Wendy's 2012 Annual Report Download - page 42

Cost of Sales
Change
2012 2011
Food and paper ................................... 0.1% 0.9%
Restaurant labor .................................. 0.2% 0.1%
Occupancy, advertising and other operating costs ......... (0.3)% (0.2)%
0.0% 0.8%
Cost of sales, as a percent of sales, remained flat in 2012 as compared to 2011. As a percent of sales, during
2012 we experienced a 1.0% increase in commodity costs and increased labor costs partially resulting from operating
initiatives, including breakfast and Image Activation. As a percent of sales, these increases were offset by the effect of
strategic price increases on our menu items, along with a decrease in breakfast advertising expenses.
As a percent of sales, the increase in food and paper costs in 2011 was primarily due to a 1.4% increase in
commodity costs partially offset by the 0.8% effect of strategic price increases taken on certain menu items. The
decrease in occupancy, advertising and other operating expenses as a percent of sales in 2011 was primarily due to a
0.4% decrease in insurance costs partially offset by a 0.2% increase in advertising expenses associated with the
expansion of our breakfast daypart in additional markets during the first half of 2011.
General and Administrative
Change
2012 2011
Professional services .................................................... $(8.2) $ 7.1
Transition service agreement ............................................. 6.8 (6.8)
Franchise incentives .................................................... 2.4 (6.8)
SSG co-op formation & funding .......................................... 2.3 (7.4)
Integration costs ....................................................... — (5.5)
Other, net ........................................................... (7.9) 0.3
$(4.6) $(19.1)
The decrease in general and administrative expenses in 2012 was primarily due to a decrease in professional
services resulting from a decrease in contract services for information technology and tax related projects. This
decrease was partially offset by (1) the reimbursement of costs for continuing corporate and shared services incurred in
the second half of 2011 in connection with the transition service agreement related to the sale of Arby’s (these services
were completed during the fourth quarter of 2011), (2) the effect of the various franchise incentive programs in 2012
compared to 2011 and (3) the reversal of the accrual for the unpaid SSG funding commitment of $2.3 million during
the first quarter of 2011.
The decrease in general and administrative expenses in 2011 was primarily due to (1) expenses related to the
formation of SSG recorded in the first quarter of 2010 combined with the reversal of the accrual for the unpaid SSG
funding commitment during the first quarter of 2011, (2) the effect of the various franchise incentive programs in
2011 compared to 2010, (3) reimbursement of costs incurred in the second half of 2011 in connection with the
transition services agreement related to the sale of Arby’s; similar costs were incurred in the first half of 2011 and in
2010, which were not then subject to reimbursement and (4) the completion of the integration efforts in early 2010
related to the merger with Wendy’s. These decreases were partially offset by (1) reductions in legal reserves in 2010
for matters accrued in prior years combined with an increase in legal reserves in 2011 and (2) an increase in
professional fees associated primarily with information technology and tax related projects.
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