R I T E
Tim Hortons is known for
the freshness of its wide
variety of baked goods and
for its excellent coffee.
EVOLUTION OF MENU
Tim Hortons
Tim Horton Children’s Foundation
1964
Coffee & Donuts
1976
Timbits
1981
Muffins
1982
Pies
1983
Croissants
1984
Cookies
1985
Soups & Chili
1986
Cinnamon Buns
1993
Sandwiches
1995
Bagels (in test)
E
ach summer thousands of youngsters
from across Canada and parts of the United States experience a camping adventure
they’ll never forget. As guests of the Tim Horton Children’s Foundation, the children
share in the fun and excitement of a 10-day visit to one of the foundation’s four camps.
The non profit, charitable organization operates the camps for monetarily underprivileged
children. It was founded in 1974 by Ronald V. Joyce, Senior Chairman and Co-Founder of
Tim Hortons, following the untimely death of Tim Horton, the food service chain’s other
Co-Founder. Funding comes solely from donations from The TDL Group Ltd., individual Tim
Hortons store owners, their suppliers and from public donations collected
through counter coin boxes located year-round at the restaurants.
The children, chosen by Tim Hortons store owners through community
organizations and agencies, range from 9 to 12 years of age. Campers are given
the added thrill of traveling to a camp outside their immediate province or region,
with the Foundation covering all costs for each child, including air transportation,
food and lodging. Presently there are camps at Parry Sound, Ontario;
Tatamagouche, Nova Scotia; Kananaskis Country, Alberta; and Quyon, Quebec.
The Foundation’s camping environment is designed
ALL FOR CHILDREN
to give the children confidence in their abilities and
The camp at Parry Sound,
pride in their accomplishments. It is hoped they will
Ontario was visited by 800
gain a positive view of this world and their future in it.
.
Inc
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y’s
Internation
a
children last year.
We
nd
of Montague, P.E.I., turned out to
celebrate the grand opening of a
second combination unit.
At the close of 1995, Wendy’s
crimson signs had joined Tim Hortons
on 24 successful Wendy’s/Tim
Hortons combination restaurants,
including the first in the United
States in the Minneapolis suburb
of Hopkins, Minnesota.
Fresh baked products prepared
twice a day are vital to the chain’s
successful marketing mix. Freshness
is the key, and it is achieved through
“producing stores” equipped with
bakeries.
The standard Tim Hortons
units being built today are primarily
free-standing “producing stores”
totaling 3,000 square feet. Each
includes a bakery capable of supplying fresh baked goods every
12 hours to several satellite Tim
Hortons within a defined area.
Most of the new stores also have
drive-through windows.
In addition, Tim Hortons has
had considerable success with prefabricated, 500 square foot, drivethrough-only units. Satellite units
and drive-through-only units receive
their baked goods from a “producing
store” nearby. This concept leverages
the capital invested in the kitchens
of the larger restaurants.
Tim Hortons is proud to say,
“We fit in anywhere,” pointing out
the versatility of the concept, from
the Wendy’s/Tim Hortons combination stores to the mobile cart
that requires only 36
square feet in which
to do business. In
between are larger
kiosks and full-service
carts that can easily
be placed in high
traffic areas.
Many of the
smaller, modular Tim
Hortons adapt well
to special sites, such
as airport terminals, hospitals and
universities. At the University of
Western Ontario in London,
Ontario, for example, there are 14
Tim Hortons sites of different sizes.
At the Calgary International
in the selection of all new restaurant
locations.
Over 40 percent of Tim Hortons’
sales volume is in coffee – 13 million
pounds of its special blend last year.
Every million pounds of coffee represents about 50 million 7-ounce
cups. Ground coffee is also sold in
a 13-ounce can at the restaurants as
well as in select supermarkets.
UNIT COUNT
Year End
Number
1995 New
Openings
Standard
717
80
Satellite
171
34
Drive-Through-Only
31
15
278
144
1,197
273
Tim Hortons
Kiosk/Cart/Esso
Total
CARTS ADD FLEXIBILITY
Products for carts and kiosks
are supplied by standard units,
leveraging the investment in
their kitchens. They enhance
Tim Hortons flexibility to
fit in a variety of locations.
16
Coffee is to Tim Hortons what
beef is to Wendy’s, so coffee price
fluctuations are closely watched.
After hitting highs in the fall of 1994,
prices have declined dramatically.
Coffee and other non-perishable
goods are distributed from six
warehouse distribution centers in
Moncton, New Brunswick; Calgary,
Alberta; Debert, Nova Scotia;
Langley, British Columbia;
Kingston, Ontario; and Oakville,
Ontario, Tim Hortons’ corporate
headquarters. The award-winning
graphic design, featuring the coffee
and a selection of freshly baked
products, makes Tim Hortons’
trucks mouth-watering rolling
billboards on Canadian highways.
In the United States donut
shops represent only 1.8 percent of
traffic share among quick-service
restaurants. The category’s share is
11 times greater in the Canadian
market. The result is that despite a
population that is 10 percent of the
United States, the donut category is
larger in Canada. In 1995 revenues
among Canada’s donut shops totaled
$987.4 million; in the U.S. revenues
were almost $192 million less.
Tim Hortons leads the coffee
and donut segment with 45.1 percent
market share. Among all categories
of quick-service restaurants, Tim
Hortons enjoys the second-largest
share of customer traffic with about
7.3 percent of the Canadian market.
In the 1960s the first Tim
Hortons offered just coffee and a
selection of donuts, including two
of its own creations, the Apple
Fritter and the Dutchie, a square,
raisin and cinnamon donut without a hole. Both continue to be
the most popular donuts, even
though there have been a variety
of product introductions since.
Timbits, bite sized donuts in
18 different varieties, became a
menu choice in 1976 and won
immediate acceptance. Muffins,
cakes, pies, croissants, cookies,
soups, chili and cinnamon buns all
followed in the 1980s. A selection
of sandwiches on a crusty roll
came along in the 1990s. A soup,
sandwich and coffee combo meal
was introduced to build a daypart
that was a period of low sales a
few years ago.
Tim Hortons enjoys extraordinary loyalty. So devoted are its
customers, who are primarily
between 25 and 54 years of age,
that it is not uncommon for some
to visit the restaurant two or more
times a day. Tim Hortons is a way
of life for many customers, a meeting place, 24 hours a day. Often the
staff will spot a “regular” coming
in, know that customer wants a
medium coffee black and an Apple
Fritter, and have the order ready by
the time the customer reaches the
counter.
Tim Hortons’ systemwide sales
growth has averaged more than 20
percent annually in recent years.
Buoyed by an annual national television and print advertising budget
of more than $25 million, a minimum of 2,000 units in Canada is
projected by the year 2000.
There is ample room for further
development. For example, studies
indicate metropolitan Toronto could
absorb 100 to 150 Tim Hortons
and twice that many in the province
of Ontario, which already boasts
more than 500 units.
In 1996, it is expected that 273
Tim Hortons will open or be under
construction.
The strategy for testing expansion of Tim Hortons in the United
States is, at the moment, concentrated on building Wendy’s/Tim
Hortons combination restaurants in
the border states: Michigan, New
York and Minnesota.
We welcome Tim Hortons and
its organization into the Wendy’s
family. We are convinced its reputation for the same kind of quality
and service that Wendy’s offers will
significantly enhance our growth
opportunities.
SELECTED TIM HORTONS
FINANCIAL INFORMATION
December 31, 1995
(Dollar amounts in millions)
Systemwide Sales
Capital Expenditures
$541.3
$40.3
Total Assets
$173.7
Systemwide Employees
23,000
Franchisees
421
RON JOYCE
Senior Chairman and Co-Founder
The TDL Group Ltd.
T I M H O R T O N S D R I V E - T H R O U G H - O N LY U N I T
The popular drive-through-only concept allows
customers to place orders on both sides of the
building — increasing sales in a minimum
c.
Internation
In
l,
y’s
M
any who know Dave Thomas and Ron Joyce have
remarked on the striking similarities between the two
men. Both entered the workforce while still in their teens;
both proved to have an exceptional work ethic; both became successful
quick-service entrepreneurs through their dedication and drive; and both
believe in giving back to the communities in which they have thrived.
Until he was 15, Joyce lived in Nova Scotia. Perhaps its nearness to
the sea led him leaving odd jobs behind to join the Royal Canadian Navy
for a five-year tour. Following his discharge from active duty in 1956, he
joined the Hamilton, Ontario police force, yet continued to serve for seven
more years as an officer in the Navy Reserves. Like many police officers,
he enjoyed his coffee and donut break, and like many Canadians, he
enjoyed the game of hockey.
As Joyce is quick to point out, Tim Horton is a legendary name in
the world of professional hockey. For most of his 22 years in the National
We
nd
The History of Tim Hortons
Hockey League, Horton was a defenseman for the Toronto Maple
Leafs, although his final years were with the Buffalo Sabres. He
played on four Stanley Cup teams, was an all-star player six times
and won the Bicknell Cup as the Most Valuable Player in 1968-69.
Planning for his retirement years, Horton opened a donut shop
in Hamilton in 1964. Joyce became the franchisee of this first store
in 1965, and he opened another outlet in Hamilton later that year.
Joyce and Horton became fast friends and formed a partnership in
1967. Seven years later Horton died in an automobile accident at
the age of 44.
Joyce bought Horton’s share of the company in 1975, becoming
the sole owner of The TDL Group Ltd. Since those early days, Tim
Hortons has grown to almost 1,200 units in Canada.
Shortly after Tim Horton’s death, Joyce led a group of friends to
honor Horton by establishing in his name a nonprofit, charitable
foundation to build and operate summer camps for underprivileged
children. Today Joyce is chairman of the Tim Horton Children’s
Foundation, which supports four camps and 4,000 campers annually.
For his work with the foundation, Joyce was awarded the
Order of Canada in 1992. Joyce lives in Calgary, Alberta, and is a
part-owner of the National Hockey League’s Calgary Flames.
a
amount of real estate and investment.
C O R P O R AT E G O V E R N A N C E
• The majority of the
Board Membership Nominating
Committee and the
committee’s chairperson
are outside directors.
Executive Management & Directors
• The Compensation Committee
is comprised of all outside directors.
• A policy against the payment
of “greenmail” is in place.
• Members of the Board
have broad, diverse and relevant
backgrounds.
R O N A L D V. J O Y C E
EXECUTIVE
MANAGEMENT
Senior Chairman and Co-Founder
The TDL Group Ltd.
Age 65
Joined Tim Hortons 1965
as franchisee of the original
donut shop. Became sole owner
of Tim Hortons in 1975.
J O H N W. W R I G H T
President
International Division
Age 48
Joined Wendy’s 1993.
Prior restaurant operations
experience with PepsiCo,
Gino’s, Arthur Treacher’s
and Isleys. Graduate of the
University of Delaware.
GEORGE CONDOS
EVP Development
Age 42
Joined Wendy’s 1977.
Advanced through
restaurant operations;
previous position as SVP
Southwest Region.
C H A R L E S W. R AT H
EVP Marketing
Age 59
Joined Wendy’s 1987.
Notre Dame graduate with
prior experience in senior-level
marketing, advertising and
sales management positions
in national corporations and
advertising agencies.
EXECUTIVE MANAGEMENT
& DIRECTORS
RONALD E. MUSICK
EVP Finance and
Information Technology
Age 55
Elected 1987
Committees: Executive, Finance
Joined Wendy’s 1973.
Held title of Treasurer until
1981 when he joined a Wendy’s
subsidiary. Returned
to corporate staff in 1986.
PAUL D. HOUSE
President and COO
The TDL Group Ltd.
Age 52
Joined Tim Hortons 1985.
24 years in restaurant
business including
Dairy Queen Canada Inc.
JOHN K. CASEY
Vice Chairman and CFO
Age 63
Elected 1988
Committees: Executive, Finance
J O H N T. S C H U E S S L E R
EVP U.S. Operations
Age 45
Joined Wendy’s 1976.
Advanced through
restaurant operations;
previous position as SVP
Northeast Region.
18
Joined Wendy’s 1981.
Prior corporate experience
includes Borden, Inc.
and Mobil Oil. Holds graduate
degrees in Law and Finance.
J A M E S W. N E A R
Chairman of the Board
Age 57
Elected 1981
Committees: Board Membership,
Executive, Finance
Joined Wendy’s 1986 as
President and COO.
Has 34 years of restaurant
operations experience. Has
been a multi-unit franchisee
with Wendy’s and other
national chains.
DIRECTORS
G O R D O N F. T E T E R
President, CEO and COO
Age 52
Elected 1990
Committees: Executive, Finance
W. C L AY H A M N E R
J A M E S V. P I C K E T T
Chairman and CEO
Montrose Capital Corporation,
Chairman, The Pantry, Inc.
(Private investment company
and convenience store chain,
respectively.)
Durham, NC
Age 50
Elected 1987
Committees: Audit,
Board Membership
Chairman
The Pickett Companies,
Managing Director of the real
estate investment group of
Banc One Capital Corporation
(Real estate development,
ownership, management
and investment.)
Dublin, OH
Age 54
Elected 1982
Committees: Audit, Board
Membership*
T H O M A S F. K E L L E R
Dean and R.J. Reynolds
Professor of Business
Administration, Fuqua School
of Business, Duke University
Durham, NC
Age 64
Elected 1991
Committees: Audit*
Joined Wendy’s 1987.
19 years in restaurant business
includes executive positions with
Red Robin, Ponderosa and
Casa Lupita. Holds a graduate
degree from Purdue University.
The Honorable
E R N E S T S . H AY E C K
Founded Wendy’s 1969.
51 years in the restaurant business
includes 6 years as a Kentucky
Fried Chicken franchisee.
FIELDEN B. NUTTER, SR.
President and CEO
F. B. Nutter Leasing Company,
Chairman and CEO
John Henry Rock Drills, Inc.
(Real estate leasing/management
company and equipment
manufacturer, respectively.)
Belle, WV
Age 71
Elected 1980
Committees: Compensation*
Partner
Law firm of Vorys, Sater,
Seymour and Pease
Cincinnati, OH
Age 47
Elected 1995
Committees: Board Membership
JANET HILL
THEKLA R. SHACKELFORD
Vice President
Alexander & Associates, Inc.
(Corporate consulting firm
specializing in human resource
planning, corporate responsibility
and communications.)
Washington, DC
Age 48
Elected 1994
Committees: Compensation
Internation
* Denotes Chairperson of Committee
a
School Selection Consulting
(Educational consulting firm.)
Gahanna, OH
Age 61
Elected 1984
Committees: Board Membership,
Compensation
In
l,
c.
19
y’s
Senior Chairman of the Board
and Founder
Age 63
Elected 1969
Committees: Board Membership,
Executive*, Finance*
FREDERICK R. REED, ESQ.
We
nd
R. DAVID THOMAS
National Judicial College Faculty,
Retired Judge, Trial Court of
Massachusetts
Worcester, MA
Age 71
Elected 1993
Committees: Audit
Corporate Responsibility
O V E R V I E W: AT W E N D Y ’ S W E A R E G U I D E D B Y O U R V I S I O N – T O B E T H E R E S TA U R A N T O F C H O I C E , T H E E M P L O Y E R O F C H O I C E ,
A N D T H E F R A N C H I S O R O F C H O I C E . T H I S C A N B E S T B E A C H I E V E D B Y B U I L D I N G A S T R O N G T E A M B U I LT O N T H E P R I N C I P L E S O F
E X C E L L E N C E A N D D I V E R S I T Y. T O T H A T E N D , W E A R E C O M M I T T E D T O T H E P R I N C I P L E T H A T W E M U S T S U P P O R T T H E F R A N C H I S E E S ,
SUPPLIERS, EMPLOYEES AND COMMUNITIES WHO SUPPORT US IN OUR PLANS TO ACHIEVE OUR VISION.
Historically, Wendy’s has always recognized the richness
and value in diversity. Through the company’s minority
and female outreach initiatives, economic participation
within the Wendy’s system continues to be enhanced.
Wendy’s collaborative efforts with the NAACP, U.S.
Hispanic Chamber of Commerce, National Minority
Supplier Development Council, International Franchise
Association Minority Committee and other national groups
continue to create avenues that foster diversity at Wendy’s.
The company’s outreach efforts go beyond the relationships with national organizations. Wendy’s participates
in various diversity programs at the local community level
and uses publications targeted to the minority and female
community to communicate our diversity initiatives.
In 1995 Wendy’s was recognized by the Regional
Minority Supplier Development Council for the company’s
efforts and contribution to enrich the economic growth of
the minority business community. In addition, the company
was recognized by the Ohio Senate as a recipient of the
1995 Builder of the Dream Award for its unstinting support
of fostering self-esteem, tolerance, communication and
racial harmony.
Equal Opportunity Employment With a commitment to be the employer of choice...the company
works toward providing an atmosphere where employees
are excited about their jobs and an environment free of
any form of discrimination and harassment.
Wendy’s continues to require each division to have
established targets for minority and female representation
in management. These results are regularly monitored and
they become an important part of each manager’s annual
performance evaluation.
Total
1995
Min/Female
%
%
%
Officials/Mgrs.
5,283
25.9/39.0
25.0/38.5
23.5/39.0
Professionals
158
12.0/53.2
11.4/54.7
9.4/58.6
Total Population
46,524
45.1/54.3
43.6/54.5
43.2/54.4
E M P L O Y M E N T R E S U LT S
1994
Min/Female
1993
Min/Female
Supplier Diversity Program Wendy’s actively seeks
business relationships with a wide range of culturally and
ethnically diverse individuals, businesses and communities.
The company developed the Supplier Diversity
Program to help form relationships with experienced
minority and female owned businesses which provide
quality goods and services at competitive prices.
20
The purchases of goods and services from minority
and female suppliers at Wendy’s grew to $48 million in
1995, a 45.5 percent increase over 1994.
Franchise Diversity Wendy’s objective is to attract
minority and female business entrepreneurs who share the
company’s passion for the hamburger business. This commitment to provide franchise opportunities for minorities
and women is communicated through the media, speaking
engagements, franchise forums, trade events and other
venues targeted toward minorities and women.
During 1995, 29.7 percent of new franchisees entering
the Wendy’s system were minorities or women. This resulted
in a 10.5 percent increase in minority franchisees and a 12.3
percent increase in restaurants owned and operated by women.
Charitable Contributions Dave Thomas’ strong
feelings have permeated every level of charitable giving
at Wendy’s and, because of this, Wendy’s strives to have
a reputation as a caring company and a responsible
corporate neighbor.
Wendy’s has worked hard to get involved in a diverse
cross section of charitable causes. The company markets
and the franchisees are encouraged to participate with local
charities within their communities.
An area of particular interest for Wendy’s is the cause
of adoption. Dave Thomas established the Dave Thomas
Foundation for Adoption because of his belief that every
child deserves a permanent home and a loving family. The
focus of the Foundation is best described by its mission
statement...“The Dave Thomas Foundation for Adoption
was established to raise public awareness about the thousands
of children awaiting adoption in the United States; to educate prospective parents about the adoption process; and to
form public and private partnerships to help make the
process easier and more affordable.”
Environmental Statement Wendy’s commitment
to buy from environmentally responsible suppliers has
continued to assist in reducing the waste stream. The
reduction in weight of our primary and secondary packaging has made a significant impact in the reduction of our
packaging materials in general. The company continues to
monitor the environmental goals established between
Wendy’s and its suppliers while requiring the suppliers to
report on an annual basis.
For further information on any of the information on this page, please write
or call Corporate Affairs, corporate address on back cover, (614) 764-3240.
Management's Review and Outlook
Retail Sales
R E S U LT S O F O P E R A T I O N S
1995 Overview
1995 brought major changes to the composition
of Wendy’s International, Inc. (company). The company
acquired all the stock of the parent of the Tim Hortons
restaurant chain (Hortons) on December 29, 1995 (the
transaction). (See Note 6 to Consolidated Financial
Statements). Hortons is the second largest restaurant chain
in Canada and the largest chain that features coffee and
fresh baked goods such as donuts, muffins, croissants,
cookies, and fancy desserts.
This transaction was accounted for as a pooling of
interests and therefore all financial statements were restated
to reflect the activity of both Wendy’s and Hortons. As a
result, the income statement presentation has been modified
to accommodate the combined activities of both companies.
The net income for prior years has been restated to
give effect to the transaction. The following chart shows
restated net income and the impact of some related special
charges on 1995’s net income. The equivalent fully diluted
earnings per share (EPS) is also included.
1995
EPS
1994 EPS
1993 EPS
Net income
as reported
$110,070 $ .88 $ 97,432 $.79 $80,517 $.67
Profit sharing
16,299
16,042
12,907
Pro forma
net income
126,369 $1.01 113,474 $.92 93,424 $.77
Special charges
15,365
Net income
before special
charges
$141,734 $1.12 $113,474 $.92 $93,424 $.77
The profit sharing item (the pro forma adjustment on
the Consolidated Statement of Income) reflects the add
back of compensation expense, net of taxes, to the sole
shareholder of Hortons. This expense, included as part of
special charges on the Consolidated Statement of Income,
occurred while Hortons was a private company and
no similar expense applies in 1996 and future years. In
addition, in 1995 there were significant special charges
including legal, accounting, and professional fees related
to the Hortons transaction, reserves provided for various
contingencies, and costs related to organizing Canadian
operations to blend the Wendy’s and Hortons concepts.
Retail sales, which include sales from company-operated
restaurants and bakery and warehouse sales, grew 7.0% in
1995 over 1994, from $1.366 billion to $1.462 billion, and
grew 6.0% in 1994 compared with 1993. The changes
reflect an increase of 1.3% in average company-operated
domestic net restaurant sales in 1995, and 2.4% in 1994.
Contributing to this were an additional 37, 26, and 32
average Wendy’s company-operated domestic restaurants
open during 1995, 1994, and 1993, respectively. Bakery and
warehouse sales also increased 23% in 1995 and 25% in
1994, in line with an increase in the number of franchised
restaurants serviced.
The improvement in average Wendy’s company
domestic net sales was a result of the value menu strategy,
such as Combo Meals, Kids’ Meals, and Super Value Menu,
and solid restaurant operations, and effective marketing
campaigns. However, intense competition within the
quick-service restaurant industry continued to adversely
affect Wendy’s domestic retail sales, and harsh weather
conditions in the last quarter of 1995 additionally impacted
sales. The average number of transactions in domestic
Wendy’s increased approximately .4% in 1995 compared
with a 1.2% increase in 1994, and 4.2% in 1993. Domestic
selling prices increased only .2% during the year, while
remaining unchanged for 1994, and decreasing .4% in
1993, reflecting the company’s continued emphasis on its
value strategy.
The following chart reflects average net sales per
domestic Wendy’s restaurant for the last three years:
Company
Franchise
Total domestic
1995
1994
1993
$1,014,000
$ 974,000
$ 986,000
$1,001,000
$ 982,000
$ 988,000
$978,000
$960,000
$966,000
Franchise Revenues
Franchise revenues primarily consist of royalties,
rental income, franchise fees, and gains from restaurant
dispositions. Reserves against collection of these franchise
revenues are also provided. The franchise fees primarily
include reimbursement for various company costs and
expenses related to establishing the franchisees’ business,
and includes initial equipment packages for Hortons
franchisees.
Royalties before reserves increased $10.4 million or
8.0% in 1995, and $12.0 million or 10.2% in 1994. This
primarily reflects an increase in the number of franchise
restaurants. An average of 263 more restaurants were open
in 1995 and an average of 231 more in 1994.
Management reviews reserves on a regular basis and
believes the company has adequate levels for royalty and
other franchise-related receivables and contingencies.
When the outlook changes for reserve levels established
in prior years, they are modified accordingly and the
impact is reflected in general and administrative expense,
as discussed below.
Wendy’s International, Inc. and Subsidiaries
21
Rental income on restaurants increased $10.7 million
in 1995 and $7.3 million in 1994. Rental income increases
reflect the additional number of restaurants being leased
to franchisees. At the end of 1995, 1,257 restaurants were
leased to franchisees, versus 1,055 in 1994, and 818 in 1993.
Franchise fees increased $8.0 million in 1995 and $8.6
million in 1994, reflecting additional franchise restaurants.
In keeping with the company’s continuing strategy of
buying and selling Wendy’s restaurants, pretax gains related
to franchising 120 restaurants amounted to $37.8 million
in 1995, $11.6 million in 1994 for 49 restaurants, and
$8.1 million in 1993 for 86 restaurants. Additionally, pretax gains resulting from disposition of properties which
were previously leased by franchisees from Wendy’s
amounted to $3.8 million in 1995, $2.4 million in 1994,
and $.8 million in 1993.
Domestic Company Operating Margin
Competition in the domestic quick-service restaurant
industry was very intense during the last three years, particularly focusing on prices. Therefore, while costs of running the restaurant are subject to normal inflation, selling
prices have remained virtually unchanged. The average
sales increases from domestic Wendy’s of 1.3% in 1995
and 2.4% in 1994 were not sufficient to provide leverage
on costs as a percent of retail sales. This, in conjunction
with increasing labor rates resulted in a domestic operating
margin of 15.1% in 1995 versus 15.7% in 1994, the first
margin decline since 1989. In 1994, the margin improved
.8% from the prior year with advertising, utilities, and
insurance expense a lower percent of sales. The following
chart details the domestic company operating margin:
1995
1994
1993
% of Sales % of Sales % of Sales
Cost of Sales and Restaurant Operating Costs
Domestic Wendy’s cost of sales increased to 58.7% of
retail sales in 1995 from 58.0% in 1994, and 58.5% in
1993. Domestic food costs as a percent of domestic retail
sales decreased to 29.1% in 1995 from 29.3% in 1994, and
30.2% in 1993. This reflects favorable purchase prices for
key products such as beef and chicken offset by higher
produce prices during 1995. All key products reflected
favorable pricing during 1994. Bakery and warehouse cost
of sales increased $23.7 million in 1995 and $20.8 million
in 1994 reflecting new franchise restaurants serviced.
Domestic Wendy’s restaurant labor costs as a percent
of domestic retail sales were 25.6% in 1995 compared with
24.8% in 1994, and 24.5% in 1993. The percentages reflect
increases in restaurant labor due to inflation in the restaurant labor wage rate, particularly in 1995. The inflation
was driven by demand throughout the industry for quality
labor to provide quality service to customers. Compounding
this problem is the current demographic trend toward a
smaller portion of the population in this targeted group.
The company continues to control labor costs by adherence
to its labor guidelines. Sales per labor hour increased in
both 1995 and 1994 in company restaurants.
Domestic Wendy’s company restaurant operating
costs increased $12.6 million in 1995, $11.4 million in
1994, and $12.0 million in 1993. Domestic operating costs
were 26.2%, 26.3%, and 26.6% of retail sales, respectively.
As a percent of sales, costs were consistent in 1995 and
1994. Improvements during 1994 were seen in advertising,
utilities, and insurance expense.
22
Wendy’s International, Inc. and Subsidiaries
Retail sales
Cost of sales
Company restaurant
operating costs
Domestic company
operating margin
100.0%
58.7%
100.0%
58.0%
100.0%
58.5%
26.2%
26.3%
26.6%
15.1%
15.7%
14.9%
Operating Costs
Operating costs include rent expense related to
properties leased to franchisees, and cost of equipment
sold to Hortons franchisees as part of the initiation of the
franchise business. Training and other costs necessary to
insure a successful Hortons franchise opening, and costs to
operate and maintain the warehouse and bakery operations
are also included in operating costs. Costs that can not
be directly related to generating revenue are included in
general and administrative expenses. Depreciation on
properties owned and leased to franchisees is included in
depreciation expense on the income statement.
The increases in operating costs of $7.8 million, a
14.8% increase in 1995, and $8.3 million, an 18.7% increase
in 1994 were due to the addition of restaurants leased to
franchisees. There were 202 more restaurants under franchise
lease arrangements in 1995 than in 1994, and 237 more
in 1994 than 1993.
General and Administrative Expenses
General and administrative expenses were $136.4 million
or 7.8% of revenues for the year 1995 compared with
$120.6 million or 7.6% for 1994, and $113.0 million or
7.6% for 1993. Salaries and related benefits, the largest
component of general and administrative expenses,
increased $7.7 million in 1995 and $8.4 million in 1994.
This primarily reflects annual merit-based employee
compensation increases and administrative staff additions
to support the rapid growth of Hortons in Canada and
international and domestic Wendy’s growth. Insurance
expense declined $3.1 million in 1994 as the prior year
included an additional $4.0 million accrual to reflect trends
in domestic year-end 1993’s workers’ compensation and
general liability claims.
As a result of continuing improvement in the financial
strength of the Wendy’s franchise community, net reserve
reversals reduced expenses by $1.2 million in 1995, $2.1
million in 1994, and $2.2 million in 1993.
Special Charges
The Hortons transaction resulted in unusual expenses
being realized. Compensation expense was paid to the sole
shareholder of Hortons and amounted to $29.6 million
in 1995, $28.9 million in 1994, and $23.3 million in 1993.
Various legal, accounting, and other professional fees of $4.0
million were incurred to effectuate the Hortons transaction.
Additionally, reserves of $13.5 million were provided for possible environmental issues and contingencies. Other costs
were incurred related to organizing Canadian operations to
efficiently blend the Wendy’s and Hortons concepts.
Long-term debt increased in 1995 reflecting the
issuance of the $200 million additional debt, net of $7.0
million representing interest rate hedges and discount.
Offsetting this was the repayment of the $50 million note.
The long-term debt to equity ratio increased to 41% for
year-end 1995 compared to 21% at year-end 1994.
The company’s return on average equity was 18.3% in
1995 compared with 16.7% in 1994. As with the return on
average assets, this return is calculated excluding the special
charges previously discussed.
The following chart shows year-end reserve balances
related to royalty receivables and other franchise-related
receivables and contingencies by balance sheet category:
(in millions)
Accounts receivable, net
Notes receivable, net
Other assets
Accrued expenses, other
Interest
Net interest expense decreased in 1995 and 1994 primarily as a result of lower interest expense of $20.5 million
in 1995 compared with $22.2 million in 1994, and $23.6
million in 1993. Interest expense was reduced due to debt
retirements of Wendy’s related borrowings, partly offset by
higher interest expense on loans to support Hortons growth.
Income Taxes
The effective income tax rate for 1995 was 33.3% compared with 35.2% for 1994, and 31.9% in 1993. In 1993, the
company generated a Canadian tax benefit of $6.0 million
as a result of regionalizing Canadian operations. A tax
benefit of $6.6 million related to Canadian operations was
realized in 1995 pursuant to further successful developments
related to the 1993 Canadian reorganization.
FINANCIAL POSITION
Overview
Total assets increased $294.4 million or 24.2% over
1994 primarily due to additions to property and equipment
for restaurant development. Total cash and short-term
investments amounted to $213.8 million at year-end 1995
compared with $142.9 million at year-end 1994. The
increase primarily reflects the issuance of $100 million
6.35%, ten-year Notes and $100 million 7%, 30-year
Debentures at the end of 1995 net of $50 million note
repayment in early 1995. Long-term notes receivable from
restaurant dispositions during 1995 were $37 million.
Income taxes payable reflects prepayment of income taxes
which will be recovered in early 1996. Return on average
assets, without special charges previously discussed, was
17.1% in 1995 compared with 17.5% in 1994.
December 31,
1995
January 1,
1995
$ 7.4
.6
2.5
.3
$10.8
$ 7.1
.8
2.3
.6
$10.8
Cash Flow
Cash provided by operating activities was $164.9 million
in 1995, $168.0 million in 1994, and $151.3 million in
1993. Over the past three years, cash provided by operating
activities was primarily used for capital expenditures, dividend
payments, debt repayment, and acquisitions of franchised
restaurants. During this time, the company acquired 149
Wendy’s restaurants and repaid $214.5 million in debt.
Cash proceeds of $40.4 million were realized in 1995
from the sale of Wendy’s company-operated restaurants to
franchisees, while $21.1 million was provided in 1994, and
$17.2 million in 1993. The company issued $200 million
of additional long-term debt in 1995.
During 1995, capital expenditures amounted to $217.5
million. New restaurant expenditures amounted to $123.5
million; $54.3 million was spent for improvements to
existing restaurants; and $39.7 million was spent for other
additions. These included Hortons expenditures of $40.3
million for new restaurant development, which are leased
to franchisees. Current plans are to open or have under
construction about 475 new Wendy’s restaurants, of which
approximately 150 will be company-operated Wendy’s
sites, and 273 new Hortons in 1996. Capital expenditures
could total as much as $345 million in 1996 including
approximately $52 million for Hortons. Cash provided by
operating activities, cash and investments on hand, existing
Wendy’s International, Inc. and Subsidiaries
23
revolving credit agreements, and possible asset dispositions
should enable the company to meet its financial requirements through 1996. If additional cash is needed for
capital expenditures, future acquisitions of restaurants from
franchisees, or for other corporate purposes, the company
believes it would be able to obtain additional cash through
existing revolving credit agreements, new revolving credit
agreements which the company believes it could execute,
or through the issuance of debt securities.
Inflation
Financial statements determined on a historical cost
basis may not accurately reflect all the effects of changing
prices on an enterprise. Several factors tend to reduce the
impact of inflation for the company. Inventories approximate current market prices, there is some ability to adjust
prices, and liabilities are repaid with dollars of reduced
purchasing power.
International
Hortons is the second largest quick-service restaurant
chain in Canada and at year end had 1,197 restaurants.
These include standard full-size restaurants, satellites,
drive-through-only units, and kiosks/Essos sites. In total,
273 sites opened in 1995. The average sales at standard
restaurants were $641,000 (U.S. dollars) in 1995, an
increase of 2.9%. The company believes there are significant opportunities to expand the Hortons concept
throughout Canada, and eventually perhaps other international markets. Future expansion should primarily be
through franchising, and the company plans to open, or
have under construction, 273 Hortons units in 1996.
Canada is the largest international market for the
Wendy’s concept, and like domestic markets, the restaurant
industry is extremely competitive. The environment
includes a difficult economy, adverse tax laws, and minimum
wage increases. It was a productive year in 1995 as average
net sales of company-operated restaurants increased 5.9%
in local currency, following a 5.9% increase a year ago. In
1995, 13 company-operated Wendy’s and 15 franchised
Wendy’s opened in Canada, bringing the total restaurants
to 203 at year end. The company plans to have open as
many as 50 new restaurants in 1996. Included in these
restaurants are combination units of Wendy’s and Hortons
which have proven successful with 23 units open at the
end of 1995, and plans to develop as many as 25 more
in 1996. The combination units are also being tested in
U.S. markets, with one unit open at year end and seven
planned for 1996.
The company’s expansion of the Wendy’s concept
outside Canada continued with 42 new restaurants open,
including the 54th restaurant in Japan, the company’s
24
Wendy’s International, Inc. and Subsidiaries
second largest international market. International growth
continues to be primarily through franchising, but joint
ventures will also be utilized, and parts of England are
being developed as company-operated Wendy’s markets.
The company anticipates opening or having under
construction 100 new Wendy’s in international markets
outside Canada in 1996. Approximately half of these are
planned for Asia.
The company intends to accelerate all international
development in 1996 and beyond. At year-end 1995 there
were 470 Wendy’s and 1,180 Hortons open outside the
U.S. The company anticipates opening or having under
construction 150 international Wendy’s and 273 Hortons
in 1996.
MANAGEMENT’S OUTLOOK
The company anticipates 1996 to be even more
challenging than 1995 given increased price competition,
the difficulty in obtaining quality employees, increased
marketing costs and continued efforts to insure food safety.
The company continued to adhere to the basic
strategies begun seven years ago and consumers have
come to expect quality and value from Wendy’s and Tim
Hortons. The company believes that by focusing on areas
which can be controlled and improved, such as quality
food, quality service and value pricing, customers will
recognize the difference and prefer Wendy’s and Tim Hortons
over the competition.
The company is still committed to aggressive but responsible growth. The company plans on opening or having under
construction 150 new Wendy’s company-owned restaurants
and 325 new Wendy’s franchise restaurants in 1996, along
with 273 new Hortons. This expansion will be accomplished
by use of cash and investments on hand, cash provided
by 1996 operations, existing revolving credit agreements,
potential asset dispositions, and possible borrowings.
The Hortons concept has been developed primarily by
franchising restaurants. The company anticipates that, at
least in the near term, development will remain primarily
franchised. While Hortons currently operates almost
entirely in Canada, future expansion will include domestic
and possibly other international markets.
The company will continue its strategy of acquiring
Wendy’s restaurants from and selling Wendy’s restaurants
to franchisees where prudent. Acquired restaurants, which
may be underperforming, can be improved and then
operated profitably by the company or sold to a qualified
franchisee. Franchised Wendy’s restaurants may also be
acquired due to geographic or operational benefits to existing company-operated markets. Selling restaurants generates
cash which is used for new development, acquisitions,
and remodeling programs. During the last three years, the
company purchased 149 Wendy’s franchised restaurants
and sold 255 company-operated Wendy’s restaurants to
franchisees. Underperforming restaurants, whether company
or franchise operated, are monitored carefully and revitalized where economically possible or closed if necessary for
the financial health of the system.
The strength of the system’s franchise community is
an essential part of the company’s continued success.
Strategies already proven successful are aimed at encouraging responsible new restaurant development, increasing
franchise financial health, increasing royalty income, and
improving royalty receivable collection rates. The company
will continue to maintain appropriate reserves against
franchise receivables.
Competition within the quick-service restaurant
industry remains extremely intense, particularly in areas of
pricing and advertising. Additionally, however, numerous
external factors can have a significant influence on the
company’s performance. These factors could include the
economy, consumer perceptions of food safety, harsh
weather, particularly in the first and fourth quarters,
changing consumer tastes, the labor supply, legal claims,
risks inherent to international development, the company’s
ability to obtain and finance real estate, and government
initiatives such as minimum wage rates, taxes, and possible
franchise legislation.
Financial Accounting Standard Number 121 (SFAS
121) - “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of” was
issued in March 1995. This statement requires that longlived assets and certain identifiable intangibles being held
and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Additionally, the statement requires that long-lived assets
and certain identifiable intangibles being disposed of be
reported at the lower of carrying amount or fair value less
cost to sell. The company is in the process of evaluating
the impact of this statement on the results of operations
and financial condition of the company. Also in October
1995, Financial Accounting Standard Number 123 (SFAS
123) - “Accounting for Stock-Based Compensation” was
issued. This pronouncement establishes the accounting
and reporting standards for stock-based employee compensation plans. This new standard defines a fair value-based
method of accounting for these equity instruments.
Companies may elect to adopt this standard or to continue
accounting for these types of equity instruments under
current guidance, APB Opinion No. 25, “Accounting for
Stock Issued to Employees,” (Opinion 25). Companies
which elect to continue using the rules of Opinion 25
must make pro forma disclosures of net income and earnings
per share as if this new statement had been applied. The
company is in the process of evaluating the impact of this
statement on the results of operations and financial condition of the company. Both new standards are required for
fiscal years beginning after December 15, 1995.
W E N D Y ’ S D O M E S T I C A N D I N T E R N AT I O N A L R E S TA U R A N T S
Total Wendy’s
Open at beginning of year
Opened
Closed
Acquisitions within the system
Dispositions within the system
Open at end of year
1995
1994
1993
4,411 4,168 3,962
333
298
251
(77)
(55)
(45)
203
82
119
(203)
(82) (119)
4,667 4,411 4,168
Wendy’s
Company Operated
1995
1994
1993
1,264 1,224 1,208
98
76
79
(14)
(20)
(10)
83
33
33
(120)
(49)
(86)
1,311 1,264 1,224
Wendy’s Franchised
1995
1994
1993
3,147 2,944 2,754
235
222
172
(63)
(35)
(35)
120
49
86
(83)
(33)
(33)
3,356 3,147 2,944
Wendy’s International, Inc. and Subsidiaries
25
Consolidated Statement of Income
Years ended December 31, 1995, January 1, 1995, and January 2, 1994
(In thousands, except per share data)
1995
1994
1993
$1,461,880
284,400
1,746,280
$1,365,723
225,864
1,591,587
$1,288,532
193,853
1,482,385
Income before income taxes
Income taxes
Net income
890,363
351,062
60,216
136,424
80,573
2,595
49,672
10,230
1,581,135
165,145
55,075
$ 110,070
817,500
332,880
52,461
120,621
74,538
1,220
28,905
13,169
1,441,294
150,293
52,861
$ 97,432
772,790
322,163
44,200
113,032
71,071
4,242
23,256
13,390
1,364,144
118,241
37,724
$ 80,517
Pro forma adjustment for profit sharing expense
(net of income taxes of $13,336, $12,863, and $10,349)
Pro forma net income
16,299
$ 126,369
16,042
$ 113,474
$
Primary earnings per share
Fully diluted earnings per share
$ .90
$ .88
$.81
$.79
$.68
$.67
Pro forma primary earnings per share
Pro forma fully diluted earnings per share
$1.04
$1.01
$.94
$.92
$.78
$.77
Dividends per share
$ .24
$.24
$.24
Primary shares
Fully diluted shares
122,041
130,230
120,588
128,718
119,247
127,595
Revenues
Retail sales
Franchise revenues
Costs and expenses
Cost of sales
Company restaurant operating costs
Operating costs
General and administrative expenses
Depreciation and amortization of property and equipment
Other expenses
Special charges
Interest, net
The accompanying notes beginning on page 30 are an integral part of the Consolidated Financial Statements.
26
Wendy’s International, Inc. and Subsidiaries
12,907
93,424
Consolidated Balance Sheet
December 31, 1995, and January 1, 1995
(Dollars in thousands)
1995
1994
$ 206,127
7,682
49,555
12,272
18,389
27,254
321,279
$ 119,639
23,235
41,568
10,457
10,807
26,941
232,647
288,029
471,599
251,176
383,701
65,643
67,420
1,527,568
(520,824)
1,006,744
42,927
19,233
118,978
$1,509,161
251,515
407,408
214,974
349,195
64,929
63,531
1,351,552
(486,399)
865,153
30,780
16,142
70,083
$1,214,805
$ 108,182
$ 100,708
Assets
Current assets
Cash and cash equivalents
Short-term investments, at market
Accounts receivable, net
Notes receivable, net
Deferred income taxes
Inventories and other
Property and equipment, at cost
Land
Buildings
Leasehold improvements
Restaurant equipment
Other equipment
Capital leases
Accumulated depreciation and amortization
Cost in excess of net assets acquired, net
Deferred income taxes
Other assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts and drafts payable
Accrued expenses
Salaries and wages
Taxes
Insurance
Other
Income taxes
Due to officer
Current portion of long-term obligations
Long-term obligations
Term debt
Capital leases
Deferred income taxes
Other long-term liabilities
Due to officer
Commitments and contingencies
Shareholders’ equity
Preferred stock, authorized: 250,000 shares
Common stock, $.10 stated value, authorized: 200,000,000 shares
Issued: 103,993,000 and 101,787,000 shares, respectively
Capital in excess of stated value
Retained earnings
Unrealized loss on investments
Translation adjustments
Pension liability adjustment
Treasury stock at cost: 129,000 shares
23,158
20,828
29,320
24,207
(2,516)
63,221
29,469
295,869
22,473
17,480
26,037
20,063
1,683
39,992
57,674
286,110
297,029
40,200
337,229
47,853
9,431
104,842
40,018
144,860
39,799
13,823
28,286
10,399
199,804
614,799
(1,504)
(3,007)
820,491
(1,712)
818,779
$1,509,161
10,179
171,888
529,294
(723)
(3,787)
(3,212)
703,639
(1,712)
701,927
$1,214,805
The accompanying notes beginning on page 30 are an integral part of the Consolidated Financial Statements.
Wendy’s International, Inc. and Subsidiaries
27
Consolidated Statement of Cash Flows
Years ended December 31, 1995, January 1, 1995, and January 2, 1994
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization
Deferred income taxes
Net gain from restaurant dispositions
Net loss (gain) on other asset dispositions
Net reserves for receivables and other contingencies
Changes in operating assets and liabilities net of effects
of acquisitions and dispositions of restaurants
Accounts and notes receivable
Inventories and other
Accounts and drafts payable and accrued expenses
(Increase) decrease in other assets
Income taxes
Other changes, net
Net cash provided by operating activities
Cash flows from investing activities
Proceeds from restaurant dispositions
Proceeds from other asset dispositions
Capital expenditures
Acquisition of franchises
Proceeds from (investment in) marketable securities
Other investing activities
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of term debt
Proceeds from issuance of common stock
Principal payments on long-term obligations
Dividends paid
(Payment) loan due officer, net
Other financing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information
Interest paid
Interest received
Income taxes paid
Debt converted to common stock
Capital lease obligations incurred
Acquisition of franchises
Fair value of assets acquired, net
Cash paid
Liabilities assumed
1995
1994
1993
$110,070
$ 97,432
$ 80,517
84,452
(4,393)
(37,810)
760
15,424
80,194
(2,082)
(11,588)
(68)
1,403
74,394
(7,002)
(8,140)
5,449
(747)
(11,091)
(1,245)
10,910
(3,243)
(3,540)
4,603
164,897
(12,673)
(616)
12,440
(82)
(1,225)
4,860
167,995
(4,064)
(5,178)
14,382
(305)
(4,356)
6,348
151,298
40,412
19,139
(217,532)
(42,746)
14,509
(1,519)
(187,737)
21,065
18,621
(172,427)
(12,761)
20,694
(1,884)
(126,692)
17,155
13,484
(137,202)
(8,685)
(2,208)
(2,235)
(119,691)
285,410
20,653
(169,017)
(24,565)
(5,057)
1,428
108,852
476
86,488
119,639
$206,127
10,488
7,360
(5,581)
(25,071)
22,005
(2,284)
6,917
(279)
47,941
71,698
$119,639
12,890
(39,853)
(23,826)
12,643
929
(37,217)
(104)
(5,714)
77,412
$ 71,698
$ 19,939
10,040
53,364
84
7,717
$ 21,478
8,512
55,614
$ 23,725
8,832
41,798
1,510
67,291
42,746
24,850
15,859
12,761
3,098
13,170
8,685
4,485
The accompanying notes beginning on page 30 are an integral part of the Consolidated Financial Statements.
28
Wendy’s International, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Equity
Years ended December 31, 1995, January 1, 1995, and January 2, 1994
(In thousands)
Common stock at stated value
Balance at beginning of period
Exercise of options
Conversion of subordinated debentures
Balance at end of period
Capital in excess of stated value
Balance at beginning of period
Exercise of options, including tax benefits
Conversion of subordinated debentures
Balance at end of period
Retained earnings
Balance at beginning of period
Net income
Dividends paid
Balance at end of period
Unrealized loss on investments
Translation adjustments
Pension liability adjustment
Treasury stock at cost
Shareholders’ equity
Common shares
Balance issued at beginning of period
Exercise of options
Conversion of subordinated debentures
Balance issued at end of period
Treasury shares
Common shares issued and outstanding
Common shares issuable upon
conversion of exchangeable shares
Common shares issued, issuable, and outstanding
1995
1994
$ 10,179
220
$ 10,082
97
10,399
10,179
171,888
27,832
84
199,804
162,122
9,766
529,294
110,070
(24,565)
614,799
(1,504)
(3,007)
(1,712)
$818,779
1993
$
9,885
188
9
10,082
142,442
18,179
1,501
162,122
171,888
456,933
97,432
(25,071)
529,294
(723)
(3,787)
(3,212)
(1,712)
$701,927
400,242
80,517
(23,826)
456,933
(1,060)
(2,572)
(1,712)
$623,793
101,787
2,200
6
103,993
(129)
103,864
100,823
964
101,787
(129)
101,658
98,855
1,882
86
100,823
(129)
100,694
16,450
120,314
16,450
118,108
16,450
117,144
The accompanying notes beginning on page 30 are an integral part of the Consolidated Financial Statements.
Wendy’s International, Inc. and Subsidiaries
29
Notes to the Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
The company’s principal business is the operation of
quick-service restaurants serving high-quality food. At yearend 1995 the company and its franchise owners operated
4,667 of these restaurants under the name “Wendy’s” in 50
states and in 33 other countries and territories.
Additionally, the company and its franchise owners
operated 1,197 restaurants under the name “Tim Hortons”
in Canada with 17 units open in the United States.
Fiscal year
The company’s fiscal year ends on the Sunday nearest
to December 31.
Basis of presentation
The Consolidated Financial Statements include the
accounts of the company and its subsidiaries. All significant
intercompany accounts and transactions have been
eliminated in consolidation.
Certain reclassifications have been made for prior
years to conform with the 1995 presentation.
For purposes of the Consolidated Statement of Cash
Flows, the company considers short-term investments with
original maturities of three months or less as cash equivalents.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions. These
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results
could differ from these estimates.
The pro forma adjustment to the Consolidated
Statement of Income represents the profit sharing contribution made to the sole shareholder of Hortons prior to the
acquisition discussed in Note 6. This amounted to $29.6
million, or $16.3 million after tax in 1995, $28.9 million,
or $16.0 million after tax in 1994, and $23.3 million, or
$12.9 million after tax in 1993. Profit sharing is included
in special charges on the Consolidated Statement of
Income. In 1995, there were other costs in special charges
which included legal, accounting, and other professional
fees of $4.0 million to effectuate the Hortons transaction.
Also, reserves of $13.5 million for possible environmental
issues and contingencies and miscellaneous costs to organize Canadian operations to efficiently blend the Wendy’s
and Hortons concepts are included.
Due to officer of $63.2 million and $68.3 million
(both current and long-term portions) as of December 31,
1995, and January 1, 1995, respectively, primarily represents profit sharing contributions and demand notes
payable to the former sole shareholder of Hortons.
30
Wendy’s International, Inc. and Subsidiaries
Inventories
Inventories, amounting to $15.0 million and $13.8
million at December 31, 1995, and January 1, 1995, respectively, are stated at the lower of cost (first-in, first-out) or
market, and consist primarily of restaurant food items, new
equipment and parts, and paper supplies.
Property and equipment
Depreciation and amortization are recognized on the
straight-line method in amounts adequate to amortize costs
over the following estimated useful lives: buildings, up to 25
years; leasehold improvements, up to 25 years; restaurant
equipment, up to 15 years; other equipment, up to ten years;
and property under capital leases, the primary lease term.
Interest cost associated with the construction of new restaurants is capitalized, while certain other costs, such as ground
rentals and real estate taxes, are expensed as incurred.
Cost in excess of net assets acquired
The cost in excess of net assets acquired is amortized
on the straight-line method over periods ranging from
ten to 40 years which, for leased restaurants, include the
original lease period plus renewal options, if applicable.
The company periodically reviews goodwill and, based
upon undiscounted cash flows, impairments will be recognized when a permanent decline in value has occurred.
Accumulated amortization of cost in excess of net assets
acquired was $16.6 million and $14.8 million at December
31, 1995, and January 1, 1995, respectively.
Pre-opening costs
The company capitalizes certain operating costs which
are incurred prior to the opening of a new restaurant.
These costs are amortized over a one-year period.
Capitalized software development costs
The company capitalizes internally developed software
costs which are amortized over a seven-year period.
Advertising costs
The company recognizes advertising costs as incurred.
Franchise operations
The company grants franchises to independent operators
who in turn pay technical assistance/franchise fees which
may include equipment, royalties, and in some cases, rents
for each restaurant opened. A technical assistance/franchise
fee is recorded as income when each restaurant commences
operations. Royalties, based upon a percent of monthly net
sales, are recognized as income on the accrual basis. The
company has established reserves related to the collection
of franchise royalties and other franchise-related receivables
and commitments (see Note 8). Included in other assets is
the long-term portion of notes receivable amounting to $72.6
million and $31.0 million at December 31, 1995, and January
1, 1995, respectively. The carrying amount of notes receivable
currently approximates fair value.
Franchise owners receive assistance in such areas as
real estate site selection, construction consulting, purchasing,
and marketing from company personnel who also furnish
these services to company-operated restaurants. Franchise
expenses are included in general and administrative expenses.
Foreign operations
At December 31, 1995, the company and its franchise
owners operated 203 Wendy’s restaurants and 1,180 Tim
Hortons restaurants in Canada. Additionally, 267 Wendy’s
restaurants were operated by franchise owners in other
foreign countries and territories. The functional currency
of each foreign subsidiary is the respective local currency.
Net income per share
Primary earnings per share is computed by dividing
net income by the weighted average number of common
shares outstanding and dilutive common share equivalents
during each period. Fully diluted computations assume full
conversion of the subordinated debentures into common
shares, when dilutive, and the elimination of related
expenses, net of income taxes.
Financial Accounting Standards Board Statement
Financial Accounting Standard Number 121 (SFAS 121)
– “Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of” was issued in
March 1995. The company is in the process of evaluating
the impact of this statement on the results of operations
and financial condition of the company.
NOTE 2 TERM DEBT
Term debt at each year-end consisted of the following:
(In thousands)
Notes, unsecured, and
Mortgages Payable with a
weighted average interest
rate of 6.0%, due in
installments through 2010
Industrial Development
Revenue Bonds, with a
weighted average interest
rate of 11.1%, due in
installments through 2002
1995
$ 27,351
761
121/8% Notes, due April 1, 1995
99,915
6.35% Notes, due December 15, 2005
96,251
Current portion
$
96,429
320,707
(23,678)
$297,029
(In thousands)
1996
1997
1998
1999
2000
Later years
$ 23,678
295
222
210
171
296,131
$320,707
5,465
1,624
49,995
7% Convertible
Subordinated Debentures,
due April 1, 2006
7% Debentures,
due December 15, 2025
1994
The industrial development revenue bonds were
issued to provide funds for the acquisition, construction,
and improvement of various restaurants.
The 7% convertible debentures are subordinated as
to principal, premium, if any, and interest to all senior
indebtedness as defined in the indenture. The conversion
price is $12.30 per common share, subject to adjustment
in certain events. The debentures are redeemable, with
limited exceptions, at the option of the company on or
after April 5, 1996.
The 6.35% notes and 7% debentures are unsecured
and unsubordinated. They are not redeemable by the
company prior to maturity.
The company entered into interest rate swaps to
manage its exposure to interest rate fluctuations on the
6.35% and 7% securities issued in December 1995. The
company reflects realized and unrealized gains and losses
on hedging instruments as an adjustment to the carrying
value of the hedged asset or liability. Accordingly, losses
related to these interest rate swaps amounting to $3.6
million and $3.4 million, respectively, have been recorded
as a reduction of the carrying value of the notes and
debentures and will be amortized to interest expense over
the term of the related debt.
Based on quoted market prices for the convertible
subordinated debentures and future cash flows for all other
term debt, the fair value of total term debt was approximately
$394 million at December 31, 1995, and $185 million at
January 1, 1995.
The combined aggregate amounts of future maturities
for all term debt are as follows:
100,000
At year-end, the company had unused contractual
lines of credit aggregating $100 million from various
financial institutions, generally at their respective prime
rates.
Net interest expense for each year consisted of the
following:
(In thousands)
Total interest charges
Interest income
157,084
(52,242)
$104,842
1995
$20,456
(10,226)
$10,230
1994
$22,176
(9,007)
$13,169
1993
$23,552
(10,162)
$13,390
Wendy’s International, Inc. and Subsidiaries
31
NOTE 3 LEASES
The company occupies land and buildings and uses
equipment under terms of numerous lease agreements
expiring on various dates through 2027. Terms of land only
and land and building leases are generally for 20 to 25 years.
Many of these leases provide for future rent escalations and
renewal options. Certain leases require contingent rent,
determined as a percentage of sales, when annual sales exceed
specified levels. Most leases also obligate the company to
pay the costs of maintenance, insurance, and property taxes.
At each year-end capital leases consisted of the
following:
(In thousands)
1995
Buildings
Accumulated amortization
$ 67,420
(33,967)
$ 33,453
1994
$ 63,531
(31,764)
$ 31,767
At December 31, 1995, future minimum lease payments
for all leases, and the present value of the net minimum
lease payments for capital leases, were as follows:
(In thousands)
1996
1997
1998
1999
2000
Later years
Total minimum lease payments
Amount representing interest
Present value of net minimum lease
payments
Current portion
$
Capital
Leases
Operating
Leases
9,466
9,052
8,220
6,545
4,801
32,654
70,738
(24,747)
$ 41,110
39,687
38,218
35,072
31,271
215,262
$400,620
Minimum rents
Contingent rents
45,991
(5,791)
$ 40,200
1995
1994
1993
$45,142
9,709
$54,851
$41,348
8,589
$49,937
$39,649
8,452
$48,101
In connection with the franchising of certain restaurants,
the company has leased land, buildings, and equipment to
the related franchise owners.
32
Wendy’s International, Inc. and Subsidiaries
(In thousands)
Total minimum lease receipts
Estimated residual value
Amount representing
unearned interest
Current portion, included
in accounts receivable
1995
1994
$ 37,206
4,618
$ 36,315
4,542
(19,579)
(19,659)
(979)
$ 21,266
(927)
$ 20,271
At each year-end assets leased under operating leases
consisted of the following:
(In thousands)
1995
Land
Building
Equipment
$ 97,581
184,394
29,659
311,634
(72,184)
$239,450
Accumulated amortization
Total minimum lease payments have not been reduced
by minimum sublease rentals of $1.3 million under capital
leases, and $233.8 million under operating leases due in
the future under noncancelable subleases.
Rent expense for each year is primarily included in
company restaurant operating costs and amounted to:
(In thousands)
Most leases provide for monthly rentals based on a
percentage of sales, while others provide for fixed payments
with contingent rent when sales exceed certain levels. Lease
terms are approximately ten to 20 years with one or more
five-year renewal options. The franchise owners bear the
cost of maintenance, insurance, and property taxes.
The company generally accounts for the building and
equipment portions of the fixed payment leases as direct
financing leases. The land portion of leases and leases with
rents based on a percentage of sales are accounted for as
operating leases.
At each year-end the net investment in financing
leases receivable, included in other assets, consisted of the
following:
1994
$ 78,789
144,980
26,401
250,170
(62,479)
$187,691
At December 31, 1995, future minimum lease receipts
were as follows:
(In thousands)
1996
1997
1998
1999
2000
Later years
Financing
Leases
Operating
Leases
$ 3,018
3,080
3,085
2,980
2,918
22,125
$37,206
$ 33,560
32,130
30,181
28,049
25,798
80,587
$230,305
Rental income for each year is included in franchise
revenues and amounted to:
(In thousands)
Minimum rents
Contingent rents
1995
1994
1993
$28,612
33,542
$62,154
$23,140
27,462
$50,602
$20,206
23,102
$43,308
N O T E 4 I N C O M E TA X E S
The provision for income taxes for each year consisted
of the following:
A reconciliation of the statutory U.S. Federal income
tax rate of 35% to the company’s effective tax rate for each
year is shown below:
(In thousands)
(In thousands)
Current
Federal
State and local
Foreign
Deferred
Federal
State and local
Foreign
1995
1994
1993
$51,641
3,864
3,963
59,468
$49,802
4,403
738
54,943
$39,512
3,126
2,088
44,726
7,724
(476)
(11,641)
(4,393)
$55,075
(1,418)
(213)
(451)
(2,082)
$52,861
(243)
(127)
(6,632)
(7,002)
$37,724
In the first quarter of 1993, the company adopted
Financial Accounting Standard Number 109 (SFAS 109) –
“Accounting for Income Taxes”. Under SFAS No. 109, like
Financial Accounting Standard Number 96 (SFAS 96) –
“Accounting for Income Taxes” which the company adopted
in 1989, deferred income taxes are recognized by employing
the liability method. The company elected not to restate
prior years’ financial statements under the provisions of
SFAS No. 109 and has determined that the cumulative
effect of the implementation was not significant.
The temporary differences which give rise to deferred
tax assets and liabilities at each year-end consisted of the
following:
(In thousands)
Deferred tax assets
Lease transactions
Reserves not currently
deductible
Foreign operations
All other
Valuation allowance
Deferred tax liabilities
Lease transactions
Property and equipment
basis differences
Installment sales
All other
1995
1994
$ 3,996
$ 4,285
18,896
14,748
2,390
40,030
(1,466)
$38,564
12,468
13,794
6,654
37,201
(7,144)
$30,057
$ 8,264
$ 8,128
30,049
7,540
2,942
$48,795
29,356
1,605
3,818
$42,907
Income taxes at
statutory rate
Effect of foreign
operations
State and local taxes,
net of federal benefit
Canadian restructuring
benefit
Jobs and other tax
credits
Tax-exempt interest
Goodwill amortization
Other
Income taxes at
effective rate
1995
1994
1993
$57,801
$52,602
$41,384
(2,993)
2,209
(853)
2,737
1,229
1,949
(3,936)
(279)
(6,000)
(270)
(506)
426
2,344
(722)
(616)
407
(415)
(456)
(537)
526
(371)
$55,075
$52,861
$37,724
NOTE 5 STOCK OPTION AND SHAREHOLDER RIGHTS PLANS
The company has various stock option plans which
provide options for certain employees and outside directors
to purchase common shares of the company. Grants of
options to employees and the periods during which such
options can be exercised are at the discretion of the Board
of Directors. Grants of options to outside directors and the
periods during which such options can be exercised are
specified in the plan applicable to directors and do not
involve discretionary authority of the Board. All options
expire at the end of the exercise period. Options are
granted at the fair market value of the company’s common
shares on the date of grant and no amounts applicable
thereto are reflected in net income. The company makes
no recognition of the options in the financial statements
until they are exercised.
On August 2, 1990, the Board of Directors adopted the
WeShare Stock Option Plan (WeShare Plan), a non-qualified
stock option plan to provide for grants of options equal to
ten percent of each eligible employee’s earnings, with a
minimum of 20 options to be made to each eligible
employee annually. An aggregate of 4.6 million common
shares of the company have been reserved pursuant to the
WeShare Plan.
A deferred tax asset for foreign operations was established, upon the adoption of SFAS 109, for excess capital
allowances and net operating loss carryovers which are
primarily related to a Canadian subsidiary. This deferred
tax asset was largely offset by a valuation allowance. As a
result of the regionalization and legal entity restructuring
of Canadian operations and the acquisition of Tim Hortons,
the company reduced the valuation allowance by $7.3 million, $279,000, and $6.0 million in 1995, 1994 and 1993,
respectively, primarily due to the realization of Canadian
tax benefits.
Wendy’s International, Inc. and Subsidiaries
33
The options have a term of ten years from the grant
date and become exercisable in installments of 25 percent
on each of the first four anniversaries of the grant date.
On August 3, 1995, August 9, 1994, and August 5, 1993,
approximately 785,000 options, 865,000 options, and
860,000 options were granted to eligible employees at an
exercise price of $18.31 per share, $15.38 per share, and
$14.38 per share, respectively.
In addition, the Board of Directors also adopted the
1990 Stock Option Plan (1990 Plan) on August 2, 1990,
and amended the 1990 Plan on August 1, 1991, and
February 23, 1994. An aggregate of 12.5 million common
shares of the company have been reserved for issuance to
key employees and outside directors under the 1990 Plan,
as amended.
On August 3, 1995, August 9, 1994, and August 5, 1993,
approximately 1.3 million options, 1.3 million options,
and 1.1 million options were granted to key employees at
an exercise price of $18.31 per share, $15.38 per share, and
$14.38 per share, respectively.
The following is a summary of stock option activity
for the last three years:
(Shares in thousands)
Balance at January 3, 1993
Granted
Exercised
Canceled
Balance at January 2, 1994
Granted
Exercised
Canceled
Balance at January 1, 1995
Granted
Exercised
Canceled
Balance at December 31, 1995
Shares Under
Option
Option Price
Per Share
8,892 $ 4.06-$13.69
2,091
14.38- 16.44
(1,882)
4.13- 12.56
(560)
8,541
4.06- 16.44
2,500
15.38- 18.06
(964)
4.06- 14.38
(423)
9,654
5.13- 18.06
2,262
18.31- 20.13
(2,200)
5.13- 18.31
(414)
9,302 $ 5.13-$20.13
Options exercisable to purchase common shares
totaled 4.2 million, 4.6 million, and 3.1 million at
December 31, 1995, January 1, 1995, and January 2, 1994,
respectively. Shares reserved under the plans at each yearend were 12.5 million in 1995, 14.1 million in 1994, and
10.5 million in 1993.
The company has a Shareholder Rights Plan (Rights
Plan) which provides for the distribution of one preferred
stock purchase right (Right), as a dividend for each outstanding common share. Each Right entitles a shareholder
34
Wendy’s International, Inc. and Subsidiaries
to buy one ten-thousandth of a share of a new series of
preferred stock for $25 upon the occurrence of certain
events. Rights would be exercisable once a person or group
acquires 15 percent or more of the company’s common
shares, or ten days after a tender offer for 15 percent or
more of the common shares is announced (these thresholds
were 20 percent until the Rights Plan was amended effective
December 29, 1995). No certificates will be issued unless
the Rights Plan is activated.
Under certain circumstances, all Rights holders, except
the person or company holding 15 percent or more of the
company’s common shares, will be entitled to purchase
common shares at about half the price that such shares
traded for prior to the announcement of the acquisition.
Alternatively, if the company is acquired after the Rights
plan is activated, the Rights will entitle the holder to buy
the acquiring company’s shares at a similar discount. The
company can redeem the Rights for one cent per Right
under certain circumstances. If not redeemed, the Rights
will expire on August 10, 1998.
In October 1995, Financial Accounting Standard
Number 123 (SFAS 123) – “Accounting for Stock-Based
Compensation” was issued. This pronouncement establishes
the accounting and reporting standards for stock-based
employee compensation plans. This new standard defines
a fair value-based method of accounting for these equity
instruments. Companies may elect to adopt this standard or
to continue accounting for these types of equity instruments
under current guidance, APB Opinion No. 25, “Accounting
for Stock Issued to Employees,” (Opinion 25). Companies
which elect to continue using the rules of Opinion 25 must
make pro forma disclosures of net income and earnings per
share as if this new statement had been applied. This new
standard is required for fiscal years beginning after December
15, 1995. The company is in the process of evaluating the
impact of this statement on the results of operations and
financial condition of the company.
NOTE 6 ACQUISITIONS
On December 29, 1995, the company acquired all of
the stock of 1052106 Ontario Limited (Ontario), formerly
632687 Alberta Ltd., the parent company of the Tim
Hortons donut restaurant chain, for 16.45 million shares
of a Canadian subsidiary of the company exchangeable for
16.45 million common shares of Wendy’s International,
Inc. Tim Hortons is the leading franchisor of bakery and
coffee shops in Canada. The transaction has been accounted
for as a pooling of interests and, accordingly, the consolidated
financial statements for all periods presented have been
restated to include the accounts of Tim Hortons. Certain
adjustments were made to Tim Hortons financial statements
to conform to the same accounting practices as the company.
Revenues and net income of the separate companies
for the periods preceding the acquisition consisted of the
following:
(In thousands)
Wendy’s
Tim Hortons
Total
1995
Revenues
Net income
$1,507,925
111,632
$238,355
(1,562)
$1,746,280
110,070
1994
Revenues
Net income
1,403,420
97,156
188,167
276
1,591,587
97,432
1993
Revenues
Net income
1,329,339
79,267
153,046
1,250
1,482,385
80,517
In connection with the acquisition, $4.0 million in
professional fees to effectuate the transaction were incurred
and have been charged to expense in the fourth quarter
of 1995.
Additionally during 1995, the company acquired 33
restaurants in the Little Rock market for cash of $37.0 million
and 47 restaurants in the Pittsburgh market for $4.0 million
cash and notes of $23.0 million. Three other restaurants were
acquired for $1.7 million during 1995.
During 1994, the company acquired 29 restaurants in
the Kansas City market for cash of $10.5 million and the
assumption of certain liabilities. The company acquired
four other domestic restaurants from franchisees for $2.3
million during 1994, and 33 domestic restaurants for $8.7
million during 1993.
NOTE 7 DISPOSITIONS
The company franchised 118 domestic and two
Canadian restaurants during 1995. Additionally, 49 and
86 domestic restaurants were franchised in 1994 and 1993,
respectively. These transactions resulted in pretax gains of
approximately $37.8 million, $11.6 million, and $8.1 million
in 1995, 1994, and 1993, respectively, and are included in
franchise revenues.
Notes receivable related to dispositions were $63.6 million at December 31, 1995, and $25.9 million at January 1,
1995, and are included in notes receivable and other assets.
NOTE 8 COMMITMENTS AND CONTINGENCIES
At December 31, 1995, and January 1, 1995, the
company’s reserves established for doubtful royalty receivables
were $3.6 million and $4.3 million, respectively. Reserves
related to possible losses on notes receivable, real estate,
guarantees, claims, and contingencies involving franchisees
totaled $7.2 million at December 31, 1995, and $6.5 million at January 1, 1995. These reserves are included in
accounts receivable, notes receivable, other assets, and
other accrued expenses.
The company has guaranteed certain leases and
debt payments of franchise owners with average annual
obligations of $16.5 million over the next three years. In
the event of default by a franchise owner, the company
generally retains the right to acquire possession of the
related restaurants.
The company is self-insured for most workers’ compensation, general liability, and automotive liability losses
subject to per occurrence and aggregate annual liability
limitations. The company is also self-insured for health
care claims for eligible participating employees subject to
certain deductibles and limitations. The company determines its liability for claims incurred but not reported on
an actuarial basis.
The company has entered into long-term purchase
agreements with some of its suppliers. The range of prices
and volume of purchases under the agreements may vary
according to the company’s demand for the products and
fluctuations in market rates.
The company and its subsidiaries are parties to various
legal actions and complaints arising in the ordinary course
of business; many of these are covered by insurance. It is the
opinion of the company that such matters will not materially affect the company’s financial condition or earnings.
The company has undertaken to complete environmental assessments of its properties belonging to one of
its Canadian subsidiaries. Although the ultimate amount
of reclamation obligations to be incurred is uncertain,
the company estimates such amounts, representing
assessment, cleanup, and remediation costs, at $11.7
million. This amount has been charged to operations
in the third quarter of 1995.
Wendy’s International, Inc. and Subsidiaries
35
NOTE 9 RETIREMENT PLANS
The company’s retirement program covers substantially
all full-time employees qualified as to age and service. The
program includes a contributory defined benefit pension
plan and a defined contribution plan for management and
administrative employees. The defined benefit pension
plan allows for employee contributions and provides a
matching benefit from the company in addition to a basic
benefit which is independent of employee contributions.
The pension plan also provides for a guaranteed rate of
return on employee account balances. The defined contribution plan provides for an annual discretionary contribution
which is determined each year by the Board of Directors.
Effective April 1, 1995, the defined contribution plan
allows for 401(k) contributions, acceptance of qualified
rollovers, a loan feature, and a choice of four investing
options, one of which is common stock of the company.
In addition, the retirement program includes a noncontributory defined benefit pension plan for all eligible crew
employees and shift supervisors of the company.
The company also has supplemental retirement plans
for certain key employees to replace benefits otherwise not
available from the pension and profit sharing plans due to
the limitations imposed under the Internal Revenue Code
and to assure that projected benefit levels were not
decreased by the changes to the retirement program which
were implemented January 1, 1989.
The funded status of the pension plans for each year-end
consisted of the following:
(In thousands)
1995
Accumulated benefit obligation:
Vested
Nonvested
Projected benefit obligation
Fair value of plan assets
Unrecognized net transition asset
Unrecognized net loss
Unrecognized prior service costs
Minimum pension adjustment
Prepaid pension cost (liability)
1994
$(34,811)
$ (4,035)
$(27,537)
$ (2,978)
$(41,763)
41,354
(192)
6,579
142
$(32,700)
29,822
(384)
8,047
189
(5,390)
$ (416)
$ 6,120
In determining the present value of benefit obligations,
discount rates of 7.0% and 8.0% were used in 1995 and
1994, respectively. The expected long-term rate of return
on assets used was 8.5% in 1995 and 1994. The assumed
rate of increase in compensation levels was 8.0% for 1995
and 1994. Plan assets as of December 31, 1995, consisted
of debt and equity instruments and cash equivalents.
Net periodic pension cost for each year consisted of
the following:
(In thousands)
Service cost
Interest cost on
projected benefit
obligation
Return on plan assets
Net amortization
1995
1994
1993
$ 3,756
$ 3,761
$ 3,326
2,903
(8,580)
5,533
$ 3,612
2,432
564
(3,139)
$ 3,618
2,165
(1,607)
(142)
$ 3,742
The company provided for profit sharing and supplemental retirement benefits of $3.6 million, $2.8 million,
and $2.3 million for 1995, 1994, and 1993, respectively.
A minimum pension liability equal to the excess of
the accumulated benefit obligation over the fair value of
plan assets and liabilities already accrued is reflected in
the balance sheet by recording an intangible asset and
reducing shareholders’ equity.
The company has an agreement with the Chairman
of the Board which provides for severance pay and commencement of retirement benefits if he terminates employment
for any reason. Upon termination the agreement requires
the executive to be available for consultation and prohibits
him from competing against the company for a two-year
period. The agreement also provides that the company
may require him to return to active employment for up to
12 months under certain circumstances. Retirement by the
executive in 1996 would result in an expense charge of
approximately $3.3 million.
36
Wendy’s International, Inc. and Subsidiaries
NOTE 10 ADVERTISING COSTS
NOTE 11 SEGMENT REPORTING
The Wendy’s National Advertising Program, Inc. (WNAP)
is a not-for-profit corporation which was established to
collect and administer funds contributed by the company
and all domestic franchise owners. These contributions
total 2% of net sales and are used for advertising programs
designed to increase sales and enhance the reputation of
the company and its franchise owners. For 1996, 1995,
and 1994, the domestic system agreed to increase national
advertising spending from 2% to 2.5% of net sales. During
1995, 1994, and 1993, the company contributed $30.3
million, $29.0 million, and $27.7 million, respectively, to
WNAP. These contributions were recognized in company
restaurant operating costs. At December 31, 1995, and
January 1, 1995, the company’s payable to WNAP amounted
to $2.3 million and $2.2 million, respectively.
Total advertising expense of the company amounted
to $62.1 million, $58.2 million, and $56.8 million in 1995,
1994, and 1993, respectively.
The company operates exclusively in the food-service
industry. The following presents information about the
company by geographic area. There were no material
amounts of revenues or transfers among geographic areas.
United
States
(In thousands)
International Corporate
1995
Revenues
$1,402,918
Income before
income taxes
240,765
Identifiable
assets (1)
972,126
1994
Revenues
$1,307,551
Income before
income taxes
213,701
Identifiable
assets (1)
811,071
1993
Revenues
$1,237,430
Income before
income taxes
184,273
Identifiable
assets (1)
747,318
$343,362
Total
$1,746,280
48,921
(124,541)
169,844
26,679
$284,036
165,145
1,168,649
$1,591,587
38,314
(101,722)
150,293
127,794
27,151
966,016
$244,955
$1,482,385
29,624
(95,656)
118,241
108,362
27,605
883,285
(1) Excludes cash and cash equivalents, deferred income
taxes, certain other current assets, and investments.
N O T E 1 2 Q U A R T E R LY F I N A N C I A L D A T A ( U N A U D I T E D )
The following selected quarterly financial data has been restated to reflect the acquisition of Tim Hortons
treated as a pooling of interests.
Quarter
(In thousands)
Revenues
Gross profit *
Net income
First
Second
Third
Fourth
1995
1994
1995
1994
1995
1994
1995
1994
$398,008
87,939
15,636
$358,764
75,830
12,747
$437,370
115,990
40,039
$414,195
108,807
33,489
$451,542
117,975
36,237
$409,724
103,316
29,902
$459,360
122,735
18,158
$408,904
100,793
21,294
* Total revenues less cost of sales, company restaurant operating costs, and operating costs.
Wendy’s International, Inc. and Subsidiaries
37
Management’s Statement
of Responsibility for
Financial Statements
To O u r S h a r e h o l d e r s Management is responsible for the
preparation of the financial statements and other related financial
information included in this Annual Report. The financial statements have been prepared in conformity with generally accepted
accounting principles, incorporating management’s reasonable
estimates and judgments, where applicable.
The company maintains a system of internal accounting
controls designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed as authorized, and that
transactions are recorded and reported properly. The control system
is supported by written policies and procedures, appropriate divisions
of responsibility and authority and an effective internal audit
function. Even effective internal controls, no matter how well
designed, have inherent limitations, such as the possibility
of human error or the overriding of controls. Further, changes in
conditions may have an impact on the effectiveness of controls
over time.
The company assessed its internal control systems as of
December 31, 1995, 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 comprehensive review focused on the effectiveness
and efficiency of operations, the reliability of financial reporting
and compliance with applicable laws and regulations. Based on
this assessment, the company believes that, as of December 31,
1995, its system of internal control met those criteria.
The company engages Coopers & Lybrand L.L.P. 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 Coopers & Lybrand
L.L.P., and both have unrestricted access to the Audit Committee.
J A M E S W. N E A R
Chairman of the Board
JOHN K. CASEY
Vice Chairman and Chief Financial Officer
LAWRENCE A. LAUDICK
Vice President, General Controller and Assistant Secretary
38
Wendy’s International, Inc. and Subsidiaries
Report of Independent
Accountants
To T h e S h a r e h o l d e r s o f W e n d y ’s I n t e r n a t i o n a l , I n c .
We have audited the accompanying consolidated balance
sheets of Wendy’s International, Inc. and Subsidiaries as of
December 31, 1995, and January 1, 1995, and the related consolidated statements of income, shareholders’ equity, and cash flows
for the years ended December 31, 1995, January 1, 1995, and
January 2, 1994. 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 in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Wendy’s International, Inc. and Subsidiaries at
December 31, 1995, and January 1, 1995, and the consolidated
results of their operations and their cash flows for the years ended
December 31, 1995, January 1, 1995, and January 2, 1994, in
conformity with generally accepted accounting principles.
Columbus, Ohio
February 22, 1996
Officers
R. David Thomas
Senior Chairman of the Board
and Founder
Vice Presidents
Upper U.S. Region
The TDL Group Ltd.
Raymond W. Baker
Joyce L. Eufemi
Senior Vice President
Ronald V. Joyce
Senior Chairman and Co-Founder
James W. Near
Chairman of the Board
Daniel L. Boone
Division Vice Presidents
John H. Smith
Carin L. Stutz
Paul D. House
President and Chief Operating
Officer
Walter Fuehrer
Southeast Region
Executive Vice Presidents
Gilles M. Gallant
Edward L. Austin
Senior Vice President
Alfred Lane
General Counsel
Division Vice Presidents
Joseph M. Gillette
Esau Sims, Jr.
Donald B. Schroeder
Joseph C. Kovalcik
George Condos
Lawrence A. Laudick
General Controller and
Assistant Secretary
Ronald E. Musick
Dennis L. Lynch
Charles W. Rath
Larry N. Nelson
Executive Vice Presidents
John T. Schuessler
Senior Vice Presidents
Emil J. Brolick
John F. Brownley
Treasurer
Edwin L. Ourant
Kathleen M. Schmelzer
Henry J. Sherowski
Peter J. Stephens
James R. Thompson
Donald F. Calhoon
Ronald E. Wallace
Kathie T. Chesnut
Stephen D. Warren
Robert L. Jarecki
W. Stephen Wirt
Rosalyn S. Jinkens
Restaurant Operations
Kathleen A. McGinnis
Northeast Region
Lawrence E. Schauf
General Counsel and Secretary
Robert G. Zoeller
Senior Vice President
Division Vice Presidents
Glen W. Baker
Paul T. Keck
Robert J. Romeo
Midwest Region
Jack C. Whiting
Senior Vice President
Division Vice Presidents
George M. Patterson
David I. Poling
Gary A. Rozanczyk
Southwest Region
Senior Vice President
Henry J. Svazas
Stephen D. Farrar
Senior Vice President
Vice Presidents
Division Vice Presidents
Eric J. Colah
Richard J. LeBle’
William M. Spae
Paul T. Conway
John W. Barber
Cyril D. Garland
Nick S. Javor
William A. Moir
International
John W. Wright
President — International
Division
Vice President – Canadian Operations
Regional Vice Presidents
Jan L. Hubrecht
Thomas A. Morrell
James J. Rieger
James R. Rushak
Christian M. J. de Jaham
Grant D. Joyce
George J. Zaritzky
Vice President – U.S. Operations
Christos G. Laganos
Vice President
Charles R. Bruce
Wendy’s Restaurants of
Canada Inc.
Brion G. Grube
Senior Vice President
OTAL
Quality
The New Bakery Co.
of Ohio, Inc.
Stanley W. Augsburger
Vice President and
General Manager
“Restaurants & Institutions”
magazine’s “Choice in Chains”
survey named Wendy’s as
America’s best-loved hamburger
chain in 1995 — a title we’ve
proudly held for 15 years.
a
Karen F. Ickes
In
l,
c.
Internation
Dennis A. Hecker
y’s
Charles D. Finlay
T
John K. Casey
Vice Chairman and
Chief Financial Officer
Robert B. Cortelyou
We
nd
Gordon F. Teter
President, Chief Executive Officer
and Chief Operating Officer
Robert E. Bauer
Corporate/Shareholder Information
W E N D Y ’S R E L A T I V E M A R K E T
PERFORMANCE
DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
Value of Investment ($)
$450
$400
$350
$300
$250
$200
$150
$100
$50
Assumes $100 Invested 12/31/90
In Wendy’s stock, S&P 500
and industry peer group,
Value Line© Restaurants
(dividends reinvested).
$372
$100
90
91
Wendy’s
92
93
94
95
Value Line© Rest.
S&P 500
Wendy’s International, Inc.
Stock Symbol/Exchange: WEN (NYSE)
1 9 9 5 D ATA :
Stock price range: $14 3/8 - $22 3/4
Dividend: $.24
Earnings per share: $.88
Pro forma: $1.01
Excluding special charges: $1.12
Book value per share: $7.87
Capitalization: 29% debt, 71% equity
Cash and short-term investments: $214 million
Shares outstanding: 104.0 million
Market capitalization: $2.2 billion
Systemwide sales: Wendy’s: $4,495 million
Tim Hortons: $541 million
Total: $5,036 million
Wendy’s shareholders of record may elect
to have cash dividends automatically reinvested in additional shares of Wendy’s
through the Dividend Reinvestment and
Stock Purchase Plan. Additional shares
may also be purchased by investing voluntary cash payments of $20 to $20,000,
but not more than a total of $20,000
annually. Participation is entirely voluntary. All fees associated with stock purchases made under the Plan are paid for
by Wendy’s International, Inc. As of
March 4, 1996, 53 percent of all registered
shareholders were participants.
To receive an informational brochure/
enrollment form, please contact American
Stock Transfer & Trust Company at the
address or telephone number listed on
this page.
COMMON SHARES
Wendy’s shares are traded primarily on
the New York Stock Exchange (trading
symbol, WEN). Options in Wendy’s shares
are traded on the Pacific Stock Exchange.
At March 4, 1996, the company had
approximately 63,000 shareholders of
record.
STOCK SPLIT HISTORY
September 1977 . . . . . . . . . . . . 4-for-3
June 1978 . . . . . . . . . . . . . . . . . 2-for-1
March 1981 . . . . . . . . . . . . . . . 3-for-2
November 1982 . . . . . . . . . . . . 3-for-2
March 1984 . . . . . . . . . . . . . . . 4-for-3
March 1985 . . . . . . . . . . . . . . . 4-for-3
May 1986 . . . . . . . . . . . . . . . . . 5-for-4
(Example: 100 shares of Wendy’s common
stock purchased in 1976 equaled 1,333 at
12/31/95.)
MARKET PRICE OF COMMON STOCK
1995
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
1994
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Close
$17 5/8 $14 3/8 $16 3/8
18 7/8
16
17 7/8
3
22 /4
17
21 1/8
22 1/4
19 1/4 21 1/4
High
Low
Close
$18 3/8 $16 1/4 $17 1/8
18 1/2
15 1/2 15 3/4
1
16 /2
14
14 1/2
3
1
15 /4
13 /4
14 3/8
P R O D U C T I N F O R M AT I O N
A complete nutritional and ingredient
information brochure for Wendy’s
products is available by writing to the
Consumer Relations Department at the
Corporate Office.
Number of Units: Wendy’s: 4,667
Tim Hortons: 1,197
Total: 5,864
TRANSFER AGENT AND REGISTRAR
American Stock Transfer
& Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, NY 10005
1-800-937-5449
1-800-278-4353 (Dividend reinvestment)
SHAREHOLDER INQUIRIES
Inquiries regarding address corrections,
lost certificates, dividends, direct deposit,
changes of registration, stock certificate
holdings, dividend reinvestment, and
other shareholder account matters should
be directed to Wendy’s transfer agent,
American Stock Transfer & Trust
Company, at the address or telephone
number listed on this page.
40
Wendy’s International, Inc. and Subsidiaries
ANNUAL MEETING
E N V I R O N M E N TA L B R O C H U R E
The Annual Meeting of Shareholders of
Wendy’s International, Inc. will be held at
10:00 a.m., April 30, 1996, at the Fawcett
Center for Tomorrow, The Ohio State
University, 2400 Olentangy River Road,
Columbus, Ohio 43210. Shareholders are
cordially invited to attend.
For a copy of Wendy’s environmental
brochure, “Meeting The Challenge and
Finding Solutions,” write to Wendy’s
Environmental Commitment at the
Corporate Office.
FORM 10-K
The company’s Annual Report on Form
10-K will be sent free of charge to shareholders upon request to the Investor
Relations Department at the Corporate
Office.
DIVIDEND HISTORY
Wendy’s quarterly dividend is currently
$.06 per share. Wendy’s has paid 70 consecutive dividends. Additional information on dividends can be obtained by
contacting the Investor Relations
Department at the Corporate Office.
D E B T R AT I N G
Standard & Poors . . . BBB+
Moody’s . . . . . . . . . . Baa-1
(As of 12/31/95.)
C E R T I F I E D P U B L I C A C C O U N TA N T S
Coopers & Lybrand L.L.P.
Columbus, Ohio
LEGAL COUNSEL
Vorys, Sater, Seymour and Pease
Columbus, Ohio
Five-Year Selected Financial Data
1995
1994
1993
1992*
1991
Operations (In millions)
Systemwide sales
Wendy’s
Tim Hortons
Retail sales
Revenues
Income before income taxes
Pro forma(1)
Excluding special charges(2)
Net income
Pro forma(1)
Excluding special charges(2)
Capital expenditures
$ 4,494.8
$ 541.3
$ 1,461.9
$ 1,746.3
$ 165.1
$ 194.8
$ 214.8
$ 110.1
$ 126.4
$ 141.7
$ 217.5
4,227.2
440.4
1,365.7
1,591.6
150.3
179.2
179.2
97.4
113.5
113.5
172.4
3,924.1
377.4
1,288.5
1,482.4
118.2
141.5
141.5
80.5
93.4
93.4
137.2
3,612.9
340.5
1,207.0
1,381.0
103.8
121.5
121.5
66.5
76.3
76.3
139.5
3,223.6
308.1
1,038.6
1,186.6
78.9
96.7
96.7
51.9
61.8
61.8
86.3
$ 1,509.2
$ 1,006.7
$ 337.2
$ 818.8
1,214.8
865.2
144.9
701.9
1,100.3
786.7
200.6
623.8
1,013.4
745.3
233.7
552.9
965.9
682.2
239.6
504.2
Per Share Data
Net income – fully diluted
Pro forma (1)
Excluding special charges(2)
Dividends
$
$
$
$
.88
1.01
1.12
.24
.79
.92
.92
.24
.67
.77
.77
.24
.56
.64
.64
.24
.45
.53
.53
.24
Ratios
Domestic company operating profit margin
Pretax profit margin(2)
Return on average assets(2) (3)
Return on average equity(2)
Long-term debt to equity
Debt to total capitalization
%
%
%
%
%
%
15.1
12.3
17.1
18.3
41
29
15.7
11.3
17.5
16.7
21
17
14.9
9.5
15.6
15.7
32
24
14.2
8.8
14.9
14.3
42
30
13.3
8.1
13.6
12.5
48
32
1,200
2,997
1,168
2,826
1,132
2,657
1,117
2,490
1,080
2,408
111
359
4,667
1,197
5,864
96
321
4,411
943
5,354
92
287
4,168
721
4,889
91
264
3,962
628
4,590
82
234
3,804
546
4,350
Restaurant Data
Domestic Wendy’s open at year-end
Company
Franchise
International Wendy’s open at year-end
Company
Franchise
Total Wendy’s
Tim Hortons
Total Units
Average net sales per domestic
Wendy’s restaurant (In thousands)
Company
Franchise
Total domestic
Average sales per Tim Hortons standard
restaurant (In thousands)
$
$
$
1,014
974
986
1,001
982
988
978
960
966
924
907
912
874
843
852
$
641
623
596
607
621
Other Data
Primary shares (In thousands)
Registered shareholders at year-end
Number of employees at year-end
($Millions)
endy’s
Investor
Information
ataGlance
5,000
$4,495
4,500
4,000
3,500
F I N A N C I A L I N F O R M AT I O N
3,000
2,500
2,000
Financial Position (In millions)
Total assets
Property and equipment, net
Long-term obligations
Shareholders’ equity
W
122,041
63,000
47,000
120,588
57,000
45,000
119,247
56,000
44,000
117,864
56,000
43,000
115,836
53,000
40,000
(1) To give effect to the add back of profit sharing expense to an officer of Tim Hortons.
(2) To give effect to the add back of profit sharing expense and in 1995 other special charges as discussed in Note 1 to the Consolidated Financial Statements.
(3) Return on average assets is computed using income before income taxes and interest charges.
* Fiscal year 1992 includes 53 weeks.
91
92
93
94
95
TIM HORTONS SYSTEMWIDE
SALES GROWTH
KEY POINTS
þ With an increasingly diversified base
for growth, two very strong brands, and
solid financial and people resources,
Wendy’s has the means to continue its
track record of above average growth.
($Millions)
$541
550
500
450
400
350
þ Wendy’s is a strong brand. Consumer
ranking attributes, such as quality and
overall satisfaction, remain very high
as we continue our long-term brand
building strategies.
300
250
91
þ Domestic average sales per Wendy’s
company-operated restaurant have
increased each year since 1987.
92
93
94
95
þ With its broad menu and its variety of
buildings, carts and kiosks, Tim Hortons
has excellent flexibility and could
increase its penetration in Canada to
2,000 restaurants by the year 2000.
þ Domestic Wendy’s new restaurant
development has grown to 263 new
stores this year, achieving a 6 percent
growth rate.
þ Acceleration of Wendy’s restaurant
development outside of the United
States is planned. Steps have been
taken over the past two years to create
a solid foundation of staff and logistics
to support growth.
þ The very successful TV commercials
featuring founder Dave Thomas continue
to achieve high awareness scores among
consumers, amplifying the effectiveness
of our advertising dollars.
þ The merger with Tim Hortons brings a
second very strong brand with high quality
attributes to the Wendy’s portfolio.
þ With $214 million in cash and short-term
investments, a debt to equity ratio of
41% and a $165 million cash flow from
operations, Wendy’s has ample financial
resources to continue its growth plans.
þ Tim Hortons systemwide sales have grown
in excess of 20 percent in recent years.
þ The five year compounded total return to
shareholders has been 30 percent.
SHARE OF QSR SANDWICH
CATEGORY
WENDY’S AND THE
QUICK-SERVICE RESTAURANT
(QSR) INDUSTRY
Wendy’s participates in the
quick-service segment of the
restaurant industry. (Note: Total
restaurant industry sales were
$171.1 billion in 1995.)
Wendy’s considers its major
competition the quick-service
sandwich restaurants.
Wendy’s market share grew
0.1% to 9.8% of this category
in 1995.
HAVE YOU VISITED ANY
OF THESE
“NONTRADITIONAL”
WENDY’S UNITS?
WENDY’S SYSTEMWIDE
SALES GROWTH
55.9%
Other Major
Chains*
* McDonald’s, Burger King & Hardee’s
QUICK-SERVICE RESTAURANT
SALES GROWTH
($ Billions)
$97.9
$93.2
$88.8
$84.5
91
G E N E R A L I N F O R M AT I O N
Consumer inquiries, concerns and
information requests:
(614) 764-3100
Media inquiries:
Corporate Communications
(614) 764-3413
Franchise inquiries:
Wendy’s: (614) 764-8434
Tim Hortons: (905) 845-6511
Store location inquiries:
(614) 764-6800
9.8% Wendy's
34.3%
Smaller Chains
95
Investor Relations:
• Published information requests:
(614) 764-3105
• Internet via InvestQuestTM:
World Wide Web:
http://www.investquest.com
• Fax-on-Demand:
InvestQuestTM: (614) 844-3860
P.R. Newswire: 1-800-758-5804
(refer to code 962050)
• General inquiries:
Marsha Gordon (614) 764-3019
• Analysts and portfolio managers:
Investor Relations (614) 764-3044
Shareholder Newsline:
A recorded message containing
current news releases and financial
information is available 24 hours a day,
seven days a week. (614) 764-3105.
Videotapes:
Two videotapes are available for
investment clubs and other interested
groups. A corporate identity video or a
financial update video is available by
writing or calling the Investor Relations
Department at the Corporate Office.
Please specify which video you would
like to receive.
$81.3
Source: CREST— Consumer Reports on Eating Share Trends
C O R P O R AT E O F F I C E
Wendy’s International, Inc.
4288 West Dublin Granville Road
P.O. Box 256
Dublin, Ohio 43017-0256
(614) 764-3100
Wendy’s/Tim Hortons combination units
– Hopkins, MN and throughout Canada
University of Florida – Gainesville
University of Michigan – Ann Arbor
Atlanta International Airport
Houston Intercontinental Airport
Portland International Airport
University of Kentucky – Lexington
Exxon (various locations throughout U.S.)
NONTRADITIONAL UNITS
Pilot Oil (various locations throughout U.S.)
Wendy’s at The Ohio State
QuikTrip – (various locations throughout U.S.)
University Medical Center.
Wal-Mart Stores (various locations throughout U.S.)
Rutgers University – Piscataway and
New Brunswick, N J
U.S. Marine Base – Camp Lejeune, NC
U.S. Navy Bases – Italy and Iceland
The Ohio State University – Columbus
University of Texas – Austin
University of Oklahoma – Norman
Michigan State University – E. Lansing
Mississippi State University – Starkville
University of Toledo – Ohio
West Virginia University – Morgantown
Eastern Michigan University – Ypsilanti
University of California – Santa Barbara
The Ohio State University Medical Center
Miami Valley Hospital – Dayton, OH
Harper Hospital – Detroit, MI
Memorial Medical Center
– Savannah, GA
OWN YOUR SHARE
OF AMERICA
Wendy’s and over 200 publicly
traded companies support the
“Own Your Share of America”
campaign. The campaign,
initiated in 1992 by the National
Association of Investors
Corporation (NAIC), educates
and encourages individuals to
invest in common stock.
Br a n d B
Growth
1995
3
&
4
uildin g
Global
Departments
1992
Growth
Rekindled
2
1989
Foundation
Building
INSIDE COVER
Financial Highlights
INSIDE COVER
About Wendy’s
LIFT THIS COVER
Five-Year Selected Financial Data
LIFT THIS COVER
Investor Information at a Glance
2
Letter to Shareholders
4
Business Overview
18
Executive Management & Directors
20
Corporate Responsibility
21
Management’s Review and Outlook
26
Consolidated Financial Statements
30
Notes to Financial Statements
37
Quarterly Financial Data
38
Management’s Statement of Responsibility
39
Officers
40
Corporate/Shareholder Information
1
1986
Consolidation
& Reevaluation
e
d
’
Y
n S
About Wendy’s
Our mission is to deliver total quality. We and our franchisees operate 4,667
Wendy’s restaurants in the United States and 33 other countries, along with
1,197 Tim Hortons restaurants primarily in Canada. Founded in 1969, Wendy’s
serves the best hamburgers in the business, as well as offering a wide variety
of other fresh, healthy food – salads, the Super Value Menu, chicken sandwiches,
baked potatoes and chili. Tim Hortons was founded in 1964 and merged with
Wendy’s International, Inc. in 1995. Tim Hortons offers coffee and a full line of
fresh baked goods, as well as soups and sandwiches, and enjoys a reputation
for very high quality.
Financial Highlights
Systemwide sales
1995 Shareholder Report
W e n d y's I n t e r n a t i o n a l, I n c .
We n d y ’s I n t e r n a t i o n a l , I n c .
®
4288 West Dublin Granville Road
P.O. Box 256
Dublin, Ohio 43017-0256
– Wendy’s
– Tim Hortons
Number of Restaurants – Wendy’s
– Tim Hortons
Average Unit Sales
– Wendy’s
– Tim Hortons*
Revenues
Net Income
Pro forma
Excluding special charges
Shareholders’ Equity
Long-term Debt to Equity Ratio
* Standard Units
This annual report is printed on
recycled and recyclable paper
1995
1994
1993
$ 4,494,844,000
$ 541,266,000
4,667
1,197
$
986,000
$
641,000
$ 1,746,280,000
$ 110,070,000
$ 126,369,000
$ 141,734,000
$ 818,779,000
41%
$4,227,212,000
$ 440,350,000
4,411
943
$
988,000
$
623,000
$1,591,587,000
$ 97,432,000
$ 113,474,000
$ 113,474,000
$ 701,927,000
21%
$3,924,083,000
$ 377,411,000
4,168
721
$
966,000
$
596,000
$ 1,482,385,000
$ 80,517,000
$ 93,424,000
$ 93,424,000
$ 623,793,000
32%