Wendy's 2014 Annual Report Download - page 48

Download and view the complete annual report

Please find page 48 of the 2014 Wendy's annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

Outlook for 2015
Sales
We expect that sales will be favorably impacted primarily by improving our North America business through
continuing core menu improvement, product innovation and focused execution of operational excellence and brand
positioning. We will support these growth opportunities through our Image Activation program which includes
approximately 20 new restaurants and the reimaging of approximately 150 restaurants during 2015. The impact of
Wendy’s restaurants sold in 2014 and expected to be sold under our ongoing system optimization initiative in 2015
will continue to have a negative impact on sales.
Franchise Revenues
We expect that the sales trends for franchised restaurants will continue to be generally impacted by factors
described above under “Sales” related to the improvements in the North America business. The impact of franchisees
purchasing company-owned restaurants under our system optimization initiative will continue to result in increased
franchise royalties and rental income.
Cost of Sales
We expect cost of sales, as a percent of sales, will be favorably impacted by the same factors described above for
sales. However, we expect cost of sales, as a percentage of sales, to be negatively impacted by an increase in commodity
costs, driven primarily by higher beef costs.
Depreciation and Amortization
We expect our depreciation and amortization will increase slightly in 2015 primarily as a result of technology
investments and increases in accelerated depreciation and depreciation for new and reimaged restaurants resulting
from our Image Activation program. These increases are expected to be substantially offset by a decrease in
depreciation and amortization from reducing our mix of company-owned restaurants to franchise restaurants through
our system optimization initiative.
Interest Expense
We expect that our interest expense will increase in 2015 due to anticipated increases in interest rates and the
impact of our cash flow hedges which become effective on June 30, 2015.
Liquidity and Capital Resources
The tables included throughout Liquidity and Capital Resources present dollars in millions.
Sources and Uses of Cash
2014 Compared with 2013
Cash provided by operating activities decreased $75.1 million during 2014 as compared to 2013, primarily due
to changes in our net income and non-cash items as well as the following:
• a $47.6 million unfavorable impact in accrued expenses and other current liabilities for the comparable
periods. This unfavorable impact was primarily due to (1) a decrease in the incentive compensation accrual
for the 2014 fiscal year due to weaker operating performance as compared to plan in 2014 versus 2013, as
well as an increase in payments for the 2013 fiscal year, (2) an increase in income tax payments, net of
refunds and (3) an increase in franchise incentive payments and a decrease in the accrual for our Image
Activation franchise incentive programs. These unfavorable changes were partially offset by a decrease in
interest payments primarily resulting from the redemption of the 6.20% Senior Notes in October 2013 and
lower effective interest rates on our term loans due to the effect of the Restated Credit Agreement in
May 2013.
44