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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 4, 1998
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WENDY'S INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Ohio 1-8116 31-0785108
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(State or other jurisdiction (Commission File (IRS Employer
of Identification No.) Number) incorporation)
4288 West Dublin-Granville Road, Dublin, Ohio 43017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 764-3100
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Not Applicable
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(Former name or former address, if changed since last report.)
Page 1 of 10.
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Item 1. Changes in Control of Registrant.
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Not applicable.
Item 2. Acquisition or Disposition of Assets.
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Not applicable.
Item 3. Bankruptcy or Receivership.
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Not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
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Not applicable.
Item 5. Other Events.
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On February 4, 1998, the Company issued a press release announcing
summary financial results for the fourth quarter and full 1997 fiscal
year, certain strategic initiatives and approval of a program to
repurchase up to $200 million of the Company's outstanding common
shares. The press release is attached hereto as Exhibit 99 and
incorporated herein by reference.
Item 6. Resignations of Registrant's Directors.
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Not applicable.
Item 7. Financial Statements and Exhibits.
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Not applicable.
Item 8. Change in Fiscal Year.
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Not applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
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Not applicable.
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WENDY'S INTERNATIONAL, INC.
By: /s/ Frederick R. Reed
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Frederick R. Reed
Chief Financial Officer,
General Counsel & Secretary
Date: February 5, 1998
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Exhibit 99
WENDY'S INTERNATIONAL, INC.
ANNOUNCES SUMMARY 4TH QUARTER RESULTS,
STRATEGIC INITIATIVES AND SHARE REPURCHASE
DUBLIN, Ohio (February 4, 1998) -- Wendy's International, Inc. (NYSE: WEN) today
announced summary results for the fourth quarter of 1997 and several strategic
initiatives to continue delivering strong sales increases while improving
operating income growth and shareholder value.
The initiatives include a program to accelerate new restaurant development at
both Wendy's and Tim Hortons, a reduction in future pretax gains from the sale
of company owned stores to franchisees and a plan to enhance operating margins
at Wendy's.
The Company also plans to repurchase up to $200 million of outstanding shares
over the next 18 to 24 months and to take non-recurring charges of approximately
$73 million pretax in the fourth quarter, substantially all of which are
non-cash. The charges are expected to have a favorable effect on future cash
flows and earnings.
SUMMARY 4TH QUARTER RESULTS
Pro forma net income for the fourth quarter, which ended on December 28, 1997,
was a record $45.9 million, or $0.34 per share (diluted), excluding the
non-recurring charges, compared to net income of $40.2 million, or $0.30 per
share (diluted) a year ago. The Company plans to report full results for the
quarter and the year on February 19, 1998.
"Our core North American Wendy's and Tim Hortons businesses continued to post
strong sales results in the fourth quarter and we are confident that trend will
continue," said Chairman, CEO and President Gordon F. Teter. "Domestic average
unit volumes (AUVs) at company operated Wendy's were up more than 3% in the
quarter and nearly 6% for the year, which is outstanding considering the
difficult comparisons versus a year ago and ongoing discounting in our industry.
System average volumes at Wendy's have increased nearly 4% annually since 1990,
which exceeds our major quick service restaurant (QSR) competitors, and very
little of that has come from pricing increases. In addition, same-store sales at
Tim Hortons' stores were up 10% for the quarter and 8% for the year."
STRATEGIC INITIATIVES FOR GROWTH
"The Company intends to continue its long-term strategies of focusing on
restaurant operations, aggressive but responsible growth, balanced marketing and
creating a performance driven culture," said Teter. "Going forward, we have
several new strategic initiatives that are expected to drive sales and operating
earnings."
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ACCELERATE STORE GROWTH - The Company plans to accelerate its new unit
development growth rate beginning in 1999, increasing new stores by more than
15% from about 575 in 1998 to about 675 total new stores open in 1999.
Management has identified several U.S. and Canadian markets for expansion and
will allocate personnel and resources to deliver more aggressive but disciplined
restaurant unit growth.
REDUCTION OF MARGINAL STORES - The Company plans to close 64 underperforming
Wendy's stores in 1998 and write down the value of an additional 18 stores
before selling them to franchisees. This is expected to have a positive effect
on future operating profits, average unit volume growth and margins for company
operated Wendy's. In addition, restaurants sold to franchisees will generate
royalty, rental and interest income. About $35 million of the $73 million in
charges is for closing stores, the writedown of stores and disposing of surplus
property in the U.S., Canada and the United Kingdom.
While management plans aggressive refranchising in 1998, pretax gains from the
sale of company operated stores to franchisees should be significantly lower
than in previous years. Management expects pretax gains in the range of $10
million to $15 million per year for 1998 and beyond. Pretax gains from the sale
of units and the sale of real estate due to the exercise of options were $42
million in 1995, $67 million in 1996 and $81 million in 1997.
MARGIN INITIATIVES - In addition to the positive effect of closing or selling
marginal stores, management plans to continue its aggressive focus on reducing
costs and enhancing margins to offset the challenges of competitive discounting,
food cost pressures and the acceleration of crew wages. Margin initiatives
include the salad bar removal program started in 1997 and currently under way;
the ongoing emphasis on higher margin products such as Fresh Stuffed Pitas;
productivity enhancing programs and selective pricing adjustments tested in 1997
and initiated in the Wendy's system over the past few months.
SHARE REPURCHASE PROGRAM - The Board of Directors approved a program for the
Company to repurchase up to $200 million of Wendy's outstanding common shares
over the next 18 to 24 months. Thereafter, the Company plans to purchase shares
each year in an amount to offset the dilutive effect of employee stock options.
"The repurchase program is designed to enhance shareholder value," said
Frederick R. Reed, Chief Financial Officer, General Counsel and Secretary.
"Because we have been disciplined in managing the business and our balance
sheet, we have ample financial capacity for the repurchase program and to
accommodate strategic acquisitions and joint venture opportunities in the
restaurant industry." The Company had $234 million in cash and short-term
investments at year end 1997 and a debt-to-equity ratio of 21%.
NON-RECURRING CHARGES - The Company plans to take non-recurring charges totaling
approximately $73 million pretax in the fourth quarter. The charges,
substantially all non-cash, are expected to have a favorable effect on future
earnings and cash flow.
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The major components of the balance of the charges, after the $35 million for
reducing the number of marginal stores, include about $15.7 million for writing
down assets related to strategic restaurant-level technology improvements and
computer enterprise system upgrades; about $6.0 million related to an accounting
change for store pre-opening costs; about $7.1 million for the strategic
decision to remove salad bars from most company owned Wendy's and about $5.3
million of additional asset reserves and provisions for contingencies.
MANAGEMENT OUTLOOK
The Company's long-term goal for net income and diluted EPS growth is in the low
to mid teens. "Starting from a 1997 base of $0.97 (diluted EPS from restaurant
operations excluding gains from selling stores to franchisees), our goal in 1998
is to deliver EPS growth from operations in the 13 percent to 15 percent range,"
said Reed. "That growth rate excludes gains from the sale of company owned
stores to franchisees, which we expect to be $10 million to $15 million pretax
per year.
"Over the past two years, Wendy's net income growth has been in the mid teens,
including gains from refranchising units," said Reed. "However, EPS growth in
1997 was slightly lower than net income growth due to the dilutive effect of our
term convertible securities (TECONS) and employee stock options. Given the
effect of the share repurchase program, we expect future net income and EPS to
grow at similar rates."
RESTAURANT OPERATIONS EARNINGS MODEL
DILUTED EARNINGS PER SHARE
1996 1997
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Pro forma income * $1.19 $1.33
Income from franchising gains 0.31 0.36
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Income from restaurant operations 0.88 0.97
* Before non-recurring charges
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WENDY'S INTERNATIONAL, INC.
CORPORATE / FINANCIAL INFORMATION
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1997 SUMMARY INFORMATION, YEAR ENDED DEC. 28, 1997
($ in thousands, except per share amounts)
BASIC DILUTED
4TH QUARTER EPS EPS
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Pro forma net income $ 45,900 0.35 0.34
Non-recurring charges, net (50,000) (0.38) (0.37)
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Net income (loss) (4,100) (0.03) (0.03)
4TH QUARTER HIGHLIGHTS
o Systemwide sales were $1.5 billion, up 8.3%.
o Retail sales were $403 million, up 1.6% (retail sales growth was affected
by fewer company stores).
o Revenues were $513 million, up 4.9%.
o AUVs at company operated Wendy's in the U.S. were up 3.2% versus 6.6% a
year ago while AUVs at franchised units increased 1.5% for the quarter.
o Margins at company operated Wendy's in the U.S. improved to 14.0% compared
to 13.1% a year ago despite higher weather-related produce costs.
o Same-store sales at Tim Hortons in Canada increased 10.2%.
o Pretax gains from franchising Wendy's units were $25.4 million
BASIC DILUTED
FULL YEAR 1997 EPS EPS
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Pro forma net income $180,500 1.37 1.33
Non-recurring charges, net (50,000) (0.38) (0.36)
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Net income 130,500 0.99 0.97
FULL YEAR 1997 HIGHLIGHTS
o Systemwide sales were $6.0 billion, up 10.5%.
o AUVs at company operated units increased 5.9% to a record $1.11 million
while AUVs at franchised units were up 4.0%.
o AUVs at company operated Wendy's in the U.S. have increased for 20
consecutive months and 11 consecutive years.
o Wendy's gained 0.5% share of the U.S. QSR hamburger market in 1997.
o Tim Hortons gained 0.3% share of the Canadian QSR market and has 47.9%
percent of the Canadian QSR coffee and donut market.
o Margins at company operated Wendy's in the U.S. increased to 14.8%, up 150
basis points from 13.3% in 1996.
o Same-store sales at Tim Hortons in Canada increased 8.0%.
o Pretax gains from franchising Wendy's units were $81 million.
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STORE DEVELOPMENT RESULTS
A systemwide total of 584 new Wendy's and Tim Hortons' stores opened in 1997 and
an additional 105 units were under construction at year end. A total of 115
units were closed during the year (96 domestic and international Wendy's and 19
Tim Hortons).
1997 1998
OPEN PLANNED
OPENED U/C YEAR-END TO OPEN
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Domestic Wendy's 266 51 = 317 4,575 270 to 280
International Wendy's 105 16 = 121 632 100 to 105
Tim Hortons 213 38 = 251 1,578 200 to 205
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584 105 = 689 6,785 570 to 590
o The 5,207 total Wendy's open at year end included 1,202 company owned units
and 4,005 franchised units.
o Tim Hortons plans to close during 1998 up to 60 self-serve kiosks in Esso
convenience outlets in Canada.
ANALYST CONTACT:
John D. Barker
614-764-3044 or 614-764-3251
MEDIA CONTACT:
Denny Lynch
614-764-3553
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SAFE HARBOR UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain information in this news release, particularly information regarding
future economic performance and finances, and plans, expectations and objectives
of management, is forward looking. The following factors, in addition to other
possible factors not listed, could affect the Company's actual results and cause
such results to differ materially from those expressed in forward-looking
statements:
COMPETITION. The quick-service restaurant industry is intensely competitive with
respect to price, service, location, personnel, and type and quality of food.
The Company and its franchisees compete with international, regional, and local
organizations primarily through the quality, variety, and value perception of
food products offered. The number and location of units, quality and speed of
service, attractiveness of facilities, effectiveness of advertising and
marketing programs, and new product development by the Company and its
competitors are also important factors. The Company anticipates that intense
competition will continue to focus on pricing. Certain of the Company's
competitors have substantially larger marketing budgets.
ECONOMIC, MARKET AND OTHER CONDITIONS. The quick-service restaurant industry is
affected by changes in national, regional, and local economic conditions,
consumer preferences and spending patterns, demographic trends, consumer
perceptions of food safety, weather, traffic patterns, and the type, number and
location of competing restaurants. Factors such as inflation, food costs, labor
and benefit costs, legal claims, and the availability of management and hourly
employees also affect restaurant operations and administrative expenses. The
ability of the Company and its franchisees to finance new restaurant
development, improvements and additions to existing restaurants, and the
acquisition of restaurants from, and sale of restaurants to, franchisees is
affected by economic conditions, including interest rates and other government
policies impacting land and construction costs and the cost and availability of
borrowed funds.
IMPORTANCE OF LOCATIONS. The success of Company and franchised restaurants is
dependent in substantial part on location. There can be no assurance that
current locations will continue to be attractive, as demographic patterns
change. It is possible the neighborhood or economic conditions where restaurants
are located could decline in the future, thus resulting in potentially reduced
sales in those locations.
GOVERNMENT REGULATION. The Company and its franchisees are subject to various
federal, state, and local laws affecting their business. The development and
operation of restaurants depend to a significant extent on the selection and
acquisition of suitable sites, which are subject to zoning, land use,
environmental, traffic, and other regulations. Restaurant operations are also
subject to licensing and regulation by state and local departments relating to
health, sanitation and safety standards, federal and state labor laws (including
applicable minimum wage requirements, overtime, working and safety conditions,
and citizenship requirements), federal and state laws which prohibit
discrimination, and other laws regulating the design and operation of
facilities, such as the Americans with Disabilities Act of 1990. Changes in
these laws and regulations, particularly increases in applicable minimum wages,
may adversely affect financial results. The operation of the Company's
franchisee system is also subject to regulation enacted by a number of states
and rules promulgated by the Federal Trade Commission. The Company cannot
predict the effect on its operations, particularly on its relationship with
franchisees, of the future enactment of additional legislation regulating the
franchise relationship.
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GROWTH PLANS. The Company plans to significantly increase the number of
systemwide Wendy's and Tim Hortons restaurants open or under construction. There
can be no assurance that the Company or its franchisees will be able to achieve
growth objectives or that new restaurants opened or acquired will be profitable.
The opening and success of restaurants depends on various factors, including the
identification and availability of suitable and economically viable locations,
sales levels at existing restaurants, the negotiation of acceptable lease or
purchase terms for new locations, permitting and regulatory compliance, the
ability to meet construction schedules, the financial and other development
capabilities of franchisees, the ability of the Company to hire and train
qualified management personnel, and general economic and business conditions.
INTERNATIONAL OPERATIONS. The Company's business outside of the United States is
subject to a number of additional factors, including international economic and
political conditions, differing cultures and consumer preferences, currency
regulations and fluctuations, diverse government regulations and tax systems,
uncertain or differing interpretations of rights and obligations in connection
with international franchise agreements and the collection of royalties from
international franchisees, the availability and cost of land and construction
costs, and the availability of experienced management, appropriate franchisees,
and joint venture partners. Although the Company believes it has developed the
support structure required for international growth, there is no assurance that
such growth will occur or that international operations will be profitable.
DISPOSITION OF RESTAURANTS. The disposition of Company-operated restaurants to
new or existing franchisees is part of the Company strategy to develop the
overall health of the system by acquiring restaurants from, and disposing of
restaurants to, franchisees where prudent. The expectation of gains from future
dispositions of restaurants depends in part on the ability of the Company to
complete disposition transactions on acceptable terms.
The non-recurring charge recorded in the fourth quarter of 1997 includes $35
million related to the closure or sale of restaurants to franchisees and the
disposition of surplus properties. The actual loss incurred from these
activities could vary significantly from the Company's estimate due to many of
the factors set forth above.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation to
publicly release any revisions to the forward-looking statements contained in
this release, or to update them to reflect events or circumstances occurring
after the date of this release, or to reflect the occurrence of unanticipated
events.
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