Wendy's 2014 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”). The principal 100% owned subsidiary of Wendy’s Restaurants is
Wendy’s International, LLC (“Wendy’s”) and its subsidiaries (formerly known as Wendy’s International, Inc.).
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.
The Company’s fiscal reporting periods consist of 52 or 53 weeks ending on the Sunday closest to
December 31 and are referred to herein as (1) “the year ended December 28, 2014” or “2014,” (2) “the year ended
December 29, 2013” or “2013,” and (3) “the year ended December 30, 2012” or “2012,” all of which consisted of
52 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods.
Executive Overview
Our Continuing Business
As of December 28, 2014, the Wendy’s restaurant system was comprised of 6,515 restaurants, of which 957
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 unemployment, general
economic trends, intense price competition, commodity costs and weather. Increased commodity costs negatively
affected our cost of food during 2014, 2013 and 2012 as well as our cost of paper during 2012.
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 2014 include: (1) $1,608.5 million of sales at company-owned restaurants,
(2) $61.8 million of sales from our company-owned bakery and (3) $308.7 million of royalty revenue, $68.8 million
of rental income and $13.3 million of franchise fees from franchisees. In 2014, substantially all of our Wendy’s
royalty agreements provided for royalties of 4.0% of franchise revenues.
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