Wendy's 2013 Annual Report Download - page 35

Key Business Measures
We track our results of operations and manage our business using the following key business measures:
• Same-Restaurant Sales
We report Wendy’s same-restaurant sales commencing after new restaurants have been open for at least 15
continuous months and after remodeled restaurants have been reopened for three continuous months.
This methodology is consistent with the metric used by our management for internal reporting and
analysis. The table summarizing the results of operations below provides the same-restaurant sales percent
changes. Same-restaurant sales exclude the impact of currency translation. In prior years, we referred to
what we now call “same-restaurant sales” as “same-store sales.”
• Restaurant Margin
We define restaurant margin as sales from company-owned restaurants less cost of sales divided by sales
from company-owned restaurants. Cost of sales includes food and paper, restaurant labor and occupancy,
advertising and other operating costs. Sales and cost of sales exclude amounts related to bakery and other.
Restaurant margin is influenced by factors such as restaurant openings and closures, price increases, the
effectiveness of our advertising and marketing initiatives, featured products, product mix, the level of our
fixed and semi-variable costs and fluctuations in food and labor costs.
System Optimization Initiative
In July 2013, the Company announced a system optimization initiative, as part of its brand transformation,
which includes a plan to sell approximately 425 company-owned restaurants to franchisees by the end of the first
quarter of 2014. This initiative also includes the consolidation of regional and divisional territories which has been
completed as of the beginning of the 2014 fiscal year. The Company completed the sale of 244 restaurants during
2013. Costs incurred related to the system optimization initiative, as well as gains or losses recognized on sales of
restaurants under the system optimization initiative are recorded to “Facilities action charges, net” in our consolidated
statements of operations. During 2013, the Company recognized a net charge of $4.9 million which primarily
included (1) $20.5 million of losses on remeasuring long-lived assets to fair value upon determination that the assets
will be leased and/or subleased to franchisees in connection with the sale or anticipated sale of restaurants (“System
Optimization Remeasurement”), (2) $16.9 million of accelerated amortization of previously acquired franchise rights
in territories being sold, (3) $9.7 million of severance and related employee costs and (4) a $46.7 million net gain on
sales of restaurants. The Company does not anticipate significant changes to the System Optimization
Remeasurement through the completion of the initiative, although such changes could occur if actual future rental
payments differ substantially from estimated payments. The Company’s estimate for costs to be incurred under the
system optimization initiative during 2014 is approximately $8.9 million. The Company cannot reasonably estimate
the gains or losses resulting from future sales of restaurants.
Refinancings of the Credit Agreement and Other Indebtedness
As further described in “Liquidity and Capital Resources—Refinancings of the Credit Agreement and Other
Indebtedness,” below, on May 16, 2013, Wendy’s amended and restated (the “Restated Credit Agreement”) its Credit
Agreement, dated May 15, 2012 (the “Credit Agreement”). The Restated Credit Agreement, among other things,
(1) lowered the interest rate margin and floor applicable to the existing term loan, (2) provided for a partial
refinancing of the existing term loan with a new tranche of a term loan in an aggregate principal of $350.0 million
(“Term A Loans”) and (3) extended the maturity date of the revolving credit facility by one year. Wendy’s recognized
a loss on the early extinguishment of debt of $21.0 million in the second quarter of 2013 in connection with this
refinancing.
Additionally as described below, on September 24, 2013, Wendy’s entered into an amendment (the
“Amendment”) to its Restated Credit Agreement to borrow an aggregate principal amount up to $225.0 million of
additional Term A Loans (“Incremental Term Loans”). Proceeds from the Incremental Term Loans, plus cash on
hand, were used to redeem Wendy’s 6.20% Senior Notes due in 2014 (the “6.20% Senior Notes”). Wendy’s
recognized a loss on the early extinguishment of debt of $7.6 million in the fourth quarter of 2013 in connection with
this redemption.
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