Wendy’s International, Inc. Confirms Intent to Spin Off Remaining Tim Hortons Shares
“Three-tiered Combo Plan” to Increase Sales, Improve Margins and Reduce Costs Moves Forward
DDUBLIN, Ohio (June 27, 2006) – Wendy’s International, Inc. (NYSE: WEN) today announced that its Board of Directors has confirmed its intent to spin off to current Wendy’s® shareholders the 160.0 million shares of Tim Hortons Inc. (TSX/NYSE: THI) that the Company currently owns. The shares represent an 82.75% ownership stake in Tim Hortons®.
Tim Hortons issued 17.25% of its shares in March 2006 in an initial public offering (IPO). The Company is now targeting Oct. 1, 2006, to complete the Tim Hortons spin-off, assuming it has received from the IRS a ruling on the tax-free status of the distribution by that time.
“The Board’s unanimous decision to spin off the remaining shares of Tim Hortons confirms the commitment that we initially made to shareholders in our July 29, 2005, announcement of the IPO and that we reiterated during the Tim Hortons road show in March,” said Wendy’s Chairman Jim Pickett.
“We considered expert advice and recommendations of outside advisors, including our investment bankers as well as legal counsel,” Pickett said. “After thoroughly exploring options for distributing the remaining shares, including a split-off and a partial split-off, we concluded that a spin-off is the best distribution method for the Company and our shareholders. The spin-off has the advantages of speed, simplicity and minimal execution risk. It will quickly deliver value to shareholders and enable the management teams of both companies to focus on their respective strategies, operations and growth agendas.” In contrast, the magnitude and complexity of a split-off, including U.S. and Canadian regulatory requirements, likely would delay the transaction into 2007 or could potentially put at risk its completion.
Company announces progress on programs to increase sales, improve margins and reduce costs
“We continue to implement Wendy’s “Combo Plan” to increase sales annually by more than 3%, reduce G&A and overhead costs $100 million by 2007 and improve store-level margins by 500 basis points over the next three years or sooner,” said interim Chief Executive Officer and President Kerrii Anderson.
As a key step in its program to achieve $100 million in cost savings, the Company in early May offered a voluntary early retirement plan to approximately 175 of its full-time U.S. employees. The employees who accept the voluntary early retirement program offer will comprise a portion of the total 350 to 375 positions the Company has targeted as part of its total planned workforce reduction.
The Company expects to incur charges during the second quarter as a result of its voluntary early retirement plan, severance related to its planned reduction in workforce and other expenses related to the cost-reduction initiative. These charges will result in lower 2006 second-quarter earnings per share relative to the second quarter of 2005.
Other factors expected to impact 2006 second-quarter results include the following:
- The loss of 17.25% of the net income contribution from Tim Hortons subsequent to its IPO in late March.
- Lower-than-expected same-store sales at Wendy’s and Baja Fresh.
- Lower-than-planned development of both Company and franchise stores.
- Consulting costs related to the Company’s restructuring program.
- Higher interest expense from the third-party debt entered into during the first quarter by Tim Hortons.
- Approximately $1 million in incremental employee stock compensation expense, as the Company is recognizing the expense of three years of restricted stock and restricted stock unit awards in 2006. The Company converted from stock options to restricted stock in 2004
- A higher number of shares outstanding compared to the second quarter of 2005 due to employee exercises of stock options.
- $10 million of incremental advertising expense for the Wendy’s brand, which will impact second-quarter operating costs. The balance of the $25 million total expense impacted first-quarter results.
- The expensing of certain investments in technology and equipment totaling about $1 million designed to lower future food costs.
Factors having a positive impact on the quarter relative to the second quarter of 2005 are stronger Canadian currency, a lower effective tax rate and higher interest income.
The Company recently announced that April same-store sales results for the Wendy’s brand were the strongest it has produced since January 2005, but were still below the Company’s expectations. The Company plans to release its second-quarter same store sales results on Wednesday, July 5.
“Our second-quarter sales trends have improved compared to the first quarter, and we are optimistic about the initiatives to increase customer traffic for the remainder of the year,” said Anderson.
In April Wendy’s launched its new Frescata™ deli sandwich line, which features high-quality deli meats, fresh toppings and artisan bread that is baked at the restaurant. The Company announced last month that the Frescata sandwich introduction in April had contributed to Wendy’s first positive same-store sales month since January 2005.
During the second quarter, Wendy’s began promoting its Late-Night business; its Fix n’ Mix Frosty™, featuring the customer’s choice of M&Ms®, Butterfinger® or Oreo® toppings; Combo Choices, which offers consumers a choice of side items with the purchase of a sandwich; and Wendy's Kids’ Meal® Choices program, featuring two nutritious new Kids’ Meal sandwiches -- Turkey & Cheese and Ham & Cheese -- and a low-fat yogurt and granola side option.
Food costs continuing to improve
Wendy’s overall food costs are continuing to improve. Wendy’s expects its third-quarter beef price to improve on a system-wide basis by an average of 13.5% compared to the third quarter of 2005, and down 6.0% compared to the second quarter of 2006. Average beef costs for the first nine months of 2006 will be 7.8% lower than in the same period in 2005.
Company selects Russell Reynolds Associates to head CEO search
The Company announced that it has retained the global executive search firm Russell Reynolds Associates as it continues to move forward in its search for a permanent chief executive officer. A committee of directors, under the leadership of Chairman Jim Pickett, will work with Russell Reynolds on the search.
“This is one of the three new temporary committees on the Board – the other two being Financial Advisory and Strategic Planning Advisory – that are reflective of the cooperation and commitment of all members of the Board to enhancement of shareholder value,” said Pickett.
Safe Harbor statement
Certain information in this news release, particularly information regarding future economic performance and finances, and plans, expectations and objectives of management, is forward looking. Factors set forth in our Safe Harbor under the Private Securities Litigation Reform Act of 1995, 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. Please review the Company’s Safe Harbor statement at http://www.wendys-invest.com/safeharbor.
Wendy’s International, Inc. overview
Wendy's International, Inc. is one of the world's largest restaurant operating and franchising companies with more than 9,900 total restaurants and five quality brands, including Wendy's Old Fashioned Hamburgers®, Tim Hortons, Baja Fresh Mexican Grill, Cafe Express™ and Pasta Pomodoro®. More information about the Company is available at www.wendys-invest.com.
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