Wendy's 2008 Annual Report Download - page 51

Franchise Revenues
Total franchise revenues, which were generated entirely from franchised restaurants, increased $73.5
million, or 84.4%, to $160.5 million for 2008 from $87.0 million for 2007. The increase was due to the
Wendy’s Merger which added 5,224 franchised restaurants to the Wendy’s/Arby’s restaurant system and
generated $74.6 million in additional franchise revenue during the 2008 fourth quarter. Excluding Wendy’s,
franchise revenues decreased $1.1 million, which is primarily attributable to the effect of the California
Restaurant Acquisition whereby previously franchised restaurants are now Company-owned and the 3.6%
decrease in same-store sales for Arby’s franchised restaurants. Same-store sales of our franchise restaurants
decreased primarily due to the same negative factors discussed above under “Sales,” but the use of incremental
national media advertising initiatives in the 2008 first and third quarters had a greater positive effect on
franchised restaurants than Company-owned restaurants due to the increased exposure in many markets in
which our franchisees operate.
Asset Management and Related Fees
As a result of the Deerfield Sale on December 21, 2007, there were no asset management and related fees
in 2008.
Restaurant Margin
Our restaurant margin decreased to 14.8% for 2008 from 19.7% for 2007. We define restaurant margin
as sales from Company-owned restaurants (excluding sales from bakery items and kid’s meal promotion items
to franchisees) less cost of sales, divided by sales. In addition to the fourth quarter impact of lower average
restaurant margins of 11.7% generated by Wendy’s, total restaurant margin was negatively impacted by the
decline in Arby’s margin to 16.1% from 19.7% last year, stemming from (1) a decline in Arby’s same-store
sales which negatively impacted its operational leverage of fixed and semi-variable costs as a percentage of sales,
(2) higher utilities and fuel costs under new distribution contracts that became effective in the third quarter of
2007, (3) increased advertising which was anticipated to generate additional customer traffic but did not, (4)
an increase in labor costs primarily due to the effect on payroll and related costs from Federal and state
minimum wage increases in 2008 and (5) higher food and paper costs primarily due to fluctuations in the cost
of beef and other commodities..
Cost of Services
As a result of the Deerfield Sale, we did not incur any cost of services in 2008. For 2007, our cost of
services was from the management of CDOs and Funds by Deerfield.
General and Administrative
Our general and administrative expenses increased $43.3 million, or 21.1%, principally due to $79.5
million of Wendy’s general and administrative expenses added during the 2008 fourth quarter as a result of the
Wendy’s Merger, partially offset by $24.8 million of general and administrative expenses incurred in 2007 at
our former asset management segment. Excluding Wendy’s and the former asset management segment, general
and administrative expenses decreased $11.5 million primarily due to (1) a $14.0 million decrease in corporate
general and administrative expenses in 2008 as a result of our Corporate Restructuring which commenced in
2007, (2) a $6.9 million decrease in incentive compensation in 2008 as compared to 2007 and (3) a $2.2
million decrease in relocation costs principally attributable to additional costs in the prior year related to
estimated declines in market value and increased carrying costs for homes we purchased for resale from
relocated employees. These decreases were partially offset by (1) a $4.5 million increase in salaries and wages as
a result of the increase in employees at our corporate and regional offices as well as increases in existing
employee salaries, (2) a $3.5 million increase for the full year effect of fees for professional and strategic services
provided to us under a two-year transition services agreement (the “Services Agreement”) entered into with the
Management Company commencing in June 2007 as part of the Corporate Restructuring and (3) $2.3 million
of professional fees related to Wendy’s Merger integration activities.
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