Wendy's International, Inc. Announces 2008 Second Quarter Results
- - Company generated continuing operations net income of $19.9 million and EBITDA of $69.0 million
- - Company produced continuing operations adjusted net income of $26.1 million and adjusted EBITDA of $79.1 million
- - Quarterly U.S. same-store sales were positive
DUBLIN, Ohio, Aug. 5 // PRNewswire-FirstCall // -- Wendy's International, Inc. (NYSE: WEN) today announced its financial results for the second quarter of 2008, which ended on Sunday, June 29.
- Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations of $69.0 million, compared to $84.7 million for the second quarter of 2007;
- Income from continuing operations of $19.9 million, compared to $29.3 million for the second quarter of 2007; and
- Diluted earnings per share (EPS) from continuing operations of $0.22, compared to $0.33 for the second quarter of 2007.
These results include 2008 pre-tax expenses related to the Board of Directors' Special Committee of $8.6 million and $1.5 million of restructuring charges, and include 2007 pre-tax Special Committee expenses of $4.7 million and restructuring charges of $5.9 million.
Excluding 2008 and 2007 expenses related to the Special Committee and restructuring charges, the Company reported for the second quarter of 2008:
- Adjusted EBITDA from continuing operations of $79.1 million, compared to $95.3 million for the second quarter of 2007;
- Adjusted income from continuing operations of $26.1 million, compared to $35.9 million for the second quarter of 2007; and
- Adjusted diluted EPS from continuing operations of $0.30, compared to $0.41 for the second quarter of 2007
.
Including expenses Excluding expenses(i)
2Q 2008 2Q 2007 2Q 2008 2Q 2007
Income from
continuing
operations $19.9 million $29.3 million $26.1 million $35.9 million
Diluted EPS
from continuing
operations $0.22 $0.33 $0.30 $0.41
EBITDA from
continuing
operations $69.0 million $84.7 million $79.1 million $95.3 million
(i) See reconciliations below. Adjusted income from continuing
operations, EBITDA and EPS excludes expenses related to the Board's
Special Committee and restructuring charges.
There were several items affecting the comparability of 2008 second- quarter adjusted results to a year ago, including higher commodity costs of approximately $11 million, which were 220 basis points higher as a percentage of sales in the U.S., compared to a year ago, due primarily to rising grain and fuel prices. Profits were also impacted by higher 2008 breakfast investments of $4.7 million. Also, in 2007 the Company recorded $4.5 million in insurance proceed settlement gains for damages incurred due to Hurricane Katrina. There was no similar insurance settlement in 2008.
Wendy's(R) Chief Executive Officer and President Kerrii Anderson said: "We generated nearly $80 million in adjusted EBITDA and achieved slightly positive same-store sales during the quarter in a challenging operating environment. We are working to build on our performance in the second half of 2008 as we finalize our merger with Triarc. Our highest priority is to drive transactions and profitable same-store sales with a balance of premium products, like our Baconator(R) and Frosty(TM) Shakes, and enhancements to our value menu for consumers. We are also working on menu management and supply chain initiatives to offset soaring commodity costs that are affecting Wendy's and the restaurant industry."
Anderson added: "As we look to complete our merger with Triarc, everyone in our organization is focused on improving business going forward. We are committed to innovation and continue to focus on our quality heritage by spotlighting our fresh beef, premium chicken, new Frosty shakes and new salads. In the second quarter, we launched our new "Waaaay Better" marketing campaign and are pleased to report it is gaining high awareness among consumers. Finally, we have been focused on strengthening relations with our franchisees and open communications with our employees, and we continue to work constructively with Triarc to develop a comprehensive integration plan and organizational structure that will support enhanced operating performance at both Wendy's and Arby's."
Due to the pending merger with Triarc, management does not plan to provide detailed earnings guidance or a commodity outlook for the remainder of 2008. In addition, management does not plan to hold a conference call to discuss second-quarter results.
Product promotions highlight Wendy's premium quality
This month, the Company is featuring its premium Baconator hamburger and popular Frosty Shakes, with a promotion highlighting Wendy's signature Frosty brand and its hot and juicy hamburgers.
Wendy's is currently testing several additions to its breakfast menu, including a new Mornin' Melt(TM) Panini, a premium breakfast sandwich that's grilled fresh on sourdough bread, and a new hand-crafted cinnamon roll served warm with vanilla icing.
In July, the Company re-launched its premium salad lineup with national advertising, featuring the transition from cold chicken to a warm chicken fillet available in three varieties - Grilled, Homestyle, or Spicy - on its entree salads.
During the second quarter, Wendy's introduced its new Frosty Shakes, which are hand-spun in three flavors: Vanilla Bean, Chocolate Fudge and Strawberry. The shakes highlight Wendy's commitment to quality, using syrups made from real vanilla beans, five kinds of cocoa and real strawberries. Wendy's offered for a limited-time in May its premium Southwest Chicken Caesar Salad. Also, the Company launched its new Chicken Go Wraps, featuring a center-cut, chicken breast fillet - available Grilled, Homestyle, or Spicy - with cheddar cheese, fresh lettuce and Ranch or Honey Mustard sauce wrapped in a warm flour tortilla.
In addition, Wendy's raised more than $1.7 million dollars during its annual Father's Day Frosty Weekend event in June to support the Dave Thomas Foundation for Adoption. This includes about $260,000 raised in Wendy's Canadian restaurants.
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 and most successful restaurant operating and franchising companies. More information about the Company is available at http://www.wendys-invest.com .
Pending Merger
In connection with the proposed merger, Triarc filed an amended Registration Statement on Form S-4 on August 4, 2008 with the SEC (Registration No. 333-151336) that includes a preliminary joint proxy statement of Triarc and Wendy's and that also constitutes a preliminary prospectus of Triarc. Before making any voting decision, Triarc and Wendy's urge investors and security holders to read the definitive joint proxy statement/final prospectus regarding the proposed merger when it becomes available because it will contain important information. Triarc and Wendy's each will mail the definitive proxy statement/final prospectus to its stockholders. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SEC's website (http://www.sec.gov). You may also obtain these documents, free of charge, from Triarc's website (http://www.triarc.com ) under the heading "Investor Relations" and then under the item "SEC Filings and Annual Reports." You may also obtain these documents, free of charge, from Wendy's website (http://www.wendys.com) under the tab "Investors" and then under the heading "SEC Filings."
Triarc, Wendy's and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from Triarc and Wendy's stockholders in favor of the stockholder approvals required in connection with the merger. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of the Triarc and Wendy's stockholders in connection with the stockholder approvals required in connection with the proposed merger is set forth in the proxy statement/prospectus contained in the above-referenced Registration Statement on Form S-4. You can find information about Triarc's executive officers and directors in its Amendment No. 2 to its Form 10-K filed with the SEC on April 25, 2008. You can find information about Wendy's executive officers and directors in its Amendment No. 1 to its Form 10-K filed with the SEC on April 28, 2008. Additional information about Triarc's executive officers and directors and Wendy's executive officers and directors can be found in the above-referenced Registration Statement on Form S-4. You can obtain free copies of these documents from Triarc and Wendy's using the contact information above.
Appendix
2nd Quarter Financial Information
The Company reported retail sales of $556.1 million in the second quarter of 2008, compared to $558.3 million in the second quarter of 2007. The Company had 42 fewer company-operated restaurants open at the end of the second quarter compared to the same quarter a year ago. During the quarter, the Company sold 14 stores to franchisees.
- The total number of system-wide Wendy's restaurants as of June 29, 2008, was 6,625, compared to 6,661 as of the end of the same quarter a year ago.
- U.S. company-operated restaurant EBITDA margins were 9.4% in the second quarter of 2008, compared to 12.1% in the second quarter of 2007. The year- over-year difference is due primarily to higher commodity costs, lower transactions and higher breakfast expense, partially offset by menu price increases.
- Total company-operated restaurant EBITDA margins were 9.3% in the second quarter of 2008, compared to 11.8% one year ago.
- As previously announced, second-quarter same-store sales at U.S. company-operated restaurants increased 0.1%, compared to an increase of 0.7% in the second quarter of 2007. Second-quarter same-store sales at U.S. franchise restaurants increased 1.1%, compared to an increase of 0.4% in the second quarter of 2007.
The Company's results from continuing operations include the impact of:
- Franchise revenues - $75.8 million in the second quarter of 2008, compared to $74.6 million in the second quarter of 2007.
- Cost of sales - $345.4 million, or 62.1% of retail sales, in the second quarter of 2008, compared to $337.2 million, or 60.4% of retail sales, in the second quarter of 2007. The year-over-year difference is due primarily to increased commodity costs (up 220 basis points in the U.S. as a percentage of sales) and a decline in transactions, partially offset by menu price increases.
- Company restaurant operating costs - $156.2 million, or 28.1% of sales, in the second quarter of 2008, compared to $152.4 million, or 27.3% of sales, in the second quarter of 2007. The year-over-year difference as a percentage of sales includes investments related to the Company's new breakfast program and other cost increases.
- Operating costs - $8.1 million in the second quarter of 2008, compared to $4.9 million in the second quarter of 2007. The year-over-year increase is due primarily to higher franchise incentives of $0.8 million and higher breakfast advertising support for franchisees of $2.3 million.
- General and administrative expense - $45.3 million, or 7.2% of revenue, in the second quarter of 2008, compared to $51.4 million, or 8.1% of revenue, in the second quarter of 2007. The year-over-year difference includes lower product testing costs, lower bonus accruals and lower professional and legal fees.
- Restructuring costs - $1.5 million in the second quarter of 2008. This compares to $5.9 million in restructuring costs in the second quarter of 2007.
- Special Committee related charges - $8.6 million in the second quarter of 2008 in expenses related to the Board's Special Committee, compared to $4.7 million in the second quarter of 2007. The Company announced the formation of the Special Committee on April 26, 2007.
- Other income/expense - $2.0 million of income in the second quarter of 2008, compared to $8.0 million of income in the second quarter of 2007. The year-over-year change is due primarily to 2007 insurance proceed settlement gains of $4.5 million for damages incurred due to Hurricane Katrina. There was no similar insurance settlement in 2008.
- Interest - Interest expense of $9.0 million in the second quarter of 2008, compared to $10.9 million in the second quarter of 2007. The year-over- year decrease reflects the retirement of the debt associated with the sale of approximately 40% of the 2007 U.S. royalty stream. Interest income of $1.8 million in the second quarter of 2008, compared to $2.6 million a year ago, reflects a decrease in interest rates as well as lower cash balances.
- Taxes - The Company's second-quarter tax rate was 37.5%. This compares to 38.2% in the second quarter of 2007.
Second-Quarter Average Same-Store Sales Summary
2Q 2008 2Q 2007
U.S. Company 0.1 % 0.7 %
U.S. Franchise 1.1 % 0.4 %
Monthly Average Same-Store Sales Summary for April, May and June
Apr 2008 Apr 2007 May 2008 May 2007 Jun 2008 Jun 2007
U.S. Company 0.2 % 0.6 % -0.7 % 0.9 % 0.7 % 0.6 %
U.S. Franchise 1.1 % 0.5 % 0.4 % 0.5 % 2.0 % 0.0 %
Disclosure regarding non-GAAP financial measures
The Company uses adjusted income and adjusted EPS from continuing
operations as internal measures of operating performance. Management
believes adjusted income and adjusted EPS from continuing operations
provide a meaningful perspective of the underlying operating performance of
the business.
EBITDA is used by management as a performance measure for benchmarking
against its peers and competitors. The Company believes EBITDA is useful to
investors because it is frequently used by securities analysts, investors
and other interested parties to evaluate companies in the restaurant
industry. EBITDA is not a recognized term under GAAP.
The Company also uses adjusted EBITDA, which accounts for certain items
unrelated to ongoing operations, as an internal measure of business
operating performance. Management believes adjusted EBITDA provides a
meaningful perspective of the underlying operating performance of the
business.
Company EBITDA margins from continuing operations consist of operating
income plus depreciation and amortization divided by revenue.
Company-operated restaurant EBITDA margins consist of sales from
company- operated restaurants minus cost of sales from company-operated
restaurants minus company restaurant operating costs divided by sales from
company- operated restaurants.
EBITDA and Adjusted EBITDA Reconciliations
The following are reconciliations of 2008 and 2007 second-quarter
reported operating income to second-quarter EBITDA from continuing
operations and adjusted EBITDA:
2nd Quarter 2nd Quarter
2008 2007
Reported operating income $ 39.0 million $ 55.7 million
Depreciation and amortization $ 30.0 million $ 29.0 million
EBITDA from continuing ops $ 69.0 million $ 84.7 million
Restructuring charges $ 1.5 million $ 5.9 million
Special Committee expenses $ 8.6 million $ 4.7 million
Adjusted EBITDA from $ 79.1 million $ 95.3 million
continuing ops
Income and EPS Reconciliations
The following are reconciliations of 2008 and 2007 second-quarter
income from continuing operations to second-quarter adjusted income from
continuing operations:
2nd Quarter 2nd Quarter
2008 2007
Income from continuing operations $ 19.9 million $ 29.3 million
Restructuring charges, net of tax (1) $ 0.9 million $ 3.7 million
Special Committee expenses, net of tax (1) $ 5.3 million $ 2.9 million
Adjusted income from continuing ops $ 26.1 million $ 35.9 million
Diluted shares 88.5 million 88.3 million
Adjusted diluted EPS from continuing ops $0.30 $0.41
(1) After tax amounts are computed using a tax rate of 38%.
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Second Quarter Ended
06/29/2008 07/01/2007 $ Change % Change
---------- ---------- -------- --------
REVENUES
Sales $556,085 $558,312 ($2,227) -0.4%
Franchise revenues 75,838 74,600 1,238 1.7%
---------- ---------- -------- --------
TOTAL REVENUES 631,923 632,912 (989) -0.2%
---------- ---------- -------- --------
COSTS & EXPENSES
Cost of sales 345,373 337,177 8,196 2.4%
Company restaurant operating costs 156,205 152,405 3,800 2.5%
Operating costs 8,076 4,852 3,224 66.4%
Depreciation of property &
equipment 29,886 28,749 1,137 4.0%
General & administrative expenses 45,310 51,391 (6,081) -11.8%
Restructuring and special
committee related charges 10,053 10,605 (552) -5.2%
Other income, net (2,005) (8,011) 6,006 -75.0%
---------- ---------- -------- --------
TOTAL COSTS & EXPENSES 592,898 577,168 15,730 2.7%
---------- ---------- -------- --------
OPERATING INCOME 39,025 55,744 (16,719) -30.0%
Interest expense (8,998) (10,898) 1,900 17.4%
Interest income 1,837 2,551 (714) -28.0%
---------- ---------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 31,864 47,397 (15,533) -32.8%
INCOME TAXES 11,948 18,115 (6,167) -34.0%
---------- ---------- -------- --------
INCOME from continuing operations $19,916 $29,282 ($9,366) -32.0%
LOSS from discontinued operations $0 ($49) $49 -100.0%
---------- ---------- -------- --------
NET INCOME $19,916 $29,233 ($9,317) -31.9%
========== ========== ======== ========
Diluted earnings per common share
from continuing operations $0.22 $0.33 ($0.11)
========== ========== ========
Diluted earnings per common share
from discontinued operations $0.00 ($0.00) $0.00
========== ========== ========
Total diluted earnings per common
share $0.22 $0.33 ($0.11)
========== ========== ========
Diluted shares 88,540 88,316
========== ==========
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Year-to-Date Ended
06/29/2008 07/01/2007 $ Change % Change
---------- ---------- -------- --------
REVENUES
Sales $1,069,102 $1,081,256 ($12,154) -1.1%
Franchise revenues 145,012 141,820 3,192 2.3%
---------- ---------- --------- --------
TOTAL REVENUES 1,214,114 1,223,076 (8,962) -0.7%
---------- ---------- --------- --------
COSTS & EXPENSES
Cost of sales 665,203 661,238 3,965 0.6%
Company restaurant operating
costs 307,449 304,793 2,656 0.9%
Operating costs 14,920 8,787 6,133 69.8%
Depreciation of property &
equipment 58,692 56,801 1,891 3.3%
General & administrative
expenses 98,546 102,213 (3,667) -3.6%
Restructuring and special
committee related charges 16,916 11,636 5,280 45.4%
Other income, net (551) (6,693) 6,142 -91.8%
---------- ---------- --------- --------
TOTAL COSTS & EXPENSES 1,161,175 1,138,775 22,400 2.0%
---------- ---------- -------- --------
OPERATING INCOME 52,939 84,301 (31,362) -37.2%
Interest expense (18,105) (23,105) 5,000 21.6%
Interest income 3,991 7,967 (3,976) -49.9%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 38,825 69,163 (30,338) -43.9%
INCOME TAXES 14,766 25,400 (10,634) -41.9%
---------- ---------- --------- --------
INCOME from continuing
operations $24,059 $43,763 ($19,704) -45.0%
INCOME from discontinued
operations $0 $157 ($157) -100.0%
---------- ---------- --------- --------
NET INCOME $24,059 $43,920 ($19,861) -45.2%
========== ========== ========= ========
Diluted earnings per common
share from continuing
operations $0.27 $0.48 ($0.21)
========== ========== =========
Diluted earnings per common
share from discontinued
operations $0.00 $0.00 ($0.00)
========== ========== =========
Total diluted earnings per
common share $0.27 $0.48 ($0.21)
========== ========== =========
Diluted shares 88,412 92,011
========== ==========
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, December 30,
2008 2007
------------- -------------
(Unaudited)
(Dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents $221,916 $211,200
Accounts receivable, net 73,195 72,069
Deferred income taxes 9,876 7,304
Inventories and other 32,034 29,590
Advertising fund restricted assets 52,337 42,665
Assets held for disposition 4,566 3,338
------------- -------------
393,924 366,166
------------- -------------
Property and equipment 2,138,102 2,119,140
Accumulated depreciation (903,458) (872,255)
------------- -------------
1,234,644 1,246,885
------------- -------------
Goodwill 83,923 84,001
Deferred income taxes 5,269 4,899
Intangible assets, net 2,982 2,704
Other assets 81,062 84,742
------------- -------------
$1,801,804 $1,789,397
============= =============
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, December 30,
2008 2007
------------- -------------
(Unaudited)
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $77,058 $85,662
Accrued expenses:
Salaries and wages 26,881 39,157
Taxes 33,849 31,033
Insurance 62,722 57,190
Other 55,126 45,612
Advertising fund restricted liabilities 52,337 35,760
Current portion of long-term obligations 922 26,591
------------- -------------
308,895 321,005
------------- -------------
Long-term obligations
Term debt 521,426 521,343
Capital leases 21,663 21,680
------------- -------------
543,089 543,023
------------- -------------
Deferred income taxes 53,048 45,351
Other long-term liabilities 77,538 75,887
Commitments and contingencies
Shareholders' equity
Preferred stock, Authorized:
250,000 shares
Common stock, $.10 stated value per
share,
Authorized: 200,000,000 shares,
Issued: 130,940,000 and
130,241,000 shares, respectively 13,094 13,024
Capital in excess of stated value 1,125,038 1,110,363
Retained earnings 1,290,042 1,287,963
Accumulated other comprehensive
income (expense):
Cumulative translation adjustments
and other 25,431 28,949
Pension liability (17,193) (18,990)
------------- -------------
2,436,412 2,421,309
Treasury stock at cost: 42,844,000
shares (1,617,178) (1,617,178)
------------- -------------
819,234 804,131
------------- -------------
$1,801,804 $1,789,397
============= =============
WENDY'S INTERNATIONAL, INC. AND SUBSIDIARIES
SYSTEMWIDE RESTAURANTS
Increase/ Increase/
As of As of (Decrease) As of (Decrease)
June 29, March 30, From Prior July 1, From Prior
2008 2008 Quarter 2007 Year
-------------------------------------------------------
Wendy's
U.S.
Company 1,263 1,267 (4) 1,297 (34)
Franchise 4,655 4,650 5 4,661 (6)
-------------------------------------------------------
5,918 5,917 1 5,958 (40)
Canada
Company 139 140 (1) 145 (6)
Franchise 236 237 (1) 231 5
-------------------------------------------------------
375 377 (2) 376 (1)
Other International
Company 0 0 0 2 (2)
Franchise 332 328 4 325 7
-------------------------------------------------------
332 328 4 327 5
Total Wendy's
Company 1,402 1,407 (5) 1,444 (42)
Franchise 5,223 5,215 8 5,217 6
-------------------------------------------------------
6,625 6,622 3 6,661 (36)
=======================================================
WENDY'S INTERNATIONAL, INC.
Income Statement Definitions
Sales Includes sales from company operated
restaurants. Also included are sales of kids'
meal toys and the sales to franchisees from
Wendy's bun baking facilities.
Franchise Revenues Consists primarily of royalties, rental income,
gains from the sales of properties to
franchisees and franchise fees. Franchise fees
include charges for various costs and expenses
related to establishing a franchisee's
business.
Cost of Sales Includes food, paper and labor costs for
restaurants. Also included are the cost of
kids' meal toys and cost of goods sold to
franchisees from Wendy's bun baking facilities.
Company Restaurant Consists of all costs necessary to manage and
Operating Costs operate restaurants, except cost of sales and
depreciation. These include advertising,
insurance, maintenance, rent, etc., as well as
support costs for personnel directly related to
restaurant operations.
Operating Costs Includes rent expense related to properties
leased to franchisees and other franchisee
related costs such as remodel incentives. Also
includes costs to operate and maintain Wendy's
bun baking facilities.
General and Administrative Costs that cannot be directly related to
Expenses generating revenue.
Restructuring and Special Includes restructuring costs and costs related
Committee Related Charges to the Special Committee of the Board of
Directors, which was formed to explore
strategic alternatives for the Company.
Other Income, net Includes expenses (income) that are not
directly derived from the Company's primary
businesses. This includes income from the
Company's investments in joint ventures and
other minority investments. Expenses include
store closures, other asset write-offs, and
sales of properties to non-franchisees.
Income (Loss) from Reflects net income (loss) from Cafe Express.
Discontinued Operations
SOURCE Wendy's International, Inc.
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