Wendy's 2012 Annual Report Download - page 35

During 2012, we received a $4.6 million dividend from our investment in Arby’s which was included in
“Investment income, net.”
Our Continuing Business
As of December 30, 2012, the Wendy’s restaurant system was comprised of 6,560 restaurants, of which
1,427 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 have been impacted by a number of external factors, including high unemployment,
negative general economic trends and intense price competition, as well as increased commodity costs in 2012 and
2011. Increased commodity costs negatively affected our cost of food and paper in those years.
Wendy’s long-term growth opportunities include improving our North America business by elevating the total
customer experience through continuing core menu improvement, step-change product innovation and focused
execution of operational excellence and brand positioning, which will be supported by (1) investing in our Image
Activation program, which includes innovative exterior and interior restaurant designs for our new and reimaged
restaurants, (2) employing financial strategies to improve our net income and earnings per share and (3) building the
brand worldwide.
Wendy’s revenues for 2012 include: (1) $2,129.3 million of sales at company-owned restaurants,
(2) $69.0 million of sales from our company-owned bakery, (3) $282.5 million of royalty income from franchisees
and (4) $24.4 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 30, 2012.
Key Business Measures
We track our results of operations and manage our business using the following key business measures:
• Same-Store Sales
Since the first quarter of 2012, we have been reporting Wendy’s same-store 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 (the “New Method”). Prior thereto, the calculation of same-store
sales commenced after a restaurant had been open for at least 15 continuous months and as of the
beginning of the previous fiscal year (the “Old Method”). The tables summarizing the results of operations
below provide the same-store sales percent change using the New Method, as well as the Old Method. The
New Method is consistent with the metric used by our management for internal reporting and analysis.
Same-store sales exclude the impact of currency translation.
• 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.
Credit Agreement
As further described in “Liquidity and Capital Resources—2012 Credit Agreement” below, on May 15, 2012,
Wendy’s entered into a Credit Agreement, as amended (the “Credit Agreement”), which includes a senior secured
term loan facility (the “Term Loan”) of $1,125.0 million and a senior secured revolving credit facility of
$200.0 million. The Company recognized losses on the early extinguishment of debt of $75.1 million for the year
ended December 30, 2012 related to the repayment of debt from the proceeds of the Term Loan draws on
July 16, 2012 and May 15, 2012. The Credit Agreement replaced the $650.0 million credit agreement and the
amended senior secured term loan (the “2010 Term Loan”) executed in 2010.
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