WEN
$16.96
Wendys
($.13)
(.76%)
Earnings Details
2nd Quarter June 2018
Tuesday, August 07, 2018 4:05:00 PM
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Summary

Wendys Misses

Wendys (WEN) reported 2nd Quarter June 2018 earnings of $0.14 per share on revenue of $411.0 million. The consensus earnings estimate was $0.16 per share on revenue of $407.6 million. The Earnings Whisper number was $0.17 per share. Revenue grew 28.3% on a year-over-year basis.

The company said it continues to expect 2018 earnings of $0.55 to $0.57 per share. The current consensus earnings estimate is $0.56 per share for the year ending December 31, 2018.

Wendy' Co franchises and operates company-owned Wendy’s quick-service restaurants specializing in hamburger sandwiches throughout North America.

Results
Reported Earnings
$0.14
Earnings Whisper
$0.17
Consensus Estimate
$0.16
Reported Revenue
$411.0 Mil
Revenue Estimate
$407.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

The Wendy's Company Reports Second Quarter 2018 Results

DUBLIN, Ohio, Aug. 7, 2018 /PRNewswire/ -- The Wendy's Company (NASDAQ: WEN) today reported unaudited results for the second quarter ended July 1, 2018.

The Wendy's Company is the world's third-largest quick-service hamburger company. The Wendy's system includes approximately 6,500 franchise and Company-operated restaurants in the United States and 28 countries and U.S. territories worldwide. For more information, visit www.aboutwendys.com . (PRNewsFoto/The Wendy's Company)

"We have now recorded 22 consecutive quarters of positive same-restaurant sales, a streak that continues to be unmatched in the QSR hamburger category," President and Chief Executive Officer Todd Penegor said. "On the strength of our balanced marketing approach and focus to profitably grow our restaurants we delivered a strong, sequentially improving second quarter restaurant margin.  Our resilient business model continues to deliver consistent growth and we remain on track to achieve our 2018 financial guidance targets.  Our relentless focus on executing every element of The Wendy's Way by providing food our customers love, friendly service, value, and an inviting atmosphere will continue to drive growth in the future."

Second Quarter 2018 Summary
See "Disclosure Regarding Non-GAAP Financial Measures" and the reconciliation tables that accompany this release for a discussion and reconciliation of certain non-GAAP financial measures included in this release.

 

Operational Highlights

Second Quarter


Year-to-Date










2018


2017


2018


2017










(Unaudited)


(Unaudited)









North America Same-Restaurant Sales Growth(1)

1.9%


3.2%


1.8%


2.4%









Global Restaurant Openings








North America - Total / Net

25 / 13


10 / -11


41 / 4


28 / -5

International - Total / Net

11 / 10


25 / 24


28 / 18


40 / 32

Global - Total / Net

36 / 23


35 / 13


69 / 22


68 / 27









Global Systemwide Sales (In US$ Millions)(2)








North America

$2,602


$2,521


$5,006


$4,859

International(3)

$132


$119


$259


$231

Global

$2,734


$2,640


$5,265


$5,090

 

 

 

Operational Highlights (Continued)

Second Quarter


Year-to-Date










2018


2017


2018


2017










(Unaudited)


(Unaudited)









Global Systemwide Sales Growth(1)








North America

2.7%


4.1%


2.7%


3.4%

International(3)

12.8%


16.4%


13.2%


15.2%

Global Systemwide Sales Growth

3.1%


4.6%


3.2%


3.9%









(1) Same-restaurant sales growth and systemwide sales growth are calculated on a constant currency basis and include sales by both Company-operated and franchise restaurants.

(2) Systemwide sales include sales at both Company-operated and franchise restaurants. Sales by franchise restaurants are not recorded as Company revenues. However, the Company's royalty revenues are computed as percentages of sales made by franchisees and, as a result, sales by franchisees have a direct effect on the Company's royalty revenues and therefore on the Company's profitability.

(3) Excludes Venezuela.

 

Financial Highlights

Second Quarter


Year-to-Date














2018


2017(1)


B / (W)


2018


2017(1)


B / (W)













(In Millions Except Per Share Amounts)

(Unaudited)




(Unaudited)















Total Revenues

$

411.0



$

395.4



3.9

%


$

791.6



$

756.4



4.6

%

Adjusted Revenues(2)

$

326.4



$

312.2



4.6

%


$

628.1



$

595.0



5.6

%

Company Operated Restaurant Margin

17.4

%


18.8

%


(1.4)

%


15.8

%


17.5

%


(1.7)

%

General and Administrative Expense

$

49.2



$

50.1



1.8

%


$

99.5



$

101.4



1.8

%

Operating Profit

$

71.5



$

17.6



305.3

%


$

126.7



$

75.4



68.2

%

Net Income

$

29.9



$

(5.9)



606.1

%


$

50.0



$

14.6



243.1

%

Adjusted EBITDA

$

109.5



$

107.9



1.5

%


$

200.4



$

194.1



3.2

%

Adjusted EBITDA Margin(3)

33.6

%


34.6

%


(1.0)

%


31.9

%


32.6

%


(0.7)

%

Reported Diluted Earnings Per Share

$

0.12



$

(0.02)



700.0

%


$

0.20



$

0.06



233.3

%

Adjusted Earnings Per Share

$

0.14



$

0.13



7.7

%


$

0.25



$

0.21



19.0

%

Cash Flows from Operations







$

148.4



$

105.8



40.3

%

Capital Expenditures







$

(23.9)



$

(32.1)



25.6

%

Year-to-Date Free Cash Flow(4)







$

117.8



$

88.2



33.6

%













(1) Income statement numbers are presented on a recast basis to account for the impact of the new revenue recognition accounting standard as if the full retrospective method of adoption had been used. Please refer to the income statement, adjusted EBITDA and adjusted EPS recast reconciliations that accompany this release for further details.

(2) Total revenues less advertising funds revenue.

(3) Adjusted EBITDA divided by adjusted revenues. The definition of adjusted EBITDA has changed in fiscal year 2018 to exclude revenues from our advertising funds that are now included in our total revenues under the new revenue recognition accounting standard.

(4) Cash flows from operations minus capital expenditures and the impact of the advertising funds.

 

Second Quarter Financial Highlights

Adjusted Revenues
The increase in adjusted revenues resulted primarily from positive same-restaurant sales at Company-operated and Franchise-operated restaurants which led to increased sales and franchise royalties, respectively, and increased rental revenue related to Franchise Flips completed in 2017.

Company-Operated Restaurant Margin
The decrease in Company-operated restaurant margin was primarily the result of labor rate inflation, commodity costs, and higher insurance costs, partially offset by pricing actions.

General & Administrative Expense
The decrease in general and administrative expense was primarily the result of lower professional fees and lower employee compensation and related expenses as a result of the Company's G&A savings initiative.

Operating Profit
The increase in operating profit resulted primarily from the system optimization pre-tax losses of $43.1 million dollars related to the DavCo-NPC transaction in the second quarter of 2017 and prior year reorganization and realignment costs related to the Company's G&A savings initiative.

Net Income
The increase in net income resulted primarily from the system optimization losses related to the DavCo-NPC transaction in the second quarter of 2017 and prior year reorganization and realignment costs related to the Company's G&A savings initiative.

Adjusted EBITDA
The increase in adjusted EBITDA resulted primarily from revenue growth, including net rental income, partially offset by a decrease in Company-operated restaurant margin.

Adjusted Earnings Per Share
The increase in adjusted earnings per share resulted primarily from the positive impact of a lower tax rate from the Tax Cuts and Jobs Act of 2017, partially offset by higher depreciation and amortization expense.

Year-to-Date Free Cash Flow
The increase in free cash flow resulted from an increase in cash flows from operations and a decrease in capital expenditures.  The increase in cash flows from operations resulted primarily from a favorable change in working capital.

New Restaurant Development
In the second quarter of 2018 the Company had 36 global restaurant openings, and an increase of 23 net new units.  The Company now expects 2018 global net new unit growth of approximately 1.5 percent.  We continue to expect approximately 1 percent growth in North America but now expect approximately 10 percent growth in International.

Image Activation
Image Activation, which includes reimaging existing restaurants and building new restaurants, remains an integral part of our global growth strategy. At the end of the second quarter, 46 percent of the global system was image activated.  This compares to 43 percent image activated at the end of 2017. The Company continues to expect approximately 10 percent of the global system to be image activated on an annual basis through 2020.

Franchise Flips
In the second quarter of 2018, the Company facilitated 64 Franchise Flips. The Company will continue to facilitate Franchise Flips to ensure that restaurants are operated by well-capitalized franchisees that are committed to long-term growth.  The Company continues to expect that approximately 200 Franchise Flips will be completed in 2018.

Company repurchases 2.7 million shares for $45.7 million in the second quarter
The Company repurchased 2.7 million shares for $45.7 million in the second quarter at an average price of $17.03 per share. As of the end of the quarter, the Company had approximately $112.5 million remaining on its existing share repurchase authorization of $175 million, which expires on March 3, 2019.

2018 outlook
This release includes forward-looking guidance for certain non-GAAP financial measures, including adjusted EBITDA, adjusted earnings per share, free cash flow and adjusted tax rate. The Company excludes certain expenses and benefits from adjusted EBITDA, adjusted earnings per share, free cash flow and adjusted tax rate, such as national advertising funds' revenues and expenses, impairment of long-lived assets, reorganization and realignment costs, system optimization (gains) losses, net and timing and resolution of certain tax matters. Due to the uncertainty and variability of the nature and amount of those expenses and benefits, the Company is unable without unreasonable effort to provide projections of net income, earnings per share, free cash flow or reported tax rate or a reconciliation of those projected measures.

The amounts shown below reflect the impact of the new revenue recognition accounting standard, certain other income statement reclassifications and the Tax Cuts and Jobs Act of 2017. The Company continues to expect aspects of the Tax Cuts and Jobs Act of 2017 to be clarified in the future, which could affect elements of the 2018 outlook. For more information regarding the changes related to the new revenue recognition accounting standard and other income statement reclassifications that were made to our prior year financial statements, please reference the publicly available presentation in the supplemental financial information located in the Investors section of the Company's website at www.wendys.com/investor-relations.

The Company continues to expect:

  • North America same-restaurant sales growth of approximately 2.0 to 2.5 percent.
  • Commodity inflation of approximately 1 to 2 percent.
  • Labor inflation of approximately 3 to 4 percent.
  • Company-operated restaurant margin of approximately 17 to 18 percent.
  • General and administrative expense of approximately $195 million.
  • Adjusted EBITDA of approximately $420 to $430 million, an increase of approximately 8 to 10 percent compared to recast 2017 results.
  • Adjusted EBITDA margin of approximately 33 to 34 percent.
  • Interest expense of approximately $120 million.
  • Depreciation and amortization expense of approximately $130 million.
  • Adjusted tax rate of approximately 21 to 23 percent.
  • Adjusted earnings per share of approximately $0.55 to $0.57, an increase of approximately 41 to 46 percent compared to recast 2017 results.
  • Cash flows from operations of approximately $295 to $320 million.
  • Capital expenditures of approximately $75 to $80 million.
  • Free cash flow of approximately $220 to $240 million, an increase of approximately 29 to 41 percent compared to 2017.

Company on track to achieve 2020 goals
The Company continues to expect to achieve the following goals by the end of 2020:

  • Global systemwide sales (in constant currency and excluding Venezuela) of ~$12 billion.
  • Global restaurant count of ~7,250.
  • Global Image Activation of at least 70 percent.
  • Adjusted EBITDA margin of 37 to 39 percent.
  • Free cash flow of ~$300 million (capital expenditures of ~$65 million).

Conference call and webcast scheduled for 9:00 a.m. tomorrow, August 8
The Company will host a conference call on Wednesday, August 8 at 9 a.m. ET, with a simultaneous webcast from the Investors section of the Company's website at www.wendys.com/investor-relations.  The related presentation materials will also be available on the Investors section Company's website. The live conference call will be available by telephone at (877) 572-6014 for domestic callers and (281) 913-8524 for international callers. An archived webcast and presentation materials will be available on the Investors section of the Company's website.

Forward-looking statements
This news release contains certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of The Wendy's Company and its subsidiaries (collectively, the "Company") and the Company's stated 2020 goals. Those statements, as well as statements preceded by, followed by, or that include the words "may," "believes," "plans," "expects," "anticipates," or the negation thereof, or similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In addition, all statements that address future operating, financial or business performance; strategies, initiatives or expectations; future synergies, efficiencies or overhead savings; anticipated costs or charges; future capitalization; and anticipated financial impacts of recent or pending transactions are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are based on the Company's expectations at the time, speak only as of the dates they are made and are susceptible to a number of risks, uncertainties and other factors. The Company's actual results, performance and achievements may differ materially from any future results, performance or achievements expressed in or implied by the forward-looking statements. For all forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Reform Act. Many important factors could affect future results and could cause those results to differ materially from those expressed in or implied by the forward-looking statements. Such factors, all of which are difficult or impossible to predict accurately, and many of which are beyond the Company's control, include, but are not limited to:

  1. changes in the quick-service restaurant industry, such as consumer trends toward value-oriented products and promotions or toward consuming fewer meals away from home;
  2. prevailing economic, market and business conditions affecting the Company, including competition from other food service providers, unemployment and decreased consumer spending levels;
  3. the ability to effectively manage the acquisition and disposition of restaurants;
  4. cost and availability of capital;
  5. cost fluctuations associated with food, supplies, energy, fuel, distribution or labor;
  6. the financial condition of the Company's franchisees;
  7. food safety events, including instances of food-borne illness involving the Company or its supply chain;
  8. conditions beyond the Company's control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting the Company's customers or food supplies, or acts of war or terrorism;
  9. risks associated with failures, interruptions or security breaches of the Company's computer systems or technology, or the occurrence of cyber incidents or a deficiency in cyber security that impacts the Company or its franchisees, including the cybersecurity incident previously announced;
  10. the effects of negative publicity that can occur from increased use of social media;
  11. the availability of suitable locations and terms for the development of new restaurants;
  12. risks associated with the Image Activation program;
  13. adoption of new, or changes in, laws, regulations or accounting standards (including the new guidance on leases that will become effective for fiscal 2019), policies and practices;
  14. changes in debt, equity and securities markets;
  15. goodwill and long-lived asset impairments;
  16. changes in interest rates;
  17. the difficulty in predicting the ultimate costs that will be incurred in connection with the Company's plan to reduce its general and administrative expense, and the future impact on the Company's earnings;
  18. risks associated with the Company's debt refinancing, including the ability to generate sufficient cash flow to meet increased debt service obligations, compliance with operational and financial covenants, and restrictions on the Company's ability to raise additional capital;
  19. risks associated with the amount and timing of share repurchases under the $175 million share repurchase program approved by the Board of Directors; and
  20. other factors cited in the Company's news releases, public statements and/or filings with the Securities and Exchange Commission, including those identified in the "Risk Factors" sections of the Company's Forms 10-K and 10-Q.

The Company's franchisees are independent third parties that the Company does not control.  Numerous factors beyond the control of the Company and its franchisees may affect new restaurant openings. Accordingly, there can be no assurance that commitments under development agreements with franchisees will result in new restaurant openings. In addition, numerous factors beyond the control of the Company and its franchisees may affect franchisees' ability to reimage existing restaurants in accordance with the Company's expectations.

All future written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. New risks and uncertainties arise from time to time, and it is impossible for the Company to predict these events or their impact.

The Company assumes no obligation to update forward-looking statements as a result of new information, future events or developments, except as required by federal securities laws. The Company does not endorse any projections regarding future performance that may be made by third parties.

Disclosure regarding non-GAAP financial measures
In addition to the GAAP financial measures presented in this release, the Company has included certain non-GAAP financial measures in this release, including adjusted revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, adjusted tax rate and systemwide sales.  Adjusted revenue, Adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, and adjusted tax rate exclude certain expenses and benefits as detailed in the reconciliation tables that accompany this release.  The Company uses these non-GAAP financial measures as internal measures of business operating performance and as performance measures for benchmarking against the Company's peers and competitors.  Adjusted EBITDA, systemwide sales and free cash flow are also used by the Company in establishing performance goals for purposes of executive compensation.

The Company believes its presentation of adjusted revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, adjusted tax rate and systemwide sales provides a meaningful perspective of the underlying operating performance of our current business and enables investors to better understand and evaluate our historical and prospective operating performance.  The Company believes these non-GAAP financial measures are important supplemental measures of operating performance because they eliminate items that vary from period to period without correlation to our core operating performance and highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures.  Due to the nature and/or size of the items being excluded, such items do not reflect future gains, losses, expenses or benefits and are not indicative of our future operating performance.  The Company believes investors, analysts and other interested parties use adjusted revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, adjusted tax rate and systemwide sales in evaluating issuers, and the presentation of these measures facilitates a comparative assessment of the Company's operating performance in addition to the Company's performance based on GAAP results.

This release also includes guidance regarding the Company's free cash flow.  Free cash flow is a non-GAAP financial measure that is used by the Company as an internal measure of liquidity.   As a result of the adoption of the new revenue recognition accounting standard in the first quarter of 2018, the Company now defines free cash flow as cash flows from operations minus capital expenditures and advertising funds restricted assets and liabilities, as reported under GAAP.  Advertising funds restricted assets and liabilities are excluded because they are not available for the Company's working capital needs. The Company believes free cash flow is an important liquidity measure for investors and other interested persons because it communicates how much cash flow is available for working capital needs or to be used for repurchasing shares, paying dividends, repaying or refinancing debt, financing possible acquisitions or investments or other uses of cash.

Adjusted revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, adjusted tax rate, free cash flow and systemwide sales are not recognized terms under U.S. General Accepted Accounting Principles, and the Company's presentation of these non-GAAP financial measures does not replace the presentation of the Company's financial results in accordance with GAAP.  Because all companies do not calculate adjusted revenue, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings per share, free cash flow, adjusted tax rate, and systemwide sales (and similarly titled financial measures) in the same way, those measures as used by other companies may not be consistent with the way the Company calculates such measures.  The non-GAAP financial measures included in this release should not be construed as substitutes for or better indicators of the Company's performance than the most directly comparable GAAP financial measures.

Key business measures
The Company tracks its results of operations and manages its business using certain key business measures, including same-restaurant sales and systemwide sales, which are measures commonly used in the quick-service restaurant industry that are important to understanding Company performance. Same-restaurant sales and systemwide sales each include sales by both Company-operated and franchise restaurants. The Company reports same-restaurant sales for new restaurants after they have been open for 15 continuous months and for reimaged restaurants as soon as they reopen.

Sales by franchise restaurants are not recorded as Company revenues and are not included in the Company's consolidated financial statements. However, the Company's royalty revenues are computed as percentages of sales made by Wendy's franchisees and, as a result, sales by franchisees have a direct effect on the Company's royalty revenues and therefore on the Company's profitability.

About Wendy's
Wendy's® was founded in 1969 by Dave Thomas in Columbus, Ohio. Dave built his business on the premise, "Quality is our Recipe®," which remains the guidepost of the Wendy's system. Wendy's is best known for its made-to-order square hamburgers, using fresh, never frozen beef*, freshly-prepared salads with hand-chopped lettuce, and other signature items like chili, baked potatoes and the Frosty® dessert. The Wendy's Company (NASDAQ: WEN) is committed to doing the right thing and making a positive difference in the lives of others. This is most visible through the Company's support of the Dave Thomas Foundation for Adoption® and its signature Wendy's Wonderful Kids® program, which seeks to find every child in the North American foster care system a loving, forever home. Today, Wendy's and its franchisees employ hundreds of thousands of people across more than 6,600 restaurants worldwide with a vision of becoming the world's most thriving and beloved restaurant brand. For details on franchising, connect with us at www.wendys.com/franchising. Visit www.wendys.com and www.squaredealblog.com for more information and connect with us on Twitter and Instagram using @wendys, and on Facebook www.facebook.com/wendys.

*Fresh beef available in the contiguous U.S., Alaska, and Canada.

 


The Wendy's Company and Subsidiaries

Condensed Consolidated Statements of Operations

Three and Six Month Periods Ended July 1, 2018 and July 2, 2017

(In Thousands Except Per Share Amounts)

(Unaudited)



Three Months Ended


Six Months Ended


2018


2017 (a)


2018


2017 (a)

Revenues:








Sales

$

167,344



$

160,859



$

320,993



$

309,071


Franchise royalty revenue and fees

107,559



112,548



205,467



207,238


Franchise rental income

51,529



46,935



101,636



89,852


Advertising funds revenue

84,570





163,470





411,002



320,342



791,566



606,161


Costs and expenses:








Cost of sales

138,154



130,581



270,373



255,124


Franchise support and other costs

7,031



3,789



13,204



7,432


Franchise rental expense

24,306



21,897



47,569



40,765


Advertising funds expense

84,570





163,470




General and administrative

49,163



50,059



99,519



101,373


Depreciation and amortization

33,427



31,309



65,579



60,474


System optimization (gains) losses, net

(92)



41,050



478



39,643


Reorganization and realignment costs

3,124



17,699



5,750



17,880


Impairment of long-lived assets

1,603



253



1,809



763


Other operating income, net

(1,767)



(2,089)



(2,930)



(3,807)



339,519



294,548



664,821



519,647


Operating profit

71,483



25,794



126,745



86,514


Interest expense, net

(30,136)



(28,935)



(60,314)



(57,910)


Loss on early extinguishment of debt





(11,475)




Other income, net

917



2,844



1,661



3,233


Income (loss) before income taxes

42,264



(297)



56,617



31,837


Provision for income taxes

(12,388)



(1,548)



(6,582)



(11,341)


Net income (loss)

$

29,876



$

(1,845)



$

50,035



$

20,496










Net income (loss) per share








Basic

$

.13



$

(.01)



$

.21



$

.08


Diluted

.12



(.01)



.20



.08










Number of shares used to calculate basic income (loss)
  per share

238,991



245,261



239,459



245,933










Number of shares used to calculate diluted income (loss)
  per share

246,152



245,261



247,285



253,896










(a) 2017 condensed consolidated statements of operations reflect reclassifications to conform to the current year presentation; however, they do not reflect adjustments for the implementation of the new revenue recognition standard as the Company applied the modified retrospective method upon adoption.

 

 

 

The Wendy's Company and Subsidiaries

Condensed Consolidated Balance Sheets

As of July 1, 2018 and December 31, 2017

(In Thousands Except Par Value)

(Unaudited)



July 1,
 2018


December 31,
2017

ASSETS




Current assets:




Cash and cash equivalents

$

194,939



$

171,447


Restricted cash

30,000



32,633


Accounts and notes receivable, net

95,121



114,390


Inventories

3,283



3,156


Prepaid expenses and other current assets

22,414



20,125


Advertising funds restricted assets

87,688



62,602


Total current assets

433,445



404,353


Properties

1,226,961



1,263,059


Goodwill

741,783



743,334


Other intangible assets

1,301,463



1,321,585


Investments

52,144



56,002


Net investment in direct financing leases

228,838



229,089


Other assets

95,545



79,516


Total assets

$

4,080,179



$

4,096,938






LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Current portion of long-term debt

$

23,250



$

22,750


Current portion of capital lease obligations

7,868



7,422


Accounts payable

21,321



22,764


Accrued expenses and other current liabilities

103,351



111,624


Advertising funds restricted liabilities

96,972



62,602


Total current liabilities

252,762



227,162


Long-term debt

2,313,448



2,263,688


Capital lease obligations, net of current portion

458,212



460,542


Deferred income taxes

274,344



299,053


Deferred franchise fees

93,139



10,881


Other liabilities

257,735



262,409


Total liabilities

3,649,640



3,523,735


Commitments and contingencies




Stockholders' equity:




Common stock, $0.10 par value; 1,500,000 shares authorized;
   470,424 shares issued; 238,083 and 240,512 shares outstanding, respectively

47,042



47,042


Additional paid-in capital

2,883,167



2,885,955


Accumulated deficit

(224,120)



(163,289)


Common stock held in treasury, at cost; 232,341 and 229,912 shares, respectively

(2,219,100)



(2,150,307)


Accumulated other comprehensive loss

(56,450)



(46,198)


Total stockholders' equity

430,539



573,203


Total liabilities and stockholders' equity

$

4,080,179



$

4,096,938


 

 


 

The Wendy's Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Six Month Periods Ended July 1, 2018 and July 2, 2017

(In Thousands)

(Unaudited)



Six Months Ended


2018


2017

Cash flows from operating activities:




Net income

$

50,035



$

20,496


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

65,579



60,474


Share-based compensation

9,591



11,372


Impairment of long-lived assets

1,809



763


Deferred income tax

(2,508)



(2,496)


Non-cash rental income, net

(6,239)



(5,286)


Net receipt of deferred vendor incentives

4,904



7,077


System optimization losses, net

478



39,643


Gain on sale of investments, net



(2,553)


Distributions received from TimWen joint venture

5,756



5,524


Equity in earnings in joint ventures, net

(3,648)



(3,786)


Long-term debt-related activities, net

15,036



6,038


Other, net

(1,093)



3,296


Changes in operating assets and liabilities:




Accounts and notes receivable, net

8,315



(9,557)


Inventories

(150)



(71)


Prepaid expenses and other current assets

(891)



(2,116)


Advertising funds restricted assets and liabilities

6,734



(14,522)


Accounts payable

747



(4,484)


Accrued expenses and other current liabilities

(6,034)



(4,051)


Net cash provided by operating activities

148,421



105,761


Cash flows from investing activities:




Capital expenditures

(23,898)



(32,117)


Acquisitions



(86,788)


Dispositions

1,814



77,980


Proceeds from sale of investments



3,282


Notes receivable, net

(538)



(2,225)


Payments for investments

(13)



(375)


Net cash used in investing activities

(22,635)



(40,243)


Cash flows from financing activities:




Proceeds from long-term debt

930,809



6,359


Repayments of long-term debt

(881,633)



(18,262)


Deferred financing costs

(17,340)



(740)


Repurchases of common stock

(84,307)



(50,527)


Dividends

(40,645)



(34,447)


Proceeds from stock option exercises

13,197



6,385


Payments related to tax withholding for share-based compensation

(9,269)



(2,956)


Contingent consideration payment

(6,100)




Net cash used in financing activities

(95,288)



(94,188)


Net cash provided by (used in) operations before effect of exchange rate changes on cash

30,498



(28,670)


Effect of exchange rate changes on cash

(4,401)



3,267


Net increase (decrease) in cash, cash equivalents and restricted cash

26,097



(25,403)


Cash, cash equivalents and restricted cash at beginning of period

212,824



275,949


Cash, cash equivalents and restricted cash at end of period

$

238,921



$

250,546



 

 

 


The Wendy's Company and Subsidiaries

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(In Thousands)

(Unaudited)



Three Months Ended


Six Months Ended


2018


2017 (a)


2018


2017 (a)









Net income (loss)

$

29,876



$

(1,845)



$

50,035



$

20,496


Provision for income taxes

12,388



1,548



6,582



11,341


Income (loss) before income taxes

42,264



(297)



56,617



31,837


Other income, net

(917)



(2,844)



(1,661)



(3,233)


Loss on early extinguishment of debt





11,475




Interest expense, net

30,136



28,935



60,314



57,910


Operating profit

71,483



25,794



126,745



86,514


Plus (less):








Depreciation and amortization

33,427



31,309



65,579



60,474


System optimization (gains) losses, net

(92)



41,050



478



39,643


Reorganization and realignment costs

3,124



17,699



5,750



17,880


Impairment of long-lived assets

1,603



253



1,809



763


Adjusted EBITDA

$

109,545



$

116,105



$

200,361



$

205,274










Revenues

$

411,002



$

320,342



$

791,566



$

606,161


Less:








Advertising funds revenue

(84,570)





(163,470)




Adjusted revenues

$

326,432



$

320,342



$

628,096



$

606,161










Adjusted EBITDA margin

33.6

%


36.2

%


31.9

%


33.9

%









(a) 2017 reconciliation of net (loss) income to adjusted EBITDA does not reflect adjustments for the implementation of the new revenue recognition standard as the Company applied the modified retrospective method upon adoption.

 

 

 


The Wendy's Company and Subsidiaries

Reconciliation of Net Income (Loss) and Diluted Earnings (Loss) Per Share to

Adjusted Income and Adjusted Earnings Per Share

(In Thousands Except Per Share Amounts)

(Unaudited)



Three Months Ended


Six Months Ended


2018


2017 (a) (b)


2018


2017 (a)









Net income (loss)

$

29,876



$

(1,845)



$

50,035



$

20,496


Plus (less):








Advertising funds revenue

(84,570)





(163,470)




Advertising funds expense

84,570





163,470




Depreciation of assets that will be replaced as part of

   the Image Activation initiative



(2)





447


System optimization (gains) losses, net

(92)



41,050



478



39,643


Reorganization and realignment costs

3,124



17,699



5,750



17,880


Impairment of long-lived assets

1,603



253



1,809



763


Loss on early extinguishment of debt





11,475




Total adjustments

4,635



59,000



19,512



58,733


Income tax impact on adjustments (c)

(1,104)



(20,002)



(4,972)



(20,036)


Tax reform

828





(2,795)




Total adjustments, net of income taxes

4,359



38,998



11,745



38,697










Adjusted income

$

34,235



$

37,153



$

61,780



$

59,193










Diluted earnings (loss) per share

$

.12



$

(.01)



$

.20



$

.08


Total adjustments per share, net of income taxes

.02



.16



.05



.15


Adjusted earnings per share

$

.14



$

.15



$

.25



$

.23










Reported number of shares used to calculate diluted

   income (loss) per share

246,152



245,261



247,285



253,896


Plus: Dilutive effect of stock options and restricted shares



8,292






Adjusted number of shares used to calculate adjusted

   earnings per share

246,152



253,553



247,285



253,896




(a)

2017 reconciliation of net (loss) income and diluted (loss) earnings per share to adjusted income and adjusted earnings per share does not reflect adjustments for the implementation of the new revenue recognition standard as the Company applied the modified retrospective method upon adoption.



(b)

Adjusted earnings per share for the second quarter of 2017 includes the dilutive effect of stock options and restricted shares, which were excluded from the reported number of shares used to calculate diluted loss per share, as the impact would have been anti-dilutive. Included above is a reconciliation of the number of shares used to calculate adjusted earnings per share amounts.



(c)

The provision for (benefit from) income taxes on "System optimization (gains) losses, net" was $102 and $(13,013) for the three months ended July 1, 2018 and July 2, 2017, respectively, and $(46) and ($12,606) for the six months ended July 1, 2018 and July 2, 2017, respectively.  The benefit from income taxes on all other adjustments was calculated using an effective tax rate of 25.52% and 38.94% for the three months ended July 1, 2018 and July 2, 2017, respectively, and 25.88% and 38.92% for the six months ended July 1, 2018 and July 2, 2017, respectively.

 

 

 

The Wendy's Company and Subsidiaries

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

Six Month Periods Ended July 1, 2018 and July 2, 2017

(In Thousands)

(Unaudited)



Six Months Ended


2018


2017

Net cash provided by operating activities

$

148,421



$

105,761


Less:




Capital expenditures

(23,898)



(32,117)


Advertising funds impact

(6,734)



14,522


Free cash flow

$

117,789



$

88,166


 

The Wendy's Company and Subsidiaries

Reconciliation of Condensed Consolidated Statement of Operations

to Recast Condensed Consolidated Statement of Operations (a)

Three Month Period Ended July 2, 2017

(In Thousands Except Per Share Amounts)

(Unaudited)

2017 Recast



As reported


Franchise fees


Advertising funds


Recast

Revenues:








Sales

$

160,859



$



$



$

160,859


Franchise royalty revenue and fees

112,548



(8,156)





104,392


Franchise rental income

46,935







46,935


Advertising funds revenue





83,229



83,229



320,342



(8,156)



83,229



395,415


Costs and expenses:








Cost of sales

130,581







130,581


Franchise support and other costs

3,789







3,789


Franchise rental expense

21,897







21,897


Advertising funds expense





83,229



83,229


General and administrative

50,059







50,059


Depreciation and amortization

31,309







31,309


System optimization losses, net

41,050







41,050


Reorganization and realignment costs

17,699







17,699


Impairment of long-lived assets

253







253


Other operating income, net

(2,089)







(2,089)



294,548





83,229



377,777


Operating profit

25,794



(8,156)





17,638


Interest expense, net

(28,935)







(28,935)


Other income, net

2,844







2,844


Loss before income taxes

(297)



(8,156)





(8,453)


(Provision for) benefit from income taxes

(1,548)



4,098





2,550


Net loss

$

(1,845)



$

(4,058)



$



$

(5,903)










Basic and diluted net loss per share

$

(.01)



$

(.01)



$



$

(.02)




(a) 

The Company applied the modified retrospective method upon adoption of the new revenue recognition standard.  The recast condensed consolidated statement of operations reflects adjustments for the implementation of the new revenue recognition standard as if the full retrospective method was applied upon adoption.

 

The Wendy's Company and Subsidiaries

Reconciliation of Condensed Consolidated Statement of Operations

to Recast Condensed Consolidated Statement of Operations (a)

Six Month Period Ended July 2, 2017

(In Thousands Except Per Share Amounts)

(Unaudited)

2017 Recast



As reported


Franchise fees


Advertising funds


Recast

Revenues:








Sales

$

309,071



$



$



$

309,071


Franchise royalty revenue and fees

207,238



(11,159)





196,079


Franchise rental income

89,852







89,852


Advertising funds revenue





161,411



161,411



606,161



(11,159)



161,411



756,413


Costs and expenses:








Cost of sales

255,124







255,124


Franchise support and other costs

7,432







7,432


Franchise rental expense

40,765







40,765


Advertising funds expense





161,411



161,411


General and administrative

101,373







101,373


Depreciation and amortization

60,474







60,474


System optimization losses, net

39,643







39,643


Reorganization and realignment costs

17,880







17,880


Impairment of long-lived assets

763







763


Other operating income, net

(3,807)







(3,807)



519,647





161,411



681,058


Operating profit

86,514



(11,159)





75,355


Interest expense, net

(57,910)







(57,910)


Other income, net

3,233







3,233


Income before income taxes

31,837



(11,159)





20,678


Provision for income taxes

(11,341)



5,245





(6,096)


Net income

$

20,496



$

(5,914)



$



$

14,582










Basic and diluted net income per share

$

.08



$

(.02)



$



$

.06




(a) 

The Company applied the modified retrospective method upon adoption of the new revenue recognition standard.  The recast condensed consolidated statement of operations reflects adjustments for the implementation of the new revenue recognition standard as if the full retrospective method was applied upon adoption.

 

The Wendy's Company and Subsidiaries

Reconciliation of Recast Net (Loss) Income to Recast Adjusted EBITDA (a)

(In Thousands)

(Unaudited)

2017 Recast



Three Months Ended


Six Months Ended


2017


2017





Net (loss) income

$

(5,903)



$

14,582


(Benefit from) provision for income taxes

(2,550)



6,096


(Loss) income before income taxes

(8,453)



20,678


Other income, net

(2,844)



(3,233)


Interest expense, net

28,935



57,910


Operating profit

17,638



75,355


Plus (less):




Advertising funds revenue

(83,229)



(161,411)


Advertising funds expense

83,229



161,411


Depreciation and amortization

31,309



60,474


System optimization losses, net

41,050



39,643


Reorganization and realignment costs

17,699



17,880


Impairment of long-lived assets

253



763


Adjusted EBITDA

$

107,949



$

194,115






Revenues

$

395,415



$

756,413


Less:




Advertising funds revenue

(83,229)



(161,411)


Adjusted revenues

$

312,186



$

595,002






Adjusted EBITDA margin

34.6

%


32.6

%



(a)

The Company applied the modified retrospective method upon adoption of the new revenue recognition standard.  The reconciliation of recast net (loss) income to recast adjusted EBITDA reflects adjustments for the implementation of the new revenue recognition standard as if the full retrospective method was applied upon adoption.

 

 


The Wendy's Company and Subsidiaries

Reconciliation of Recast Net (Loss) Income and Diluted (Loss) Earnings Per Share to

Recast Adjusted Income and Adjusted Earnings Per Share (a)

(In Thousands Except Per Share Amounts)

(Unaudited)

2017 Recast



Three Months Ended


Six Months Ended


2017 (b)


2017





Net (loss) income

$

(5,903)



$

14,582


Plus (less):




Advertising funds revenue

(83,229)



(161,411)


Advertising funds expense

83,229



161,411


Depreciation of assets that will be replaced as part of the Image Activation initiative

(2)



447


System optimization losses, net

41,050



39,643


Reorganization and realignment costs

17,699



17,880


Impairment of long-lived assets

253



763


Total adjustments

59,000



58,733


Income tax impact on adjustments

(20,002)



(20,036)


Total adjustments, net of income taxes

38,998



38,697






Adjusted income

$

33,095



$

53,279






Diluted (loss) earnings per share

$

(.02)



$

.06


Total adjustments per share, net of income taxes

.15



.15


Adjusted earnings per share

$

.13



$

.21






Reported number of shares used to calculate diluted (loss) income per share

245,261



253,896


Plus: Dilutive effect of stock options and restricted shares

8,292




Adjusted number of shares used to calculate adjusted earnings per share

253,553



253,896




(a)

The Company applied the modified retrospective method upon adoption of the new revenue recognition standard.  The reconciliation of recast net (loss) income and diluted (loss) earnings per share to recast adjusted income and adjusted earnings per share reflects adjustments for the implementation of the new revenue recognition standard as if the full retrospective method was applied upon adoption.



(b)

Adjusted earnings per share for the second quarter of 2017 includes the dilutive effect of stock options and restricted shares, which were excluded from the reported number of shares used to calculate diluted loss per share, as the impact would have been anti-dilutive. Included above is a reconciliation of the number of shares used to calculate adjusted earnings per share amounts.

 

 

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SOURCE The Wendy's Company