(X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 38-0471180 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
One Dave Thomas Blvd., Dublin, Ohio | 43017 | |
(Address of principal executive offices) | (Zip Code) |
Page | |
April 3, 2016 | January 3, 2016 | ||||||
ASSETS | (Unaudited) | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 312,923 | $ | 327,216 | |||
Restricted cash | 41,782 | 42,869 | |||||
Accounts and notes receivable | 87,999 | 104,854 | |||||
Inventories | 3,607 | 4,312 | |||||
Prepaid expenses and other current assets | 74,179 | 69,919 | |||||
Advertising funds restricted assets | 86,865 | 67,399 | |||||
Total current assets | 607,355 | 616,569 | |||||
Properties | 1,235,596 | 1,227,944 | |||||
Goodwill | 767,455 | 770,781 | |||||
Other intangible assets | 1,333,584 | 1,339,587 | |||||
Investments | 61,253 | 58,369 | |||||
Other assets | 145,067 | 95,470 | |||||
Total assets | $ | 4,150,310 | $ | 4,108,720 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 23,462 | $ | 23,290 | |||
Accounts payable | 36,369 | 53,681 | |||||
Accrued expenses and other current liabilities | 110,299 | 124,404 | |||||
Advertising funds restricted liabilities | 86,865 | 67,399 | |||||
Total current liabilities | 256,995 | 268,774 | |||||
Long-term debt | 2,478,581 | 2,402,823 | |||||
Deferred income taxes | 452,173 | 459,713 | |||||
Other liabilities | 228,972 | 224,496 | |||||
Total liabilities | 3,416,721 | 3,355,806 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424 shares issued | 47,042 | 47,042 | |||||
Additional paid-in capital | 2,873,246 | 2,874,752 | |||||
Accumulated deficit | (347,486 | ) | (356,632 | ) | |||
Common stock held in treasury, at cost; 202,028 and 198,109 shares, respectively | (1,781,511 | ) | (1,741,425 | ) | |||
Accumulated other comprehensive loss | (57,702 | ) | (70,823 | ) | |||
Total stockholders’ equity | 733,589 | 752,914 | |||||
Total liabilities and stockholders’ equity | $ | 4,150,310 | $ | 4,108,720 |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
(Unaudited) | |||||||
Revenues: | |||||||
Sales | $ | 259,332 | $ | 357,569 | |||
Franchise revenues | 119,455 | 94,200 | |||||
378,787 | 451,769 | ||||||
Costs and expenses: | |||||||
Cost of sales | 214,736 | 305,111 | |||||
General and administrative | 64,646 | 59,698 | |||||
Depreciation and amortization | 32,345 | 35,545 | |||||
System optimization (gains) losses, net | (8,426 | ) | 805 | ||||
Reorganization and realignment costs | 3,250 | 4,613 | |||||
Impairment of long-lived assets | 7,105 | 1,937 | |||||
Other operating expense, net | 1,302 | 6,149 | |||||
314,958 | 413,858 | ||||||
Operating profit | 63,829 | 37,911 | |||||
Interest expense | (28,109 | ) | (12,743 | ) | |||
Other income, net | 262 | 239 | |||||
Income from continuing operations before income taxes | 35,982 | 25,407 | |||||
Provision for income taxes | (10,619 | ) | (7,257 | ) | |||
Income from continuing operations | 25,363 | 18,150 | |||||
Net income from discontinued operations | — | 9,357 | |||||
Net income | $ | 25,363 | $ | 27,507 | |||
Basic income per share: | |||||||
Continuing operations | $ | .09 | $ | .05 | |||
Discontinued operations | — | .03 | |||||
Net income | $ | .09 | $ | .08 | |||
Diluted income per share: | |||||||
Continuing operations | $ | .09 | $ | .05 | |||
Discontinued operations | — | .03 | |||||
Net income | $ | .09 | $ | .07 | |||
Dividends per share | $ | .06 | $ | .055 |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
(Unaudited) | |||||||
Net income | $ | 25,363 | $ | 27,507 | |||
Other comprehensive income (loss), net: | |||||||
Foreign currency translation adjustment | 12,676 | (17,395 | ) | ||||
Change in unrecognized pension loss, net of income tax benefit of $124 | — | (203 | ) | ||||
Effect of cash flow hedges, net of income tax (provision) benefit of $(278) and $1,502, respectively | 445 | (2,466 | ) | ||||
Other comprehensive income (loss), net | 13,121 | (20,064 | ) | ||||
Comprehensive income | $ | 38,484 | $ | 7,443 |
Three Months Ended | ||||||||
April 3, 2016 | March 29, 2015 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 25,363 | $ | 27,507 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 33,290 | 36,880 | ||||||
Share-based compensation | 5,081 | 5,068 | ||||||
Impairment of long-lived assets | 7,105 | 1,937 | ||||||
Deferred income tax | (8,365 | ) | 9,309 | |||||
Excess tax benefits from share-based compensation | (933 | ) | (26,978 | ) | ||||
Non-cash rent (income) expense, net | (1,962 | ) | 1,789 | |||||
Net receipt (recognition) of deferred vendor incentives | 12,810 | (2,532 | ) | |||||
System optimization (gains) losses, net | (8,426 | ) | 813 | |||||
Distributions received from TimWen joint venture | 2,689 | 2,378 | ||||||
Equity in earnings in joint ventures, net | (1,899 | ) | (2,042 | ) | ||||
Accretion of long-term debt | 304 | 300 | ||||||
Amortization of deferred financing costs | 1,869 | 615 | ||||||
Reclassification of unrealized losses on cash flow hedges | 723 | — | ||||||
Other, net | 2,804 | (2,804 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Restricted cash | 42 | — | ||||||
Accounts and notes receivable | (1,843 | ) | (5,040 | ) | ||||
Inventories | 431 | 891 | ||||||
Prepaid expenses and other current assets | (3,665 | ) | (5,641 | ) | ||||
Accounts payable | 854 | 4,043 | ||||||
Accrued expenses and other current liabilities | (18,998 | ) | (24,753 | ) | ||||
Net cash provided by operating activities | 47,274 | 21,740 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (38,858 | ) | (61,280 | ) | ||||
Acquisitions | (2,209 | ) | (1,232 | ) | ||||
Dispositions | 41,185 | 6,283 | ||||||
Payments for investments | (64 | ) | (2,000 | ) | ||||
Notes receivable, net | (1,327 | ) | (151 | ) | ||||
Changes in restricted cash | 1,045 | — | ||||||
Net cash used in investing activities | (228 | ) | (58,380 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayments of long-term debt | (6,696 | ) | (9,444 | ) | ||||
Deferred financing costs | (138 | ) | (112 | ) | ||||
Repurchases of common stock | (47,601 | ) | (36,963 | ) | ||||
Dividends | (16,214 | ) | (20,199 | ) | ||||
Proceeds from stock option exercises | 3,674 | 17,124 | ||||||
Excess tax benefits from share-based compensation | 933 | 26,978 | ||||||
Net cash used in financing activities | (66,042 | ) | (22,616 | ) | ||||
Net cash used in operations before effect of exchange rate changes on cash | (18,996 | ) | (59,256 | ) | ||||
Effect of exchange rate changes on cash | 4,703 | (5,158 | ) | |||||
Net decrease in cash and cash equivalents | (14,293 | ) | (64,414 | ) | ||||
Cash and cash equivalents at beginning of period | 327,216 | 267,276 | ||||||
Cash and cash equivalents at end of period | $ | 312,923 | $ | 202,862 |
Three Months Ended | ||||||||
April 3, 2016 | March 29, 2015 | |||||||
(Unaudited) | ||||||||
Supplemental cash flow information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 26,045 | $ | 11,968 | ||||
Income taxes, net of refunds | 2,421 | 4,093 | ||||||
Supplemental non-cash investing and financing activities: | ||||||||
Capital expenditures included in accounts payable | $ | 13,847 | $ | 30,781 | ||||
Capitalized lease obligations | 79,946 | 11,588 |
• | Balance sheets - As a result of our sale of the Bakery on May 31, 2015, there are no remaining Bakery assets and liabilities. |
• | Statements of operations - The Bakery’s results of operations for the three months ended March 29, 2015 have been presented as discontinued operations. |
• | Statements of cash flows - The Bakery’s cash flows for the three months ended March 29, 2015 have been included in, and not separately reported from, our consolidated cash flows. |
Three Months Ended | |||
March 29, 2015 | |||
Revenues (a) | $ | 14,477 | |
Cost of sales (b) | 1,839 | ||
16,316 | |||
General and administrative | (614 | ) | |
Depreciation and amortization (c) | (1,335 | ) | |
Other expense, net (d) | (22 | ) | |
Income from discontinued operations before income taxes | 14,345 | ||
Provision for income taxes | (4,988 | ) | |
Net income from discontinued operations | $ | 9,357 |
(a) | Includes sales of sandwich buns and related products previously reported in “Sales” as well as rental income. |
(b) | Amount includes a reduction to cost of sales of $12,486, as further described in the Form 10-K, resulting from the reversal of a liability recorded during 2013 associated with the Bakery’s withdrawal from a multiemployer pension plan. |
(c) | Included in “Depreciation and amortization” in our condensed consolidated statements of cash flows for the periods presented. |
(d) | Includes net losses on sales of other assets. During the three months ended March 29, 2015, the Bakery received cash proceeds of $9 resulting in net losses on sales of other assets of $8. |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
Number of restaurants sold to franchisees | 55 | 17 | |||||
Proceeds from sales of restaurants | $ | 39,615 | $ | 4,581 | |||
Net assets sold (a) | (17,055 | ) | (2,222 | ) | |||
Goodwill related to sales of restaurants | (6,376 | ) | (1,023 | ) | |||
Net unfavorable leases (b) | (4,906 | ) | (528 | ) | |||
Other | (795 | ) | (402 | ) | |||
10,483 | 406 | ||||||
Post-closing adjustments on sales of restaurants | (2,135 | ) | (1,573 | ) | |||
Gain (loss) on sales of restaurants, net | 8,348 | (1,167 | ) | ||||
Gain on sales of other assets, net (c) | 78 | 362 | |||||
System optimization gains (losses), net | $ | 8,426 | $ | (805 | ) |
(a) | Net assets sold consisted primarily of inventory and equipment. |
(b) | During the three months ended April 3, 2016 and March 29, 2015, the Company recorded favorable lease assets of $183 and $2,379, respectively, and unfavorable lease liabilities of $5,089 and $2,907, respectively, as a result of leasing and/or subleasing land, buildings, and/or leasehold improvements to franchisees, in connection with sales of restaurants. |
(c) | During the three months ended April 3, 2016 and March 29, 2015, the Company received cash proceeds of $1,570 and $1,693, respectively, primarily from the sale of surplus properties. |
April 3, 2016 | January 3, 2016 | ||||||
Number of restaurants classified as held for sale | 86 | 99 | |||||
Net restaurant assets held for sale (a) | $ | 41,622 | $ | 50,262 | |||
Other assets held for sale (a) | $ | 6,925 | $ | 7,124 |
(a) | Net restaurant assets held for sale include company-owned restaurants and consist primarily of cash, inventory, equipment and an estimate of allocable goodwill. Other assets held for sale primarily consist of surplus properties. Assets held for sale are included in “Prepaid expenses and other current assets.” |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
Restaurants acquired from franchisees | 2 | 4 | |||||
Total consideration paid, net of cash received | $ | 2,209 | $ | 1,232 | |||
Identifiable assets acquired and liabilities assumed: | |||||||
Properties | 2,218 | 1,350 | |||||
Acquired franchise rights | — | 780 | |||||
Other assets | 9 | 109 | |||||
Capital leases obligations | — | (706 | ) | ||||
Unfavorable leases | — | (440 | ) | ||||
Other liabilities | (18 | ) | (40 | ) | |||
Total identifiable net assets | 2,209 | 1,053 | |||||
Goodwill | $ | — | $ | 179 |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
G&A realignment | $ | 527 | $ | 4,163 | |||
System optimization initiative | 2,723 | 450 | |||||
Reorganization and realignment costs | $ | 3,250 | $ | 4,613 |
Three Months Ended | Total Incurred Since Inception | ||||||||||
April 3, 2016 | March 29, 2015 | ||||||||||
Severance and related employee costs (a) | $ | (24 | ) | $ | 1,982 | $ | 14,904 | ||||
Recruitment and relocation costs | 540 | 470 | 2,407 | ||||||||
Other | 11 | 32 | 148 | ||||||||
527 | 2,484 | 17,459 | |||||||||
Share-based compensation (b) | — | 1,679 | 6,336 | ||||||||
Total G&A realignment | $ | 527 | $ | 4,163 | $ | 23,795 |
(a) | The three months ended April 3, 2016 includes a reversal of an accrual of $32 as a result of a change in estimate. |
(b) | Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our G&A realignment plan. |
Balance January 3, 2016 | Charges | Payments | Balance April 3, 2016 | ||||||||||||
Severance and related employee costs | $ | 3,431 | $ | (24 | ) | $ | (1,673 | ) | $ | 1,734 | |||||
Recruitment and relocation costs | 144 | 540 | (386 | ) | 298 | ||||||||||
Other | — | 11 | (11 | ) | — | ||||||||||
$ | 3,575 | $ | 527 | $ | (2,070 | ) | $ | 2,032 |
Balance December 28, 2014 | Charges | Payments | Balance March 29, 2015 | |||||||||||||
Severance and related employee costs | $ | 11,609 | $ | 1,982 | $ | (3,386 | ) | $ | 10,205 | |||||||
Recruitment and relocation costs | 149 | 470 | (398 | ) | 221 | |||||||||||
Other | 5 | 32 | (37 | ) | — | |||||||||||
$ | 11,763 | $ | 2,484 | $ | (3,821 | ) | $ | 10,426 |
Three Months Ended | Total Incurred Since Inception | ||||||||||
April 3, 2016 | March 29, 2015 | ||||||||||
Severance and related employee costs | $ | — | $ | 326 | $ | 18,152 | |||||
Professional fees | 1,701 | 41 | 10,874 | ||||||||
Other | 77 | 83 | 5,548 | ||||||||
1,778 | 450 | 34,574 | |||||||||
Accelerated depreciation and amortization (a) | 945 | — | 24,743 | ||||||||
Share-based compensation (b) | — | — | 5,013 | ||||||||
Total system optimization initiative | $ | 2,723 | $ | 450 | $ | 64,330 |
(a) | Primarily includes accelerated amortization of previously acquired franchise rights related to company-owned restaurants in territories that will be or have been sold in connection with our system optimization initiative. |
(b) | Represents incremental share-based compensation resulting from the modification of stock options and performance-based awards in connection with the termination of employees under our system optimization initiative. |
Balance January 3, 2016 | Charges | Payments | Balance April 3, 2016 | ||||||||||||
Severance and related employee costs | $ | 77 | $ | — | $ | (16 | ) | $ | 61 | ||||||
Professional fees | 708 | 1,701 | (1,988 | ) | 421 | ||||||||||
Other | 90 | 77 | (117 | ) | 50 | ||||||||||
$ | 875 | $ | 1,778 | $ | (2,121 | ) | $ | 532 |
Balance December 28, 2014 | Charges | Payments | Balance March 29, 2015 | ||||||||||||
Severance and related employee costs | $ | 2,235 | $ | 326 | $ | (1,999 | ) | $ | 562 | ||||||
Professional fees | 146 | 41 | (52 | ) | 135 | ||||||||||
Other | 423 | 83 | (3 | ) | 503 | ||||||||||
$ | 2,804 | $ | 450 | $ | (2,054 | ) | $ | 1,200 |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
Balance at beginning of period | $ | 55,541 | $ | 69,790 | |||
Investment | 64 | — | |||||
Equity in earnings for the period | 2,449 | 2,625 | |||||
Amortization of purchase price adjustments (a) | (550 | ) | (583 | ) | |||
1,899 | 2,042 | ||||||
Distributions received | (2,689 | ) | (2,378 | ) | |||
Foreign currency translation adjustment included in “Other comprehensive income (loss), net” | 3,609 | (5,476 | ) | ||||
Balance at end of period | $ | 58,424 | $ | 63,978 |
(a) | Purchase price adjustments which impacted the carrying value of the Company’s investment in TimWen are being amortized over the average original aggregate life of 21 years. |
April 3, 2016 | January 3, 2016 | ||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | Fair Value Measurements | |||||||||||||
Financial assets | |||||||||||||||||
Cash equivalents | $ | 58,386 | $ | 58,386 | $ | 45,339 | $ | 45,339 | Level 1 | ||||||||
Non-current cost method investments (a) | 2,829 | 269,393 | 2,828 | 249,870 | Level 3 | ||||||||||||
Financial liabilities | |||||||||||||||||
Series 2015-1 Class A-2-I Notes (b) | 870,625 | 853,648 | 872,813 | 849,106 | Level 2 | ||||||||||||
Series 2015-1 Class A-2-II Notes (b) | 895,500 | 871,254 | 897,750 | 879,795 | Level 2 | ||||||||||||
Series 2015-1 Class A-2-III Notes (b) | 497,500 | 483,060 | 498,750 | 484,648 | Level 2 | ||||||||||||
7% debentures, due in 2025 (b) | 87,361 | 101,000 | 87,057 | 100,500 | Level 2 | ||||||||||||
Guarantees of franchisee loan obligations (c) | 839 | 839 | 851 | 851 | Level 3 |
(a) | The fair value of our indirect investment in Arby’s Restaurant Group, Inc. (“Arby’s”) is based on applying a multiple to Arby’s adjusted earnings before income taxes, depreciation and amortization per its current unaudited financial information. The carrying value of our indirect investment in Arby’s was reduced to zero during 2013 in connection with the receipt of a dividend. The fair values of our remaining investments are not significant and are based on our review of information provided by the investment managers or investees which was based on (1) valuations performed by the investment managers or investees, (2) quoted market or broker/dealer prices for similar investments and (3) quoted market or broker/dealer prices adjusted by the investment managers for legal or contractual restrictions, risk of nonperformance or lack of marketability, depending upon the underlying investments. |
(b) | The fair values were based on quoted market prices in markets that are not considered active markets. |
(c) | Wendy’s has provided loan guarantees to various lenders on behalf of franchisees entering into debt arrangements for new restaurant development and equipment financing. In addition during 2012, Wendy’s provided a guarantee to a lender for a franchisee in connection with the refinancing of the franchisee’s debt. We have accrued a liability for the fair value of these guarantees, the calculation of which was based upon a weighted average risk percentage established at inception adjusted for a history of defaults. |
Fair Value Measurements | Three Months Ended April 3, 2016 Total Losses | ||||||||||||||||||
April 3, 2016 | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Held and used | $ | 4,247 | $ | — | $ | — | $ | 4,247 | $ | 7,001 | |||||||||
Held for sale | 967 | — | — | 967 | 104 | ||||||||||||||
Total | $ | 5,214 | $ | — | $ | — | $ | 5,214 | $ | 7,105 |
Fair Value Measurements | 2015 Total Losses | ||||||||||||||||||
January 3, 2016 | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Held and used | $ | 10,244 | $ | — | $ | — | $ | 10,244 | $ | 22,346 | |||||||||
Held for sale | 4,328 | — | — | 4,328 | 2,655 | ||||||||||||||
Total | $ | 14,572 | $ | — | $ | — | $ | 14,572 | $ | 25,001 |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
Restaurants leased or subleased to franchisees | $ | 7,001 | $ | 705 | |||
Surplus properties | 104 | 758 | |||||
Company-owned restaurants | — | 474 | |||||
$ | 7,105 | $ | 1,937 |
Three Months Ended | |||||
April 3, 2016 | March 29, 2015 | ||||
Common stock: | |||||
Weighted average basic shares outstanding | 270,214 | 366,584 | |||
Dilutive effect of stock options and restricted shares | 4,536 | 6,624 | |||
Weighted average diluted shares outstanding | 274,750 | 373,208 |
Three Months Ended | |||||||
April 3, 2016 | March 29, 2015 | ||||||
Balance at beginning of period | $ | 752,914 | $ | 1,717,576 | |||
Comprehensive income | 38,484 | 7,443 | |||||
Cash dividends | (16,214 | ) | (20,199 | ) | |||
Repurchases of common stock | (48,268 | ) | (36,963 | ) | |||
Share-based compensation | 5,081 | 5,068 | |||||
Exercises of stock options | 3,216 | 16,533 | |||||
Vesting of restricted shares | (2,378 | ) | (502 | ) | |||
Tax benefit from share-based compensation | 708 | 26,858 | |||||
Other | 46 | 46 | |||||
Balance at end of period | $ | 733,589 | $ | 1,715,860 |
Foreign Currency Translation | Cash Flow Hedges (a) | Pension | Total | ||||||||||||
Balance at January 3, 2016 | $ | (66,163 | ) | $ | (3,571 | ) | $ | (1,089 | ) | $ | (70,823 | ) | |||
Current-period other comprehensive income | 12,676 | 445 | — | 13,121 | |||||||||||
Balance at April 3, 2016 | $ | (53,487 | ) | $ | (3,126 | ) | $ | (1,089 | ) | $ | (57,702 | ) | |||
Balance at December 28, 2014 | $ | (28,363 | ) | $ | (2,044 | ) | $ | (887 | ) | $ | (31,294 | ) | |||
Current-period other comprehensive loss | (17,395 | ) | (2,466 | ) | (203 | ) | (20,064 | ) | |||||||
Balance at March 29, 2015 | $ | (45,758 | ) | $ | (4,510 | ) | $ | (1,090 | ) | $ | (51,358 | ) |
(a) | Current-period other comprehensive loss for the three months ended March 29, 2015 includes the effect of changes in unrealized losses on cash flow hedges, net of tax. The three months ended April 3, 2016 includes the reclassification of unrealized losses on cash flow hedges of $445 from “Accumulated other comprehensive loss” to our condensed |
• | Same-Restaurant Sales |
Three Months Ended | |||||||||||
April 3, 2016 | March 29, 2015 | Change | |||||||||
Revenues: | |||||||||||
Sales | $ | 259.3 | $ | 357.6 | $ | (98.3 | ) | ||||
Franchise revenues | 119.5 | 94.2 | 25.3 | ||||||||
378.8 | 451.8 | (73.0 | ) | ||||||||
Costs and expenses: | |||||||||||
Cost of sales | 214.7 | 305.1 | (90.4 | ) | |||||||
General and administrative | 64.7 | 59.7 | 5.0 | ||||||||
Depreciation and amortization | 32.3 | 35.6 | (3.3 | ) | |||||||
System optimization (gains) losses, net | (8.4 | ) | 0.8 | (9.2 | ) | ||||||
Reorganization and realignment costs | 3.3 | 4.6 | (1.3 | ) | |||||||
Impairment of long-lived assets | 7.1 | 1.9 | 5.2 | ||||||||
Other operating expense, net | 1.3 | 6.2 | (4.9 | ) | |||||||
315.0 | 413.9 | (98.9 | ) | ||||||||
Operating profit | 63.8 | 37.9 | 25.9 | ||||||||
Interest expense | (28.1 | ) | (12.7 | ) | (15.4 | ) | |||||
Other income, net | 0.3 | 0.2 | 0.1 | ||||||||
Income from continuing operations before income taxes | 36.0 | 25.4 | 10.6 | ||||||||
Provision for income taxes | (10.6 | ) | (7.3 | ) | (3.3 | ) | |||||
Income from continuing operations | 25.4 | 18.1 | 7.3 | ||||||||
Net income from discontinued operations | — | 9.4 | (9.4 | ) | |||||||
Net income | $ | 25.4 | $ | 27.5 | $ | (2.1 | ) |
First Quarter 2016 | First Quarter 2015 | ||||||||||
Revenues: | |||||||||||
Sales | $ | 259.3 | $ | 357.6 | |||||||
Franchise revenues: | |||||||||||
Royalty revenue | $ | 80.8 | $ | 73.6 | |||||||
Rental income | 30.6 | 17.8 | |||||||||
Franchise fees | 8.1 | 2.8 | |||||||||
Total franchise revenues | 119.5 | 94.2 | |||||||||
Total revenues | $ | 378.8 | $ | 451.8 | |||||||
First Quarter 2016 | % of Sales | First Quarter 2015 | % of Sales | ||||||||
Cost of sales: | |||||||||||
Food and paper | $ | 79.2 | 30.5% | $ | 115.6 | 32.3% | |||||
Restaurant labor | 76.0 | 29.3% | 105.2 | 29.4% | |||||||
Occupancy, advertising and other operating costs | 59.5 | 23.0% | 84.3 | 23.6% | |||||||
Total cost of sales | $ | 214.7 | 82.8% | $ | 305.1 | 85.3% |
First Quarter 2016 | % of Sales | First Quarter 2015 | % of Sales | |||||||||
Restaurant margin | $ | 44.6 | 17.2% | $ | 52.5 | 14.7 | % |
New Method | Old Method | ||||||||||
First Quarter 2016 | First Quarter 2015 | First Quarter 2016 | First Quarter 2015 | ||||||||
Same-restaurant sales: | |||||||||||
North America same-restaurant sales: | |||||||||||
Company-owned | 4.8 | % | 2.8 | % | 4.7 | % | 2.6 | % | |||
Franchised | 3.5 | % | 3.5 | % | 3.4 | % | 3.4 | % | |||
Systemwide | 3.6 | % | 3.4 | % | 3.6 | % | 3.2 | % | |||
Total same-restaurant sales: | |||||||||||
Company-owned | 4.8 | % | 2.8 | % | 4.7 | % | 2.6 | % | |||
Franchised (a) | 3.2 | % | 3.3 | % | 3.2 | % | 3.2 | % | |||
Systemwide (a) | 3.4 | % | 3.2 | % | 3.3 | % | 3.1 | % |
Company-owned | Franchised | Systemwide | ||||||
Restaurant count: | ||||||||
Restaurant count at January 3, 2016 | 632 | 5,847 | 6,479 | |||||
Opened | 4 | 26 | 30 | |||||
Closed | (1 | ) | (26 | ) | (27 | ) | ||
Net (sold to) purchased by franchisees | (53 | ) | 53 | — | ||||
Restaurant count at April 3, 2016 | 582 | 5,900 | 6,482 |
Sales | Change | ||
Sales | $ | (98.3 | ) |
Franchise Revenues | Change | ||
Royalty revenue | $ | 7.2 | |
Rental income | 12.8 | ||
Franchise fees | 5.3 | ||
$ | 25.3 |
Cost of Sales, as a Percent of Sales | Change | |
Food and paper | (1.8 | )% |
Restaurant labor | (0.1 | )% |
Occupancy, advertising and other operating costs | (0.6 | )% |
(2.5 | )% |
General and Administrative | Change | ||
Professional services | $ | 1.9 | |
Legal reserves | 1.8 | ||
Other, net | 1.3 | ||
$ | 5.0 |
Depreciation and Amortization | Change | ||
Restaurants | $ | (2.9 | ) |
Corporate and other | (0.4 | ) | |
$ | (3.3 | ) |
System Optimization (Gains) Losses, Net | First Quarter | ||||||
2016 | 2015 | ||||||
System optimization (gains) losses, net | $ | (8.4 | ) | $ | 0.8 |
Reorganization and Realignment Costs | First Quarter | ||||||
2016 | 2015 | ||||||
G&A realignment | $ | 0.6 | $ | 4.2 | |||
System optimization initiative | 2.7 | 0.4 | |||||
$ | 3.3 | $ | 4.6 |
Impairment of Long-Lived Assets | Change | ||
Impairment of long-lived assets | $ | 5.2 |
Other Operating Expense, Net | First Quarter | ||||||
2016 | 2015 | ||||||
Lease expense | $ | 14.7 | $ | 10.0 | |||
Lease buyout | (11.6 | ) | (2.0 | ) | |||
Equity in earnings in joint ventures, net | (1.9 | ) | (2.0 | ) | |||
Other, net | 0.1 | 0.2 | |||||
$ | 1.3 | $ | 6.2 |
Interest Expense | Change | ||
Interest expense | $ | 15.4 |
Provision for Income Taxes | Change | ||
Federal and state provision on variance in income from continuing operations before income taxes | $ | 3.8 | |
Prior year tax matters, including changes to unrecognized tax benefits | 1.8 | ||
System optimization initiative | 1.4 | ||
State income taxes, net of federal benefits | (3.7 | ) | |
$ | 3.3 |
Net Income from Discontinued Operations | First Quarter | ||
2015 | |||
Income from discontinued operations before income taxes | $ | 14.4 | |
Provision for income taxes | (5.0 | ) | |
Net income from discontinued operations | $ | 9.4 |
• | an increase of $15.3 million in the net receipt of deferred vendor incentives driven by the timing of receipt of an annual advance; partially offset by |
• | an increase in payments for incentive compensation for the 2015 fiscal year; and |
• | an increase of $14.1 million in interest payments primarily resulting from the securitized financing facility. |
• | a decrease of $22.4 million in capital expenditures; and |
• | an increase of $34.9 million in proceeds from dispositions related to our system optimization initiative. |
• | a decrease in proceeds from exercise of stock options of $13.5 million; and |
• | an increase in repurchases of common stock of $10.6 million. |
• | capital expenditures of approximately $101.1 million, which would result in total cash capital expenditures for the year of approximately $140.0 million; |
• | quarterly cash dividends aggregating up to approximately $48.0 million as discussed below in “Dividends;” |
• | potential stock repurchases of up to $330.0 million, of which $21.9 million was repurchased subsequent to April 3, 2016 through May 5, 2016 as discussed below in “Stock Repurchases;” and |
• | restaurant acquisitions and dispositions under our system optimization initiative. |
• | competition, including pricing pressures, couponing, aggressive marketing and the potential impact of competitors’ new unit openings on sales of Wendy’s restaurants; |
• | consumers’ perceptions of the relative quality, variety, affordability and value of the food products we offer; |
• | food safety events, including instances of food-borne illness (such as salmonella or E. coli) involving Wendy’s or its supply chain; |
• | consumer concerns over nutritional aspects of beef, poultry, french fries or other products we sell, concerns regarding the ingredients in our products and/or cooking processes used in our restaurants, or concerns regarding the effects of disease outbreaks, epidemics or pandemics impacting the Company’s customers or food supplies; |
• | the effects of negative publicity that can occur from increased use of social media; |
• | success of operating and marketing initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors; |
• | the impact of general economic conditions and increases in unemployment rates on consumer spending, particularly in geographic regions that contain a high concentration of Wendy’s restaurants; |
• | changes in consumer tastes and preferences, and in discretionary consumer spending; |
• | changes in spending patterns and demographic trends, such as the extent to which consumers eat meals away from home; |
• | certain factors affecting our franchisees, including the business and financial viability of franchisees, the timely payment of such franchisees’ obligations due to us or to national or local advertising organizations, and the ability of our franchisees to open new restaurants in accordance with their development commitments, including their ability to finance restaurant development and remodels; |
• | increased labor costs due to competition or increased minimum wage or employee benefit costs; |
• | changes in commodity costs (including beef, chicken and corn), labor, supplies, fuel, utilities, distribution and other operating costs; |
• | availability, location and terms of sites for restaurant development by us and our franchisees; |
• | development costs, including real estate and construction costs; |
• | delays in opening new restaurants or completing reimages of existing restaurants, including risks associated with the Image Activation program; |
• | the timing and impact of acquisitions and dispositions of restaurants; |
• | anticipated or unanticipated restaurant closures by us and our franchisees; |
• | our ability to identify, attract and retain potential franchisees with sufficient experience and financial resources to develop and operate Wendy’s restaurants successfully; |
• | availability of qualified restaurant personnel to us and to our franchisees, and the ability to retain such personnel; |
• | our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to Wendy’s restaurants at competitive rates and in adequate amounts, and the potential financial impact of any interruptions in such distribution; |
• | availability and cost of insurance; |
• | adverse weather conditions; |
• | availability, terms (including changes in interest rates) and deployment of capital; |
• | changes in, and our ability to comply with, legal, regulatory or similar requirements, including franchising laws, payment card industry rules, overtime rules, minimum wage rates, wage and hour laws, government-mandated health care benefits, tax legislation, federal ethanol policy and accounting standards; |
• | the costs, uncertainties and other effects of legal, environmental and administrative proceedings; |
• | the effects of charges for impairment of goodwill or for the impairment of other long-lived assets; |
• | the effects of war or terrorist activities; |
• | 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 cybersecurity that impacts the Company or its franchisees; |
• | the difficulty in predicting the ultimate costs associated with the sale of company-owned restaurants to franchisees, employee termination costs, the timing of payments made and received, the results of negotiations with landlords, the impact of the sale of restaurants on ongoing operations, any tax impact from the sale of restaurants and the future impact to the Company’s earnings, restaurant operating margins, cash flow and depreciation; |
• | risks associated with the Company’s securitized financing facility, 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; |
• | risks associated with the amount and timing of share repurchases under the $1.4 billion share repurchase program approved by the Board of Directors; and |
• | other risks and uncertainties affecting us and our subsidiaries referred to in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016 (the “Form 10-K”) (see especially “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and in our other current and periodic filings with the Securities and Exchange Commission. |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (2) | ||||||
January 4, 2016 through February 7, 2016 | 1,856,095 | $ | 9.91 | 1,822,708 | $ | 360,114,117 | ||||
February 8, 2016 through March 6, 2016 | 1,683,878 | $ | 9.51 | 1,427,600 | $ | 346,539,369 | ||||
March 7, 2016 through April 3, 2016 | 1,758,229 | $ | 10.17 | 1,634,843 | $ | 329,960,510 | ||||
Total | 5,298,202 | $ | 9.87 | 4,885,151 | $ | 329,960,510 |
(1) | Includes 413,051 shares reacquired by the Company from holders of share-based awards to satisfy certain requirements associated with the vesting or exercise of the respective awards. The shares were valued at the average of the high and low trading prices of our common stock on the vesting or exercise date of such awards. |
(2) | In June 2015, our Board of Directors authorized the repurchase of up to $1.4 billion of our common stock through January 1, 2017, when and if market conditions warrant and to the extent legally permissible. |
EXHIBIT NO. | DESCRIPTION |
10.1 | Form of Long Term Performance Unit Award Agreement for 2016 under The Wendy’s Company 2010 Omnibus Award Plan.* ** |
10.2 | Employment Letter between The Wendy’s Company and Gunther Plosch dated as of April 7, 2016.* ** |
31.1 | Certification of the Chief Executive Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
31.2 | Certification of the Chief Financial Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an exhibit to this Form 10-Q.* |
101.INS | XBRL Instance Document* |
101.SCH | XBRL Taxonomy Extension Schema Document* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
* | Filed herewith. |
** | Identifies a management contract or compensatory plan or arrangement. |
THE WENDY’S COMPANY (Registrant) | |
Date: May 11, 2016 | By: /s/ Todd A. Penegor |
Todd A. Penegor | |
President and Chief Financial Officer | |
(On behalf of the Company) | |
Date: May 11, 2016 | By: /s/ Scott A. Kriss |
Scott A. Kriss | |
Senior Vice President, | |
Chief Accounting and Tax Officer | |
(Principal Accounting Officer) |
EXHIBIT NO. | DESCRIPTION |
10.1 | Form of Long Term Performance Unit Award Agreement for 2016 under The Wendy’s Company 2010 Omnibus Award Plan.* ** |
10.2 | Employment Letter between The Wendy’s Company and Gunther Plosch dated as of April 7, 2016.* ** |
31.1 | Certification of the Chief Executive Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
31.2 | Certification of the Chief Financial Officer of The Wendy’s Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an exhibit to this Form 10-Q.* |
101.INS | XBRL Instance Document* |
101.SCH | XBRL Taxonomy Extension Schema Document* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
* | Filed herewith. |
** | Identifies a management contract or compensatory plan or arrangement. |
Participant: | ______________________ |
Performance Period: | January 4, 2016 to December 30, 2018 |
Target Adjusted EPS Units: | ____________ (the “Adjusted EPS Units”) |
Target TSR Units: | ____________ (the “TSR Units”) |
1. | Adjusted EPS. |
Company Cumulative Adjusted EPS | Percentage of Adjusted EPS Units Earned | |
Maximum | 200.0% | |
Above Target | 150.0% | |
Target | 100.0% | |
Above Threshold | 75.0% | |
Threshold | 37.5% | |
Below Threshold | 0.0% |
Company TSR Percentile Ranking | Percentage of TSR Units Earned | |
≥ 90th | 200.0% (Maximum) | |
75th | 150.0% (Above Target) | |
50th | 100.0% (Target) | |
37.5th | 75.0% (Above Threshold) | |
25th | 37.5% (Threshold) | |
<25th | 0.0% (Below Threshold) |
(i) | Beginning Stock Price shall mean the average of the Closing Prices for each of the twenty (20) trading days immediately prior to the first trading day of the Performance Period; |
(ii) | Ending Stock Price shall mean the average of the Closing Prices for each of the last twenty (20) trading days of the Performance Period; |
(iii) | Change in Stock Price shall equal the Ending Stock Price minus the Beginning Stock Price; |
(iv) | Dividends Paid shall mean the total of all dividends paid on one (1) share of Common Stock during the Performance Period, provided that dividends shall be treated as though they are reinvested; |
(v) | Closing Price shall mean the last reported sale price on the applicable stock exchange or market of one (1) share of Common Stock for a particular trading day; and |
(vi) | In all events, TSR shall be adjusted to give effect to any stock dividends, stock splits, reverse stock splits and similar transactions. |
By: | Name: Title: |
1. | Base Salary. Your starting base annualized salary will be $475,000, paid on a bi-weekly basis. |
2. | Annual Incentive. You will be eligible to receive an incentive under the terms and conditions of the incentive plan provided to similarly situated officers of the Company, which currently provides for a target bonus of 75% of your annual base salary, provided performance measures set by the Company are achieved. Any bonus to which you are entitled in your initial year of employment will be prorated based on the number of full calendar months you are employed from your start date. |
3. | Benefits. You shall be entitled to participate in any retirement, fringe benefit, or welfare benefit plan of the Company on the same terms as provided to similarly situated officers of the Company, including any plan providing prescription, dental, disability, employee life, group life, accidental death, travel accident insurance benefits and car allowance program that the Company may adopt for the benefit of similarly situated officers, in accordance with the terms of such plan. You will be eligible to participate in medical, dental, vision and life insurance programs after 30 days of service. |
4. | Executive Physical. Wendy’s wants to ensure that its leaders are provided with comprehensive health exams to help them maintain their health and peak |
5. | Vacation. You will be eligible for four weeks of vacation per year. |
6. | 2016 Equity Award. You will be eligible for a stock option award with an award value of $375,000 on the date the Performance Compensation Subcommittee (the “Subcommittee”) approves awards to other similarly situated senior executives of the Company, currently anticipated to be on or about August 12, 2016. |
7. | Subsequent Equity Awards. Commencing in 2017, you will be eligible to receive awards under the terms and conditions of the Company’s annual long-term incentive award program in effect for other similarly situated senior executives of the Company, subject to Subcommittee approval. The target value of your 2017 Long-Term Incentive award is $750,000, and future awards will be determined in consideration of competitive market practices and individual performance and contributions. |
8. | One-Time Equity Award. You will be eligible to receive a one-time award of restricted stock units with an award value of $975,000 upon commencement of your active employment. The restricted stock unit award will vest in full on the third anniversary of the grant. |
9. | Cash Sign-On Bonus. You are eligible for a cash sign-on bonus of $150,000, less any and all applicable taxes, which will be paid after you have completed 30 days of continued, active employment. |
10. | Relocation Assistance. You are eligible for relocation assistance, and may elect to have your relocation expenses: (i) paid in a lump sum in the amount of $100,000, less any and all applicable taxes and payable within the first 30 days of your employment, or (ii) covered by the Company through its third party service provider, Cartus Corporation, subject to the provisions outlined in the Relocation III Homeowners policy, a copy of which has been provided to you. We agree to the following exceptions to the relocation policy: (x) extension of the temporary living expense benefit from 90 to 120 consecutive days, and (y) payment of the cost of full unpacking of your household goods. |
11. | Severance. The Company’s Executive Severance Policy provides for certain pay and benefits in the event the Company terminates your employment without cause or within twelve (12) months following a change in control. Such pay and benefits would be provided in exchange for your execution of a general release of any and all claims concerning your employment and termination in favor of the Company. You will not be entitled to severance in the event the Company terminates your employment for cause or in the event you voluntarily resign or terminate your employment with the Company. |
PROVISION | TERM | COMMENTS |
Base Salary | $475,000/year | Reviewed annually. |
Annual Incentive | Target annual bonus percentage equal to 75% of base salary | Company and individual performance assessed for each fiscal year relative to pre-established performance measures. |
2016 Equity Award | Value of $375,000 (50% of Target Equity Award) | $375,000 will be issued in the form of stock options with the grant date to be the date on which the Performance Compensation Subcommittee approves the award. |
Subsequent Equity Awards | 2017 Target Equity Award Value of $750,000 | Commencing in 2017, during your employment you are eligible to be granted awards under the Wendy’s annual long-term award program in effect for other executives of Wendy’s. |
One-Time Equity Award | Value of $975,000 | You are eligible to receive a one-time award of restricted stock units with an award value of $975,000 upon commencement of your active employment. The restricted stock unit award will vest in full on the third anniversary of the grant. |
Cash Sign-On Bonus | $150,000 | Subject to any and all applicable taxes, and payable following completion of 30 days of continued, active employment. |
Benefits/Car Allowance | Benefits as are generally made available to other senior executives of Wendy’s, including participation in Wendy’s health/medical and insurance programs and $16,800/year car allowance, paid bi-weekly. | |
Vacation | Four weeks per year |
1. | I have reviewed this quarterly report on Form 10-Q of The Wendy’s Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
1. | I have reviewed this quarterly report on Form 10-Q of The Wendy’s Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
May. 05, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | WENDY'S CO | |
Entity Central Index Key | 0000030697 | |
Current Fiscal Year End Date | --01-01 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Apr. 03, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 266,532,514 |
Condensed Consolidated Balance Sheets Balance Sheet Parentheticals - $ / shares shares in Thousands |
Apr. 03, 2016 |
Jan. 03, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common Stock, Par Value | $ 0.10 | $ 0.10 |
Common Stock, Shares Authorized | 1,500,000 | 1,500,000 |
Common Stock, Shares Issued | 470,424 | 470,424 |
Treasury Stock, Shares | 202,028 | 198,109 |
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
|
Net income | $ 25,363 | $ 27,507 |
Other comprehensive income (loss), net: | ||
Foreign currency translation adjustment | 12,676 | (17,395) |
Change in unrecognized pension loss, net of income tax benefit of $124 | 0 | (203) |
Effect of cash flow hedges, net of income tax (provision) benefit of $(278) and $1,502, respectively | 445 | (2,466) |
Other comprehensive income (loss), net | 13,121 | (20,064) |
Comprehensive income | $ 38,484 | $ 7,443 |
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
|
Change in unrecognized pension loss, net of income tax benefit of $124 | $ 0 | $ 124 |
Effect of cash flow hedges, net of income tax (provision) benefit of $(278) and $1,502, respectively | $ (278) | $ 1,502 |
Basis of Presentation |
3 Months Ended |
---|---|
Apr. 03, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, the Financial Statements contain all adjustments necessary to present fairly our financial position as of April 3, 2016 and the results of our operations and cash flows for the three months ended April 3, 2016 and March 29, 2015. The results of operations for the three months ended April 3, 2016 are not necessarily indicative of the results to be expected for the full 2016 fiscal year. These Financial Statements should be read in conjunction with the audited consolidated financial statements for The Wendy’s Company and notes thereto, included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016 (the “Form 10-K”). The principal subsidiary of the Company is Wendy’s International, LLC and its subsidiaries (“Wendy’s”). The Company manages and internally reports its business geographically. The operation and franchising of Wendy’s® restaurants in North America (defined as the United States of America (“U.S.”) and Canada) comprises virtually all of our current operations and represents a single reportable segment. The revenues and operating results of Wendy’s restaurants outside of North America are not material. We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31. All three month periods presented herein contain 13 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods. On May 31, 2015, Wendy’s completed the sale of its company-owned bakery, The New Bakery Company, LLC and its subsidiaries (collectively, the “Bakery”), a 100% owned subsidiary of Wendy’s. As a result of the sale of the Bakery, as further discussed in Note 2, the Bakery’s results of operations for the three months ended March 29, 2015 have been included in “Net income from discontinued operations” in our condensed consolidated statements of operations. In connection with the reimaging of restaurants as part of our Image Activation program, we have recorded accelerated depreciation of $1,822 during the three months ended April 3, 2016, on certain long-lived assets to reflect their use over shortened estimated useful lives. We describe the circumstances under which we record accelerated depreciation and amortization for properties in our Form 10-K. Certain reclassifications have been made to the prior year presentation to conform to the current year presentation. |
Discontinued Operations |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations | Discontinued Operations On May 31, 2015, Wendy’s completed the sale of 100% of its membership interest in the Bakery to East Balt US, LLC (the “Buyer”) for $78,500 in cash (subject to customary purchase price adjustments). The Company also assigned certain capital leases for transportation equipment to the Buyer but retained the related obligation. Pursuant to the sale agreement, the Company was obligated to continue to provide health insurance benefits to the Bakery’s employees at the Company’s expense through December 31, 2015. In conjunction with the Bakery sale, Wendy’s entered into a transition services agreement with the Buyer, pursuant to which Wendy’s provided certain continuing corporate and shared services to the Buyer through March 31, 2016 for no additional consideration. A purchasing cooperative, Quality Supply Chain Co-op, Inc. (“QSCC”), established by Wendy’s and its franchisees, agreed to continue to source sandwich buns from the Bakery, for a specified time period following the sale of the Bakery. As a result, Wendy’s paid the Buyer $2,602 for the purchase of sandwich buns during the three months ended April 3, 2016, which has been recorded to “Cost of sales.” Information related to the Bakery has been reflected in the accompanying condensed consolidated financial statements as follows:
The following table presents the Bakery’s results of operations which have been included in discontinued operations:
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The Bakery’s capital expenditures were $587 for the three months ended March 29, 2015, which are included in “Capital expenditures” in our condensed consolidated statements of cash flows. |
System Optimization (Gains) Losses, Net |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
System Optimization (Gains) Losses, Net | System Optimization (Gains) Losses, Net In July 2013, the Company announced a system optimization initiative, as part of its brand transformation, which includes a shift from company-owned restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as helping to facilitate franchisee-to-franchisee restaurant transfers. In February 2015, the Company announced plans to sell approximately 540 additional restaurants to franchisees and reduce its ongoing company-owned restaurant ownership to approximately 5% of the total system by the end of 2016. During 2015, 2014 and 2013, the Company completed the sale of 327, 255 and 244 company-owned restaurants to franchisees, respectively, which included the sale of all of its company-owned restaurants in Canada. In addition, the Company helped facilitate the transfer of 113 restaurants between franchisees during the three months ended April 3, 2016. The Company expects to complete its plan to reduce company-owned restaurant ownership to approximately 5% of the total system with the sale of approximately 260 restaurants during the remainder of 2016, of which 86 restaurants were classified as held for sale as of April 3, 2016. Gains and losses recognized on dispositions are recorded to “System optimization (gains) losses, net” in our condensed consolidated statements of operations. Costs related to our system optimization initiative are recorded to “Reorganization and realignment costs,” and include severance and employee related costs, professional fees and other associated costs, which are further described in Note 5. The following is a summary of the disposition activity recorded as a result of our system optimization initiative:
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Assets Held for Sale
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Acquisitions |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | Acquisitions The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for acquisitions of franchised restaurants:
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Reorganization and Realignment Costs |
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Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities Disclosure [Text Block] | Reorganization and Realignment Costs The following is a summary of the initiatives included in “Reorganization and realignment costs:”
G&A Realignment In November 2014, the Company initiated a plan to reduce its general and administrative expenses. The plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth. The Company achieved the majority of the expense reductions through the realignment of its U.S. field operations and savings at its Restaurant Support Center in Dublin, Ohio, which was substantially completed by the end of the second quarter of 2015. The Company recognized costs totaling $527 during the three months ended April 3, 2016 and $23,795 in aggregate since inception. The Company expects to incur additional costs aggregating approximately $1,300 during the remainder of 2016, comprised primarily of recruitment and relocation costs for the reinvestment in resources to drive long-term growth. The following is a summary of the activity recorded as a result of our G&A realignment plan:
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The tables below present a rollforward of our accruals for our G&A realignment plan, which are included in “Accrued expenses and other current liabilities” and “Other liabilities.”
System Optimization Initiative The Company has recognized costs related to its system optimization initiative which includes a shift from company-owned restaurants to franchised restaurants over time, through acquisitions and dispositions, as well as helping to facilitate franchisee-to-franchisee restaurant transfers. The Company expects to incur additional costs of approximately $5,900 during the remainder of 2016, which are primarily comprised of professional fees of approximately $5,200 and accelerated amortization of previously acquired franchise rights related to company-owned restaurants in territories that will be sold to franchisees of approximately $700. The following is a summary of the costs recorded as a result of our system optimization initiative:
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The tables below present a rollforward of our accrual for our system optimization initiative, which is included in “Accrued expenses and other current liabilities.”
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Investments |
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Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Investments Equity Investments Wendy’s has a 50% share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons® brand. (Tim Hortons™ is a registered trademark of Tim Hortons USA Inc.) In addition, the Company has a 20% share in a joint venture for the operation of Wendy’s restaurants in Brazil (the “Brazil JV”). The Company has significant influence over these investees. Such investments are accounted for using the equity method of accounting, under which our results of operations include our share of the income (loss) of the investees in “Other operating expense, net.” Presented below is an unaudited summary of activity related to our investment in TimWen and the Brazil JV included in “Investments” in our condensed consolidated financial statements:
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. These inputs are classified into the following hierarchy: Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets. Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation. Financial Instruments The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:
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The carrying amounts of cash, accounts payable and accrued expenses approximated fair value due to the short-term nature of those items. The carrying amounts of accounts and notes receivable (both current and non-current) approximated fair value due to the effect of the related allowance for doubtful accounts. Our cash and cash equivalents and guarantees are the only financial assets and liabilities measured and recorded at fair value on a recurring basis. Derivative Instruments The Company’s primary objective for entering into interest rate swap agreements was to manage its exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt. Our derivative instruments for the three months ended March 29, 2015 included seven forward starting interest rate swaps designated as cash flow hedges to change the floating rate interest payments associated with $350,000 and $100,000 in borrowings under the Term A Loans and Term B Loans, respectively, to fixed rate interest payments beginning June 30, 2015 and maturing on December 31, 2017. In May 2015, the Company terminated these interest rate swaps and paid $7,275, which was recorded against the derivative liability. The unrealized loss on the cash flow hedges at termination of $7,275 is being reclassified on a straight-line basis from “Accumulated other comprehensive loss” to “Interest expense” beginning June 30, 2015, the original effective date of the interest rate swaps through December 31, 2017, the original maturity date of the interest rate swaps. As a result, the three months ended April 3, 2016 include the reclassification of unrealized losses on the cash flow hedges of $723 from “Accumulated other comprehensive loss” to “Interest expense.” There was no hedge ineffectiveness from these cash flows hedges through their termination in May 2015. Non-Recurring Fair Value Measurements Assets and liabilities remeasured to fair value on a non-recurring basis during the three months ended April 3, 2016 and the year ended January 3, 2016 resulted in impairment which we have recorded to “Impairment of long-lived assets” in our condensed consolidated statements of operations. Total losses for the three months ended April 3, 2016 and the year ended January 3, 2016 reflect the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements and favorable lease assets) to fair value as a result of the Company’s decision to lease and/or sublease the land and/or buildings to franchisees in connection with the sale or anticipated sale of restaurants. Total losses for the year ended January 3, 2016 also include the impact of remeasuring long-lived assets held and used (including land, buildings, leasehold improvements and favorable lease assets) to fair value as a result of declines in operating performance at company-owned restaurants. The fair value of long-lived assets held and used presented in the tables below represents the remaining carrying value and was estimated based on either discounted cash flows of future anticipated lease and sublease income or current market values. Total losses for the three months ended April 3, 2016 and the year ended January 3, 2016 also include the impact of remeasuring long-lived assets held for sale which primarily include surplus properties. The fair values of long-lived assets held for sale presented in the tables below represent the remaining carrying value and were estimated based on current market values. See Note 8 for more information on impairment of our long-lived assets.
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Impairment of Long-Lived Assets |
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Asset Impairment Charges [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets During the three months ended April 3, 2016 and March 29, 2015, the Company recorded impairment charges on long-lived assets as a result of (1) the Company’s decision to lease and/or sublease properties to franchisees in connection with the sale or anticipated sale of company-owned restaurants and (2) closing company-owned restaurants and classifying such properties as held for sale. The Company may recognize additional impairment charges resulting from leasing or subleasing additional properties to franchisees in connection with sales of company-owned restaurants to franchisees. Additionally, during the three months ended March 29, 2015, the Company recorded impairment charges on long-lived assets as a result of the deterioration in operating performance of certain company-owned restaurants and charges for capital improvements in restaurants impaired in prior years which did not subsequently recover. The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets.”
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Income Taxes |
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Apr. 03, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The Company’s effective tax rate on income from continuing operations for the three months ended April 3, 2016 and March 29, 2015 was 29.5% and 28.6%, respectively. The Company’s effective tax rate varies from the U.S. federal statutory rate of 35% due to the effect of (1) changes to valuation allowances on state net operating loss carryforwards, (2) state income taxes net of federal benefits, including changes to state deferred taxes, (3) the impact of non-deductible goodwill disposed of in connection with our system optimization initiative described in Note 3, (4) foreign rate differential, (5) employment credits and (6) adjustments related to prior year tax matters, including changes to unrecognized tax benefits. During the three months ended March 29, 2015, we concluded two state income tax examinations which resulted in the recognition of a net tax benefit of $1,872. |
Net Income Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Share | Net Income Per Share Basic net income per share was computed by dividing net income amounts by the weighted average number of common shares outstanding. The weighted average number of shares used to calculate basic and diluted net income per share were as follows:
Diluted net income per share for the three months ended April 3, 2016 and March 29, 2015 was computed by dividing net income by the weighted average number of basic shares outstanding plus the potential common share effect of dilutive stock options and restricted shares. We excluded potential common shares of 3,726 and 765 for the three months ended April 3, 2016 and March 29, 2015, respectively, from our diluted net income per share calculation as they would have had anti-dilutive effects. |
Stockholders' Equity |
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Stockholders' Equity | Stockholders’ Equity Stockholders’ Equity The following is a summary of the changes in stockholders’ equity:
Repurchases of Common Stock On June 1, 2015, our Board of Directors authorized a repurchase program for up to $1,400,000 of our common stock through January 1, 2017, when and if market conditions warrant and to the extent legally permissible. During the three months ended April 3, 2016, the Company repurchased 4,885 shares with an aggregate purchase price of $48,195, of which $2,367 was accrued at April 3, 2016 and excluding commissions of $73. As of April 3, 2016, the Company had $329,961 remaining availability under its June 2015 authorization. Subsequent to April 3, 2016 through May 5, 2016, the Company repurchased 1,981 shares with an aggregate purchase price of $21,855, excluding commissions of $30. In August 2014, our Board of Directors authorized a repurchase program for up to $100,000 of our common stock through December 31, 2015, when and if market conditions warrant and to the extent legally permissible. During the three months ended March 29, 2015, the Company repurchased 3,342 shares with an aggregate purchase price of $36,912, excluding commissions of $51. The August 2014 authorization was completed during the third quarter of 2015. Accumulated Other Comprehensive Loss The following table provides a rollforward of the components of accumulated other comprehensive loss, net of tax as applicable:
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The cumulative gains and losses on these items are included in “Accumulated other comprehensive loss” in the condensed consolidated balance sheets. |
Transactions with Related Parties |
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Apr. 03, 2016 | |
Related Party Transactions [Abstract] | |
Transactions with Related Parties | Transactions with Related Parties Except as described below, the Company did not have any significant changes in or transactions with its related parties during the current fiscal period since those reported in the Form 10-K. Transactions with QSCC Wendy’s received $46 of lease income from its purchasing cooperative, Quality Supply Chain Co-op, Inc. (“QSCC”) during both the three months ended April 3, 2016 and March 29, 2015, which has been recorded as a reduction to “General and administrative.” TimWen Lease and Management Fee Payments A wholly-owned subsidiary of Wendy’s leases restaurant facilities from TimWen for the operation of Wendy’s/Tim Hortons combo units in Canada. Prior to the second quarter of 2015, Wendy’s operated certain of the Wendy’s/Tim Hortons combo units in Canada and subleased some of the restaurant facilities to franchisees. As a result of the Company completing its plan to sell all of its company-owned restaurants in Canada to franchisees during the second quarter of 2015, all of the restaurant facilities are subleased to franchisees. During the three months ended April 3, 2016 and March 29, 2015, Wendy’s paid TimWen $2,636 and $2,628, respectively, under these lease agreements. In addition, TimWen paid Wendy’s a management fee under the TimWen joint venture agreement of $50 and $56 during the three months ended April 3, 2016 and March 29, 2015, respectively, which has been included as a reduction to “General and administrative.” |
Guarantees and Other Commitments and Contingencies |
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Apr. 03, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Guarantees and Other Commitments and Contingencies | Guarantees and Other Commitments and Contingencies Refer to the Form 10-K for further information regarding the Company’s additional commitments and obligations. Franchisee Image Activation Incentive Programs In order to promote Image Activation new restaurant development, Wendy’s has an incentive program for franchisees that provides for reductions in royalty payments for the first three years of operation for qualifying new restaurants opened by December 31, 2016. Wendy’s also has incentive programs for 2016 and 2017 for franchisees that commence Image Activation restaurant remodels during those years. The incentive programs provide reductions in royalty payments for one year or two years after the completion of construction, depending on the type of remodel. In 2015, Wendy’s added an additional incentive to the 2016 program described above to include waiving the franchise agreement renewal fee for certain types of remodels. In addition, Wendy’s had incentive programs that included reductions in royalty payments in 2015. Franchisee Image Activation Financing Program Wendy’s executed an agreement in 2013 to partner with a third-party lender to establish a financing program for franchisees that participate in our Image Activation program. Under the program, the lender has agreed to provide loans to franchisees to be used for the reimaging of restaurants according to the guidelines and specifications under Wendy’s Image Activation program. To support the program, Wendy’s provided to the lender a $6,000 irrevocable stand-by letter of credit, which was issued on July 1, 2013 and was cash collateralized. During the three months ended April 3, 2016, the Company entered into an agreement to reduce the letter of credit from $6,000 to $1,000 due to franchisees successfully obtaining financing independently. Subsequent to April 3, 2016, the new irrevocable letter of credit of $1,000 was issued against the securitized financing facility and the $6,000 letter of credit was terminated. Lease Guarantees Wendy’s has guaranteed the performance of certain leases and other obligations, primarily from former company-owned restaurant locations now operated by franchisees, amounting to $36,215 as of April 3, 2016. These leases extend through 2050. We have not received any notice of default related to these leases as of April 3, 2016. In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations. Wendy’s is contingently liable for certain other leases which have been assigned to unrelated third parties who have indemnified Wendy’s against future liabilities amounting to $1,553 as of April 3, 2016. These leases expire on various dates through 2021. Letters of Credit As of April 3, 2016, the Company had outstanding letters of credit with various parties totaling $39,996, of which $12,165 were cash collateralized. The outstanding letters of credit include amounts outstanding against the securitized financing facility and for the Image Activation financing program described above. The related cash collateral is classified as “Restricted cash” in the condensed consolidated balance sheets. We do not expect any material loss to result from these letters of credit. |
Legal and Environmental Matters |
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Loss Contingency [Abstract] | |
Legal and Environmental Matters | Legal and Environmental Matters We are involved in litigation and claims incidental to our current and prior businesses. We provide accruals for such litigation and claims when payment is probable and reasonably estimable. As of April 3, 2016, the Company had accruals for all of its legal and environmental matters aggregating $4,441. We cannot estimate the aggregate possible range of loss due to most proceedings being in preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur, and significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral decisions is thus inherently difficult. Based on currently available information, including legal defenses available to us, and given the aforementioned accruals and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will have a material effect on our consolidated financial position or results of operations. |
New Accounting Standards |
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New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
New Accounting Standards | New Accounting Standards New Accounting Standards In March 2016, the Financial Accounting Standards Board (“FASB”) issued an amendment which modifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as statement of cash flows presentation. The amendment is effective commencing with our 2017 fiscal year. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. In March 2016, the FASB issued an amendment which clarifies the steps for assessing triggering events of embedded contingent put and call options within debt instruments. The amendment is effective commencing with our 2017 fiscal year. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. In March 2016, the FASB issued an amendment related to equity method accounting which eliminates the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in level of ownership interest or degree of influence. The amendment is effective commencing with our 2017 fiscal year. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. In May 2014, the FASB issued amended guidance for revenue recognition. Subsequently, the FASB issued an amendment to defer for one year the effective date of the new standard on revenue recognition, as well as issued additional clarifying amendments. The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The new standard supersedes most current revenue recognition guidance, including industry-specific guidance, and is now effective commencing with our 2018 fiscal year. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. New Accounting Standards Adopted In September 2015, the FASB issued an amendment that requires an acquirer to recognize adjustments to provisional amounts during the measurement period, in the period such adjustments are identified, rather than retrospectively adjusting previously reported amounts. The Company adopted this amendment, prospectively, during the first quarter of 2016. The adoption of this guidance did not impact our consolidated financial statements. In April 2015, the FASB issued an amendment that clarifies the accounting for fees paid in a cloud computing arrangement. The amendment provides guidance to customers about whether a cloud computing arrangement includes a software license. The Company adopted this amendment, prospectively, during the first quarter of 2016. The adoption of this guidance did not materially impact our consolidated financial statements. In February 2015, the FASB issued an amendment which revises the consolidation requirements and significantly changes the consolidation analysis required under current guidance. The Company adopted this amendment, prospectively, during the first quarter of 2016. The adoption of this guidance did not impact our consolidated financial statements. In June 2014, the FASB issued an amendment to clarify that a performance target that affects vesting and which could be achieved after the requisite service period should be treated as a performance condition and therefore should not be reflected in estimating the grant-date fair value of the award. The Company adopted this amendment during the first quarter of 2016. The adoption of this guidance did not impact our consolidated financial statements. |
Discontinued Operations (Tables) |
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Bakery [Member] | Discontinued Operations [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Disposal Groups, Including Discontinued Operations [Table Text Block] | The following table presents the Bakery’s results of operations which have been included in discontinued operations:
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System Optimization (Gains) Losses, Net (Tables) |
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Property, Plant and Equipment [Table Text Block] | The following is a summary of the disposition activity recorded as a result of our system optimization initiative:
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Schedule of Assets Held-for-sale [Table Text Block] | Assets Held for Sale
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Acquisitions (Tables) |
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Schedule of Business Acquisitions, by Acquisition [Table Text Block] | The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed for acquisitions of franchised restaurants:
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Reorganization and Realignment Costs (Tables) |
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Restructuring and Related Costs [Table Text Block] | The following is a summary of the initiatives included in “Reorganization and realignment costs:”
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Restructuring and Related Costs [Table Text Block] | The following is a summary of the activity recorded as a result of our G&A realignment plan:
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Schedule of Restructuring Reserve by Type of Cost [Table Text Block] | The tables below present a rollforward of our accruals for our G&A realignment plan, which are included in “Accrued expenses and other current liabilities” and “Other liabilities.”
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Restructuring and Related Costs [Table Text Block] | The following is a summary of the costs recorded as a result of our system optimization initiative:
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Schedule of Restructuring Reserve by Type of Cost [Table Text Block] | The tables below present a rollforward of our accrual for our system optimization initiative, which is included in “Accrued expenses and other current liabilities.”
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Investments (Tables) |
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Schedule of Equity Method Investments [Table Text Block] | Presented below is an unaudited summary of activity related to our investment in TimWen and the Brazil JV included in “Investments” in our condensed consolidated financial statements:
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, by Balance Sheet Grouping [Table Text Block] | The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:
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Fair Value, Nonrecurring |
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Impairment of Long-Lived Assets (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Asset Impairment Charges [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment of Long-Lived Assets by Type [Table Text Block] | The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of long-lived assets.”
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Net Income Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average number of shares used to calculate basic and diluted net income per share | The weighted average number of shares used to calculate basic and diluted net income per share were as follows:
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Stockholders' Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stockholders' Equity | The following is a summary of the changes in stockholders’ equity:
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Schedule of Accumulated Other Comprehensive Loss [Table Text Block] | The following table provides a rollforward of the components of accumulated other comprehensive loss, net of tax as applicable:
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Basis of Presentation Accelerated Depreciation on IA Remodels (Details) $ in Thousands |
3 Months Ended |
---|---|
Apr. 03, 2016
USD ($)
| |
Property, Plant and Equipment [Abstract] | |
Accelerated Depreciation and Amortization | $ 1,822 |
System Optimization (Gains) Losses, Net Assets Held for Sale (Details) $ in Thousands |
Apr. 03, 2016
USD ($)
Restaurant
|
Jan. 03, 2016
USD ($)
Restaurant
|
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Restaurant assets held for sale [Member] | ||
Long Lived Assets Held-for-sale [Line Items] | ||
Number of Restaurants Classified as Assets Held for Sale | Restaurant | 86 | 99 |
Assets held for sale | $ 41,622 | $ 50,262 |
Other assets held for sale [Member] | ||
Long Lived Assets Held-for-sale [Line Items] | ||
Assets held for sale | $ 6,925 | $ 7,124 |
Acquisitions (Details) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Apr. 03, 2016
USD ($)
Restaurant
|
Mar. 29, 2015
USD ($)
Restaurant
|
Jan. 03, 2016
USD ($)
|
|
Business Acquisition [Line Items] | |||
Goodwill | $ 767,455 | $ 770,781 | |
Acquisitions [Member] | |||
Business Acquisition [Line Items] | |||
Restaurants acquired from franchisees | Restaurant | 2 | 4 | |
Total consideration paid, net of cash received | $ 2,209 | $ 1,232 | |
Properties | 2,218 | 1,350 | |
Acquired franchise rights | 0 | 780 | |
Other assets | 9 | 109 | |
Capital leases obligations | 0 | (706) | |
Unfavorable leases | 0 | (440) | |
Other liabilities | (18) | (40) | |
Total identifiable net assets | 2,209 | 1,053 | |
Goodwill | $ 0 | $ 179 |
Reorganization and Realignment Costs Summary (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
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Restructuring Cost and Reserve [Line Items] | ||
Reorganization and realignment costs | $ 3,250 | $ 4,613 |
General and Administrative Realignment and Reinvestment [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Reorganization and realignment costs | 527 | 4,163 |
System Optimization [Member] | ||
Restructuring Cost and Reserve [Line Items] | ||
Reorganization and realignment costs | $ 2,723 | $ 450 |
Reorganization and Realignment Costs G&A Realignment Accrual Rollforward (Details) - General and Administrative Realignment and Reinvestment [Member] - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
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Restructuring Reserve [Roll Forward] | ||
Beginning balance | $ 3,575 | $ 11,763 |
Charges | 527 | 2,484 |
Payments | (2,070) | (3,821) |
Ending balance | 2,032 | 10,426 |
Severance and related employee costs [Member] | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 3,431 | 11,609 |
Charges | (24) | 1,982 |
Payments | (1,673) | (3,386) |
Ending balance | 1,734 | 10,205 |
Recruitment and relocation costs [Member] | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 144 | 149 |
Charges | 540 | 470 |
Payments | (386) | (398) |
Ending balance | 298 | 221 |
Other [Member] | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 0 | 5 |
Charges | 11 | 32 |
Payments | (11) | (37) |
Ending balance | $ 0 | $ 0 |
Reorganization and Realignment Costs System Optimization Accrual Rollforward (Details) - System Optimization [Member] - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
|
Restructuring Reserve [Roll Forward] | ||
Beginning balance | $ 875 | $ 2,804 |
Charges | 1,778 | 450 |
Payments | (2,121) | (2,054) |
Ending balance | 532 | 1,200 |
Severance and related employee costs [Member] | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 77 | 2,235 |
Charges | 0 | 326 |
Payments | (16) | (1,999) |
Ending balance | 61 | 562 |
Professional fees [Member] | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 708 | 146 |
Charges | 1,701 | 41 |
Payments | (1,988) | (52) |
Ending balance | 421 | 135 |
Other [Member] | ||
Restructuring Reserve [Roll Forward] | ||
Beginning balance | 90 | 423 |
Charges | 77 | 83 |
Payments | (117) | (3) |
Ending balance | $ 50 | $ 503 |
Impairment of Long-Lived Assets (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
Jan. 03, 2016 |
|
Impaired Long-Lived Assets Held and Used [Line Items] | |||
Impairment of long-lived assets | $ 7,105 | $ 1,937 | $ 25,001 |
Restaurants leased or subleased to franchisees | |||
Impaired Long-Lived Assets Held and Used [Line Items] | |||
Impairment of long-lived assets | 7,001 | 705 | |
Company-owned restaurants | |||
Impaired Long-Lived Assets Held and Used [Line Items] | |||
Impairment of long-lived assets | 0 | 474 | |
Surplus properties | |||
Impaired Long-Lived Assets Held and Used [Line Items] | |||
Impairment of long-lived assets | $ 104 | $ 758 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
|
Income Tax Disclosure [Abstract] | ||
Effective Income Tax Rate, Continuing Operations | 29.50% | 28.60% |
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 35.00% | 35.00% |
State Income Tax Benefit from Tax Examination | $ 1,872 |
Net Income Per Share (Details) - shares shares in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
|
Common Stock: | ||
Weighted average basic shares outstanding | 270,214 | 366,584 |
Dilutive effect of stock options and restricted shares | 4,536 | 6,624 |
Weighted average diluted shares outstanding | 274,750 | 373,208 |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 3,726 | 765 |
Stockholders' Equity Rollforward (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
|
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||
Balance at beginning of period | $ 752,914 | $ 1,717,576 |
Comprehensive Income | 38,484 | 7,443 |
Cash dividends | (16,214) | (20,199) |
Repurchases of common stock | (48,268) | (36,963) |
Share-based compensation | 5,081 | 5,068 |
Exercises of stock options | 3,216 | 16,533 |
Vesting of restricted shares | (2,378) | (502) |
Tax benefit from share-based compensation | 708 | 26,858 |
Other | 46 | 46 |
Balance at end of period | $ 733,589 | $ 1,715,860 |
Transactions with Related Parties (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
Mar. 29, 2015 |
|
QSCC [Member] | General and Administrative Expense [Member] | ||
Related Party Transaction [Line Items] | ||
Related Party Transaction, Other Revenues from Transactions with Related Party | $ 46 | $ 46 |
TimWen [Member] | ||
Related Party Transaction [Line Items] | ||
Related Party Transaction, Expenses from Transactions with Related Party | 2,636 | 2,628 |
TimWen [Member] | General and Administrative Expense [Member] | ||
Related Party Transaction [Line Items] | ||
Related Party Transaction, Other Revenues from Transactions with Related Party | $ 50 | $ 56 |
Guarantees and Other Commitments and Contingencies Franchisee Image Activation Programs (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 03, 2016 |
May. 11, 2016 |
|
Guarantor Obligations [Line Items] | ||
Letters of Credit Outstanding, Amount | $ 39,996 | |
Minimum [Member] | ||
Guarantor Obligations [Line Items] | ||
Years of reduction in royalty payment attributable to incentive program | 1 year | |
Maximum [Member] | ||
Guarantor Obligations [Line Items] | ||
Years of reduction in royalty payment attributable to incentive program | 2 years | |
Standby Letters of Credit [Member] | ||
Guarantor Obligations [Line Items] | ||
Letters of Credit Outstanding, Amount | $ 6,000 | |
Amended Letters of Credit, Amount | $ 1,000 | |
Subsequent Event [Member] | Standby Letters of Credit [Member] | ||
Guarantor Obligations [Line Items] | ||
Letters of Credit Outstanding, Amount | $ 1,000 | |
Letters of Credit, Terminated | $ 6,000 |
Guarantees and Other Commitments and Contingencies Lease Guarantees (Details) $ in Thousands |
Apr. 03, 2016
USD ($)
|
---|---|
Property Lease Guarantee [Member] | |
Guarantor Obligations [Line Items] | |
Guarantor Obligations, Maximum Exposure, Undiscounted | $ 36,215 |
Indirect Guarantee of Indebtedness [Member] | |
Guarantor Obligations [Line Items] | |
Guarantor Obligations, Maximum Exposure, Undiscounted | $ 1,553 |
Guarantees and Other Commitments and Contingencies Letters of Credit (Details) $ in Thousands |
Apr. 03, 2016
USD ($)
|
---|---|
Guarantor Obligations [Line Items] | |
Letters of Credit Outstanding, Amount | $ 39,996 |
Collateral Supporting Letters of Credit [Member] | |
Guarantor Obligations [Line Items] | |
Letters of Credit Outstanding, Amount | $ 12,165 |
Legal and Environmental Matters (Details) $ in Thousands |
Apr. 03, 2016
USD ($)
|
---|---|
Loss Contingency [Abstract] | |
Accruals for legal and environmental matters | $ 4,441 |
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