Wendy's 2015 Annual Report Download - page 43

franchisee-to-franchisee restaurant transfers under our system optimization initiative. In addition, royalty revenue
increased due to a net increase in the number of franchise restaurants in operation during 2015 compared to 2014.
Royalty revenue was also positively impacted by a 3.2% increase in franchise same-restaurant sales, which excludes
sales during the 53rd week of fiscal 2015. We believe franchise same-restaurant sales were higher than
company-owned same-restaurant sales during 2015 due to higher price increases. Royalty revenues also include
approximately $6.0 million for the 53rd week of 2015.
The increase in franchise revenues during 2014 was primarily due to increases in rental income and initial
franchise fees resulting primarily from sales of company-owned restaurants to franchisees under our system
optimization initiative. In addition, royalty revenue increased due to a net increase in the number of franchise
restaurants in operation during 2014 compared to 2013. Royalty revenue was also positively impacted by a 1.3%
increase in franchise same-restaurant sales. We believe franchise same-restaurant sales were lower than
company-owned same-restaurant sales due to fewer franchise Image Activation restaurants in operation during 2014.
Cost of Sales, as a Percent of Sales
Change
2015 2014
Food and paper ................................................ (0.7)% (0.1)%
Restaurant labor ............................................... (0.8)% (0.7)%
Occupancy, advertising and other operating costs ...................... (0.4)% 0.3%
(1.9)% (0.5)%
The decrease in cost of sales, as a percent of sales, during 2015 was due to benefits from strategic price increases
on our menu items and higher sales at our Image Activation restaurants. As a percent of sales, commodity costs were
flat compared with prior year, as higher beef prices were offset by lower prices of other commodities. The impact of
the 53rd week in 2015 on cost of sales, as a percent of sales, was not material.
The decrease in cost of sales, as a percent of sales, during 2014 was due to benefits from strategic price increases
on our menu items and changes in the composition of our sales. As a percent of sales, this decrease in cost was
partially offset by increased commodity costs, primarily from higher beef prices and the impact of a decrease in
customer count on certain fixed operating costs.
General and Administrative
Change
2015 2014
Share-based compensation ....................................... $(6.3) $ 5.8
Franchise incentives ............................................ (4.6) (4.9)
Employee compensation and related expenses ........................ (4.3) (14.9)
Incentive compensation ......................................... 13.5 (13.9)
Severance expense ............................................. 0.4 (3.8)
Other, net ................................................... (2.8) 0.8
$ (4.1) $(30.9)
The decrease in general and administrative expenses during 2015 was primarily due to (1) a decrease in
share-based compensation primarily as a result of awards granted and timing of expense recognition, (2) a decrease in
franchise incentives due to the 2015 Image Activation incentive program solely including royalty reductions as
compared to our 2014 program which also included a cash incentive and (3) a decrease in employee compensation
and related expenses primarily as a result of the realignment of our U.S. field operations and Restaurant Support
Center in Dublin, Ohio as part of our G&A realignment plan to reduce general and administrative expenses. These
decreases were partially offset by higher incentive compensation accruals due to stronger operating performance as
compared to plan in 2015 versus 2014.
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