Wendy's 2013 Annual Report Download - page 34

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of
The Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company,” “we,” “us,” or
“our”) should be read in conjunction with the consolidated financial statements and the related notes that appear
elsewhere within this report. Certain statements we make under this Item 7 constitute “forward-looking statements”
under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking
Statements and Projections” in “Part I” preceding “Item 1—Business.” You should consider our forward-looking
statements in light of the risks discussed under the heading “Risk Factors” in Item 1A above, as well as our
consolidated financial statements, related notes and other financial information appearing elsewhere in this report and
our other filings with the Securities and Exchange Commission.
The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s
Restaurants, LLC (“Wendy’s Restaurants”). On July 4, 2011, Wendy’s Restaurants completed the sale of 100% of the
common stock of its then wholly-owned subsidiary, Arby’s Restaurant Group, Inc. (“Arby’s”). See “Executive
Overview—Sale of Arby’s” for more information on the sale of Arby’s. Arby’s operating results for all periods
presented through its July 4, 2011 date of sale are classified as discontinued operations in the accompanying
consolidated statements of operations. After this sale, the principal 100% owned subsidiary of Wendy’s Restaurants
was Wendy’s International, Inc. and its subsidiaries. After December 29, 2013, Wendy’s International, Inc. converted
to a limited liability company, Wendy’s International, LLC. As used herein, “Wendy’s” refers to Wendy’s
International, Inc. for periods through December 29, 2013 and to Wendy’s International, LLC thereafter. Wendy’s
franchises and operates company-owned Wendy’s®quick-service restaurants specializing in hamburger sandwiches
throughout North America (defined as the United States of America (the “U.S.”) and Canada). Wendy’s also has
franchised restaurants in 27 foreign countries and U.S. territories other than North America.
The Company manages and internally reports its business geographically. The operation and franchising of
Wendy’s restaurants in North America 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. The results of operations discussed below may not necessarily be indicative of future results.
Executive Overview
Our Continuing Business
As of December 29, 2013, the Wendy’s restaurant system was comprised of 6,557 restaurants, of which 1,183
were owned and operated by the Company. Our company-owned restaurants are located principally in the U.S. and
to a lesser extent in Canada.
Wendy’s operating results are impacted by a number of external factors, including high unemployment,
negative general economic trends and intense price competition, as well as increased commodity costs. Increased
commodity costs negatively affected our cost of food during 2013, 2012 and 2011 as well as our cost of paper during
2012 and 2011.
Wendy’s long-term growth opportunities will be comprised of a combination of brand relevance and economic
relevance. Our brand relevance includes (1) North America same-restaurant sales growth through continuing core
menu improvement and product innovation, (2) investing in our Image Activation program, which includes
innovative exterior and interior restaurant designs for our new and reimaged restaurants and focused execution of
operational excellence, (3) growth in new restaurants, including global growth and (4) increased restaurant utilization
in various dayparts and brand access utilizing mobile technology. Economic relevance includes building shareholder
value through financial management strategies and our restaurant ownership optimization program which includes
our system optimization initiative.
Wendy’s revenues for 2013 include: (1) $2,102.9 million of sales at company-owned restaurants, (2) $62.9 million
of sales from our company-owned bakery, (3) $285.9 million of royalty revenue from franchisees and (4) $35.7 million
of other franchise-related revenue and other revenues. Substantially all of our Wendy’s royalty agreements provided for
royalties of 4.0% of franchise revenues for the year ended December 29, 2013.
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