Edgar Filing: WENDY'S/ARBY'S GROUP, INC.

form10q_11-09.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2009

( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission file number: 1-2207

WENDY’S/ARBY’S GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		38-0471180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1155 Perimeter Center West, Atlanta, GA		30338
(Address of principal executive offices)		(Zip Code)

	(678) 514-4100
	(Registrant’s telephone number, including area code)


	(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ X ] Non-accelerated filer [ ] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

There were 463,003,194 shares of the registrant’s Common Stock outstanding as of October 30, 2009.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

	September 27,			December 28,
	2009			2008
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	644,646		$	90,090
Restricted cash equivalents		986			20,792
Accounts and notes receivable		86,870			97,258
Inventories		21,991			24,646
Prepaid expenses and other current assets		38,911			28,990
Deferred income tax benefit		45,333			37,923
Advertising fund restricted assets		81,622			81,139
Total current assets		920,359			380,838
Restricted cash equivalents		6,732			34,032
Notes receivable		34,080			34,608
Investments		110,121			133,052
Properties		1,667,384			1,770,372
Goodwill		878,322			853,775
Other intangible assets		1,398,530			1,411,473
Deferred costs and other assets		52,778			27,470
Total assets	$	5,068,306		$	4,645,620

LIABILITIES AND EQUITY

Current liabilities:
Current portion of long-term debt	$	17,489		$	30,426
Accounts payable		88,038			139,340
Accrued expenses and other current liabilities		267,766			247,334
Advertising fund restricted liabilities		81,622			81,139
Liabilities related to discontinued operations		3,539			4,250
Total current liabilities		458,454			502,489
Long-term debt		1,507,857			1,081,151
Deferred income		29,367			16,859
Deferred income taxes		496,237			475,243
Other liabilities		176,885			186,433
Commitments and contingencies
Equity:
Common stock		47,148			47,042
Additional paid-in capital		2,757,197			2,753,141
Accumulated deficit		(359,983	)		(357,541	)
Common stock held in treasury		(31,946	)		(15,944	)
Accumulated other comprehensive loss		(12,910	)		(43,253	)
		2,399,506			2,383,445
Total liabilities and equity	$	5,068,306		$	4,645,620

See accompanying notes to unaudited condensed consolidated financial statements.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)

	Three Months Ended						Nine Months Ended
	September 27,			September 28,			September 27,			September 28,
	2009			2008			2009			2008
	(Unaudited)
Revenues:
Sales	$	806,038		$	287,641		$	2,395,476		$	860,560
Franchise revenues		97,183			22,730			284,416			65,679
		903,221			310,371			2,679,892			926,239
Costs and expenses:
Cost of sales		684,071			239,880			2,046,475			718,317
General and administrative		97,909			36,075			320,533			123,108
Depreciation and amortization		47,020			16,497			143,369			48,766
Impairment of long-lived assets		15,528			14,204			31,108			15,621
Facilities relocation and corporate restructuring		1,725			(82	)		8,899			812
Other operating expense (income), net		146			-			2,245			(487	)
		846,399			306,574			2,552,629			906,137
Operating profit		56,822			3,797			127,263			20,102
Interest expense		(36,457	)		(13,585	)		(89,671	)		(41,020	)
Investment income (expense), net		737			6,724			(3,850	)		3,189
Other than temporary losses on investments		-			(8,100	)		(3,916	)		(79,686	)
Other income (expense), net		1,319			736			303			(2,619	)
Income (loss) from continuing operations before income taxes		22,421			(10,428	)		30,129			(100,034	)
(Provision for) benefit from income taxes		(8,155	)		(2,938	)		(11,895	)		12,292
Income (loss) from continuing operations		14,266			(13,366	)		18,234			(87,742	)
Income from discontinued operations, net of income taxes		422			1,219			422			1,219
Net income (loss)	$	14,688		$	(12,147	)	$	18,656		$	(86,523	)

Basic and diluted income (loss) per share:
Continuing operations:
Common stock (A)	$	.03		$	(.14	)	$	.04		$	(.95	)
Class B common stock		N/A			(.14	)		N/A			(.95	)
Discontinued operations:
Common stock (A)	$	-		$	.01		$	-		$	.01
Class B common stock		N/A			.01			N/A			.01
Net income (loss):
Common stock (A)	$	.03		$	(.13	)	$	.04		$	(.94	)
Class B common stock		N/A			(.13	)		N/A			(.94	)

Dividends declared per share:
Common stock (A)	$	.015		$	.08		$	.045		$	.24
Class B common stock		N/A			.08			N/A			.26

______________

(A)

In connection with the May 28, 2009 amendment and restatement of our Certificate of Incorporation, our former Class A common stock is now referred to as Common Stock.

See accompanying notes to unaudited condensed consolidated financial statements.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Nine Months Ended
	September 27,			September 28,
	2009			2008
	(Unaudited)
Cash flows from continuing operating activities:
Net income (loss)	$	18,656		$	(86,523	)
Adjustments to reconcile net income (loss) to net cash provided by continuing operating activities:
Depreciation and amortization		143,369			48,766
Impairment of long-lived assets		31,108			15,621
Write-off and amortization of deferred financing costs		13,915			7,281
Net receipt of deferred vendor incentive		13,016			3,743
Share-based compensation provision		11,654			3,932
Non-cash rent expense		9,907			(139	)
Distributions received from joint venture		7,106			-
Non-cash operating investment adjustments, net (see below)		2,673			78,259
Deferred income tax benefit, net		(300	)		(13,466	)
Income from discontinued operations		(422	)		(1,219	)
Other, net		1,756			2,245
Changes in operating assets and liabilities, net		(1,137	)		(16,044	)
Net cash provided by continuing operating activities		251,301			42,456
Cash flows from continuing investing activities:
Capital expenditures		(65,280	)		(58,401	)
Investment activities, net (see below)		36,756			34,205
Proceeds from dispositions		9,386			690
Cost of Wendy’s Merger		-			(7,543	)
Cost of acquisitions, less cash acquired		(664	)		(9,540	)
Other, net		2,968			(391	)
Net cash used in continuing investing activities		(16,834	)		(40,980	)
Cash flows from continuing financing activities:
Proceeds from long-term debt		556,006			53,668
Repayments of long-term debt		(154,427	)		(89,313	)
Deferred financing costs		(37,976	)		-
Repurchases of common stock		(25,244	)		-
Dividends		(21,088	)		(16,101	)
Other, net		1,685			(1,144	)
Net cash provided by (used in) continuing financing activities		318,956			(52,890	)
Net cash provided by (used in) continuing operations before effect of exchange rate changes on cash		553,423			(51,414	)
Effect of exchange rate changes on cash		1,671			-
Net cash provided by (used in) continuing operations		555,094			(51,414	)
Net cash used in operating activities of discontinued operations		(538	)		(670	)
Net increase (decrease) in cash and cash equivalents		554,556			(52,084	)
Cash and cash equivalents at beginning of period		90,090			78,116
Cash and cash equivalents at end of period	$	644,646		$	26,032

See accompanying notes to unaudited condensed consolidated financial statements.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Nine Months Ended
	September 27,			September 28,
	2009			2008
	(Unaudited)
Detail of cash flows related to investments:
Operating investment adjustments, net:
Other than temporary losses on investments	$	3,916		$	79,686
Other net recognized gains		(1,243	)		(1,427	)
	$	2,673		$	78,259
Investment activities, net:
Proceeds from sales of available-for-sale securities and other investments	$	29,663		$	75,373
Decrease in restricted cash held for investment		26,681			40,454
Payments to cover short positions in securities and cost of available-for-sale securities and other investments purchased		(19,588	)		(81,622	)
	$	36,756		$	34,205
Supplemental disclosures of cash flow information:
Cash paid during the period in continuing operations for:
Interest	$	53,110		$	37,692
Income taxes, net of refunds	$	9,999		$	2,944
Supplemental schedule of non-cash investing and financing activities:
Total capital expenditures	$	70,990		$	66,039
Cash capital expenditures		(65,280	)		(58,401	)
Non-cash capitalized lease and certain sales-leaseback transactions	$	5,710		$	7,638

See accompanying notes to unaudited condensed consolidated financial statements.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s” or “Wendy’s/Arby’s Group” and, together with its subsidiaries, the “Company”, “we”, “us” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and, therefore, do not include all information and footnotes required by GAAP for complete financial statements. In our opinion, however, the Financial Statements contain all adjustments necessary to present fairly our financial position as of September 27, 2009 and results of our operations for the three months and nine months ended September 27, 2009 and September 28, 2008 and our cash flows for the nine months ended September 27, 2009 and September 28, 2008. The results of operations for the three months and nine months ended September 27, 2009 are not necessarily indicative of the results to be expected for the full 2009 fiscal year. These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (the “Form 10-K”). In addition, in preparing the Financial Statements, we have reviewed and considered all significant events occurring subsequent to September 27, 2009 and up until November 5, 2009, the date of the issuance of the Financial Statements.

On September 29, 2008 (the “Closing Date”), we completed the merger (the “Wendy’s Merger”) with Wendy’s International Inc. (“Wendy’s”) and, as such, Wendy’s results of operations have been consolidated in our financial statements since the Closing Date.

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31. All three-month periods presented contain 13 weeks and all nine-month periods presented contain 39 weeks. Because our 2009 fiscal year, ending on January 3, 2010, will contain 53 weeks, our fourth quarter will contain 14 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods.

(2) Acquisitions and Dispositions

Merger with Wendy’s International, Inc.

On September 29, 2008, we completed the Wendy’s Merger. Immediately prior to the Wendy’s Merger, each share of our Class B Common Stock was converted into Class A Common Stock on a one for one basis (the “Conversion”). As a result of the Wendy’s Merger, the accounts of Wendy’s® are included for the three and nine months ended September 27, 2009, but have not been included for the three and nine months ended September 28, 2008.

The total merger consideration of $2,515,521 has been allocated to Wendy’s net tangible and intangible assets acquired and liabilities assumed based on their fair values with the excess recognized as goodwill. During the nine months ended September 27, 2009, the preliminary allocation to goodwill of $845,631 at December 28, 2008 was impacted primarily by changes in the fair values of assets acquired and liabilities assumed and the finalization of the deferred income tax liability related to the Wendy’s Merger as follows:

Goodwill as reported at December 28, 2008	$	845,631
Change in total merger consideration:
Decrease in the value of Wendy’s stock options that have been converted into Wendy’s/Arby’s options		(199	)
Increase in Wendy’s Merger costs		325
Changes to fair values of assets and liabilities and deferred income tax liability related to the merger:
Increase in investments		(683	)
Increase in properties		(2,738	)
Increase in favorable leases		(5,170	)
Decrease in computer software		6
Decrease in accrued expenses and other current liabilities		(3,585	)
Increase in other liabilities		15,196
Increase in unfavorable leases		6,709
Increase in deferred income tax liability		7,143
Goodwill as reported at September 27, 2009	$	862,635

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Other acquisitions

We completed the acquisitions of the operating assets, and assumed liabilities, of 45 Arby’s® franchised restaurants during the nine months ended September 28, 2008. The total then estimated consideration for the acquisitions was $15,807 consisting of (1) $8,890 of cash (before consideration of $45 of cash acquired), (2) the assumption of $6,239 of debt and (3) $678 of related estimated expenses. The aggregate purchase price of $16,294 also included $693 of losses from the settlement of unfavorable franchise rights and a $1,180 gain on the termination of subleases both included in “Other operating expense (income), net” in the accompanying unaudited condensed consolidated statement of operations.

Dispositions

During the nine months ended September 27, 2009, the Company received proceeds from dispositions of $9,386 consisting of $3,384 from the sale of ten Wendy’s units to a franchisee and $6,002 related to other dispositions. These sales resulted in a net loss of $556 which is included in “Depreciation and amortization”.

(3)

Debt

Senior Notes

On June 23, 2009, Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants”), a direct wholly-owned subsidiary of Wendy’s/Arby’s, issued $565,000 principal amount of Senior Notes (the “Senior Notes”). The Senior Notes will mature on July 15, 2016 and accrue interest at 10.00% per annum, payable semi-annually on January 15 and July 15, with the first payment on January 15, 2010. The Senior Notes were issued at 97.533% of the principal amount, representing a yield to maturity of 10.50% and resulting in net proceeds paid to us of $551,061. The $13,939 discount is being accreted and the related charge included in interest expense until the Senior Notes mature. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by certain direct and indirect domestic subsidiaries of Wendy’s/Arby’s Restaurants (collectively, the “Guarantors”).

Wendy’s/Arby’s Restaurants incurred approximately $21,105 in costs related to the issuance of the Senior Notes which are being amortized to interest expense over the Senior Notes’ term utilizing the effective interest method.

An Indenture dated as of June 23, 2009 (the “Indenture”) among Wendy’s/Arby’s Restaurants, the Guarantors and U.S. Bank National Association, as trustee (the “Trustee”), includes certain customary covenants that, subject to a number of important exceptions and qualifications, limit the ability of Wendy’s/Arby’s Restaurants and its restricted subsidiaries to, among other things, incur debt or issue preferred or disqualified stock, pay dividends on equity interests, redeem or repurchase equity interests or prepay or repurchase subordinated debt, make some types of investments and sell assets, incur certain liens, engage in transactions with affiliates (except on an arms-length basis), and consolidate, merge or sell all or substantially all of their assets. The covenants generally do not restrict Wendy’s/Arby’s Group or any of its subsidiaries that are not subsidiaries of Wendy’s/Arby’s Restaurants.

Senior Secured Term Loan

On June 10, 2009, Wendy’s/Arby’s Restaurants entered into an Amendment No. 1 to the amended and restated Arby’s Credit Agreement (as so amended, the “Credit Agreement”) which, among other things (1) permitted the issuance by Wendy’s/Arby’s Restaurants of the Senior Notes described above and the incurrence of debt thereunder, and permitted Wendy’s/Arby’s Restaurants to dividend to Wendy’s/Arby’s the net cash proceeds of the Senior Notes issuance less amounts used to prepay the senior secured term loan under the Credit Agreement and pay accrued interest thereon and certain other payments, (2) modified certain total leverage financial covenants, added certain financial covenants based on senior secured leverage ratios and modified the minimum interest coverage ratio, (3) permitted the prepayment at any time prior to maturity of certain senior notes of Wendy’s and eliminated certain incremental debt baskets in the covenant prohibiting the incurrence of

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

additional indebtedness and (4) modified the interest margins to provide that the margins will fluctuate based on Wendy’s/Arby’s Restaurants’ corporate credit rating. Wendy’s/Arby’s Restaurants incurred approximately $3,107 in costs related to Amendment No. 1.

As amended, the term loan under the Credit Agreement and amounts borrowed under the revolving credit facility under the Credit Agreement bear interest at our option at either (i) the Eurodollar Base Rate (as defined in the Credit Agreement), as adjusted pursuant to applicable regulations (but not less than 2.75%), plus an interest rate margin of 4.00%, 4.50%, 5.00% or 6.00% per annum, depending on Wendy’s/Arby’s Restaurants’ corporate credit rating, or (ii) the Base Rate (as defined in the Credit Agreement), which is the higher of the interest rate announced by the administrative agent for the Credit Agreement as its base rate and the Federal funds rate plus 0.50% (but not less that 3.75%), in either case plus an interest rate margin of 3.00%, 3.50%, 4.00% or 5.00% per annum, depending on Wendy’s/Arby’s Restaurants’ corporate credit rating. Based on Wendy’s/Arby’s Restaurants’ corporate credit rating at the effective date of Amendment No. 1 and as of September 27, 2009, the applicable interest rate margins available to us were 4.50% for Eurodollar Base Rate borrowings and 3.50% for Base Rate borrowings. Since the effective date of Amendment No. 1 and as of September 27, 2009, we have elected to use the Eurodollar Base Rate which resulted in a rate of 7.25% for the 2009 third quarter.

Concurrent with the closing of the issuance of the Senior Notes, we prepaid the term loan under the Credit Agreement in an aggregate principal amount of $132,500 and accrued interest thereon.

Derivatives

During the third quarter of 2009, we entered into several interest rate swap agreements (the “Interest Rate Swaps”) with notional amounts totaling $361,000 that swap the fixed rate interest rates on our 6.20% and 6.25% Wendy’s Senior Notes for floating rates. The Company’s primary objective for entering into derivative instruments is to manage its exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.

The Interest Rate Swaps are accounted for as fair value hedges and qualify for the short-cut method under the applicable guidance. At September 27, 2009, the fair value of our Interest Rate Swaps was $2,765 and has been included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the 6.20% and 6.25% Wendy’s Senior Notes in the accompanying balance sheet.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(4) Fair Value Measurement of Financial Assets and Liabilities

The carrying amounts and estimated fair values of the Company’s financial assets and liabilities were as follows:

	September 27, 2009
	Carrying Amount		Fair Value

Financial assets:
Cash and cash equivalents (a)	$	644,646	$	644,646
Restricted cash equivalents (a):
Current		986		986
Non-current		6,732		6,732
Short-term investments (b)		224		224
Deerfield Capital Corp. (“DFR”) notes receivable (c)		25,607		26,043
Non-current cost investments for which it is:
Practicable to estimate fair value (d)		10,097		11,155
Not practicable to estimate fair value (e)		645
Interest Rate Swaps (f)		2,765		2,765
Financial liabilities:
Long-term debt, including current portion:
10.00% Senior Notes (b)		551,413		597,770
Senior secured term loan, weighted average effective interest of 7.25% (b)		252,805		254,067
6.20% senior notes (b)		204,455		220,500
6.25% senior notes (b)		192,482		198,400
Sale-leaseback obligations (g)		125,720		121,258
Capitalized lease obligations (g)		91,544		87,867
7% Debentures (b)		79,793		72,500
6.54% secured bank term loan (g)		19,126		18,735
Notes payable, weighted average interest of 7.27% (g)		4,402		4,367
5% convertible notes (h)		2,100		2,045
Other		1,506		1,482
Total long-term debt, including current portion	$	1,525,346	$	1,578,991
Guarantees of:
Lease obligations for Arby’s restaurants not operated by the Company (i)		398		398
Wendy’s franchisee loans obligations (j)		663		663

________________________

(a)	The carrying amounts approximated fair value due to the short-term maturities of the cash equivalents or restricted cash equivalents.

(b)	The fair values are based on quoted market prices. (Level 1 inputs)

(c)	The fair value of the DFR Notes received in connection with the Deerfield Sale was based on the present value of the probability weighted average of expected cash flows of the DFR Notes.

(d)

These consist of investments in certain non-current cost investments. The fair values of these investments, other than Jurlique International Pty Ltd., an Australian skin and beauty products company not publicly traded (“Jurlique”), were based entirely on statements of account received from investment managers or investees which are principally based on quoted market or broker/dealer prices. To the extent that some of these investments, including the underlying investments in investment limited partnerships, do not have available quoted market or broker/dealer prices, the Company relies on valuations performed by the investment managers or investees in valuing those investments or third-party appraisals.

(e)	It was not practicable to estimate the fair value of this cost investment because the investment is non-marketable.

(f)	The fair values were based on information provided by the bank counterparties that is model-driven and whose inputs are observable or whose significant value drivers are observable. (Level 2 inputs)

(g)	The fair values were determined by discounting the future scheduled principal payments using an interest rate assuming the same original issuance spread over a current Treasury bond yield for securities with similar durations.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(h)	The fair values were based on broker/dealer prices since quoted ask prices close to our fiscal quarter end date were not available for the remaining convertible notes.

(i)	The fair value was assumed to reasonably approximate the carrying amount since the carrying amount represents the fair value as of the acquisition of RTM Restaurant Group less subsequent amortization.

(j)

Wendy’s provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility arrangements for new store development and equipment financing. Wendy’s has accrued a liability for the fair value of these guarantees, the calculation for which was based upon a weighed average risk percentage established at the inception of each program.

The carrying amounts of current accounts and notes receivable and non-current notes receivable (excluding the DFR Notes described above) approximated fair value due to the related allowance for doubtful accounts and notes receivable. The carrying amounts of accounts payable and accrued expenses and advertising fund restricted assets and liabilities approximated fair value due to the short-term maturities of those items.

(5) Impairment of Long-lived Assets

	Three Months Ended				Nine Months Ended
	September 27,		September 28,		September 27,		September 28,
	2009		2008		2009		2008
Arby’s restaurant segment:
Impairment of Company-owned restaurants:
Properties	$	13,923	$	4,053	$	25,719	$	5,207
Intangible assets		1,319		528		2,257		791
		15,242		4,581		27,976		5,998

Wendy’s restaurant segment:
Impairment of surplus properties:		286		-		956		-

Corporate		-		9,623		2,176		9,623
Total impairment of long-lived assets	$	15,528	$	14,204	$	31,108	$	15,621

The Arby’s restaurant segment impairment losses reflect (1) the deterioration in operating performance of certain restaurants and (2) additional charges for restaurants impaired in a prior year. The Wendy’s restaurant segment impairment losses reflect write-downs in the carrying value of surplus properties and properties held for sale.

The Corporate impairment loss reflects the reduction of our carrying value of one of our corporate aircraft to its net realizable value based on the sale of this aircraft in July 2009.

Impairment losses represented the excess of the carrying value over the fair value of the affected assets and are included in “Impairment of long-lived assets.” The fair values of impaired assets discussed above for the Arby’s restaurants segment were estimated based upon the present values of the anticipated cash flows associated with each asset (a Level 3 estimate). The fair values of the impaired assets (a Level 3 estimate) discussed above for the Wendy’s restaurants segment were estimated based upon their expected realizable value, which reflect market declines in the areas where the properties are located.

(6) Facilities Relocation and Corporate Restructuring

The facilities relocation and corporate restructuring charges in our restaurant segment for the nine months ended September 27, 2009 of $8,899 are primarily related to severance costs associated with the Wendy’s Merger. For the remainder of 2009, we expect to incur additional facilities relocation and corporate restructuring charges of $1,349 related to additional severance costs from the Wendy’s Merger.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

An analysis of activity in the facilities relocation and corporate restructuring accrual during the nine months ended September 27, 2009 is as follows:

	Nine Months Ended
	September 27, 2009
	Balance December 28,								Balance September 27,		Total Expected to be		Total Incurred
	2008		Provision			Payments			2009		Incurred		to Date
Wendy’s restaurant segment:
Cash obligations:
Severance costs	$	3,101	$	8,971		$	(6,215	)	$	5,857	$	13,421	$	12,072
Total Wendy’s restaurant segment		3,101		8,971			(6,215	)		5,857		13,421		12,072

Arby’s restaurant segment:
Cash obligations:
Employee relocation costs		72		(72	)		-			-		4,579		4,579
Other		-		-			-			-		7,471		7,471
		72		(72	)		-			-		12,050		12,050
Non-cash charges		-		-			-			-		719		719
Total Arby’s restaurant segment		72		(72	)		-			-		12,769		12,769

Corporate:
Cash obligations:
Severance and retention incentive compensation		962		-			(348	)		614		84,622		84,622
Non-cash charges		-		-			-			-		835		835
Total corporate		962		-			(348	)		614		85,457		85,457
	$	4,135	$	8,899		$	(6,563	)	$	6,471	$	111,647	$	110,298

(7) Investment in Joint Venture with Tim Hortons Inc.

Wendy’s is a partner in a Canadian restaurant real estate joint venture (“TimWen”) with Tim Hortons Inc. Wendy’s 50% share of the joint venture is accounted for using the Equity Method. Our equity in earnings from TimWen is included in “Other operating expense (income), net”.

Presented below is a summary of components related to our investment in TimWen included in our Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Operations as of and for the nine months ended September 27, 2009.


Balance at December 28, 2008	$	89,771

Equity in earnings for the nine months ended September 27, 2009		8,289
Amortization of purchase price adjustments		(2,031	)
		6,258		(a)

Distributions		(7,106	)
Currency translation adjustment included in “Comprehensive income”		10,457
Balance at September 27, 2009	$	99,380		(b)

____________________________________

(a)

Equity in earnings for the nine months ended September 27, 2009 is included in “Other operating expense (income), net”.

(b)

Included in “Investments”.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Presented below is a summary of unaudited financial information of TimWen as of and for the nine months ended September 27, 2009 in Canadian dollars. The summary balance sheet financial information does not distinguish between current and long-term assets and liabilities:

	September 27, 2009
	(Canadian)
Balance sheet information:
Properties	C$	84,223
Cash and cash equivalents		8,465
Accounts receivable		5,026
Other		2,168
	C$	99,882

Accounts payable and accrued liabilities	C$	1,277
Other liabilities		10,902
Partners’ equity		87,703
	C$	99,882

	Nine months ended September 27, 2009
	(Canadian)
Income statement information:
Revenues	C$	28,769
Income before income taxes and net income		19,281

(8) Other Than Temporary Losses on Investments

	Three Months Ended				Nine Months Ended
	September 27,		September 28,		September 27,		September 28,
	2009		2008		2009		2008

Cost method investments	$	-	$	3,000	$	3,115	$	6,500
Available-for-sale security		-		5,100		801		5,100
DFR common stock		-		-		-		68,086
	$	-	$	8,100	$	3,916	$	79,686

We analyze our unrealized losses on a quarterly basis. Due to current market conditions and other factors, we recorded other than temporary losses on investments of $3,916 for the first nine months of 2009 (none in the 2009 third quarter) attributable primarily to the decline in fair value of two of our cost investments. Any other than temporary losses on our investments are dependent upon the underlying economics and/or volatility in their value and may or may not recur in future periods. We recorded other than temporary losses in the first nine months of 2008 of $6,500 (including $3,000 in the 2008 third quarter) attributable to a decline in the value of our investment in Jurlique. We recorded other than temporary losses on investments in the 2009 first nine months and the 2008 first nine months of $801 and $5,100, respectively, related to other than temporary losses on available-for-sale securities in an equities account which was managed by a management company formed by our Chairman, who is our former Chief Executive Officer, and our Vice Chairman, who is our former President and Chief Operating Officer, and a director, who is also our former Vice Chairman.

As described in the Form 10-K, based on the decline in the market price of the shares received in connection with the sale of our interest in Deerfield to DFR , we concluded that the fair value and, therefore, the carrying value of the common shares owned by us was impaired. As a result, we recorded an other than temporary loss for the 2008 first quarter of $68,086 (without tax benefit) which included $11,074 of pre-tax unrealized holding losses recorded prior to 2008. As a result of the distribution of the DFR common stock, the income tax loss that resulted from the decline in value of our investment of $68,086 is not deductible for income tax purposes and no income tax benefit was recorded related to this loss.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(9) Income Taxes

The effective tax rate for the three months ended September 27, 2009 was 36.4%. For the three months ended September 28, 2008 we recorded a tax provision of $2,938 despite the loss from continuing operations before income taxes and minority interests. The effective rates vary from the U.S. Federal statutory rate of 35% due to the 2009 and 2008 three month effect of (1) state income taxes, net of Federal income tax benefit, (2) non-deductible expenses, (3) adjustments to our uncertain tax positions, (4) changes in our estimated full year tax rates, and (5) tax credits as well as the effect in the 2009 third quarter of adjustments related to prior year tax matters.

The effective tax rate for the nine months ended September 27, 2009 and the effective tax rate benefit for the nine months ended September 28, 2008 were 39.5% and 12.3%, respectively. These rates vary from the U.S. Federal statutory rate of 35% due to the 2009 adjustments related to prior year tax matters and to the 2009 and 2008 first nine months effect of (1) state income taxes, net of Federal income tax benefit, (2) non-deductible expenses, (3) adjustments to our uncertain tax positions, and (4) tax credits and the effect of the other than temporary loss in 2008 on our investment in the common stock of DFR, which, as a result of its subsequent distribution to shareholders, is not deductible for income tax purposes and no tax benefit was recorded related to this loss.

For the nine months ended September 27, 2009 we increased our unrecognized tax benefits for prior periods by $1,438 for additions and decreased the same by $697 for statute expirations. We increased interest on unrecognized tax benefits by $902. In the nine months ended September 28, 2008, an examination of one state income tax return was settled for fiscal years 1998 through 2000. Since this tax position was settled for less than we previously anticipated, we recorded an income tax benefit of $1,516 and a reduction of related interest expense of $1,071 in the nine months ended September 28, 2008. There were no other significant changes to unrecognized tax benefits in the nine months ended September 27, 2009 and September 28, 2008.

We include unrecognized tax benefits and the related interest and penalties for discontinued operations in “Liabilities related to discontinued operations.” In the three months ended September 28, 2008, examinations by three jurisdictions were favorably settled and we recorded a benefit of $1,251 to “Income from discontinued operations, net of income taxes.” There were no other significant changes in unrecognized tax benefits and the related interest and penalties for discontinued operations during the nine months ended September 27, 2009 and September 28, 2008.

The Internal Revenue Service (the “IRS”) is currently conducting an examination of our U.S. Federal income tax return for the 2009 tax year as part of the Compliance Assurance Program (“CAP”). We participated in the CAP for our tax period ended December 28, 2008 and prior to the Wendy’s Merger, Wendy’s was a participant in the CAP since the beginning of the 2006 tax year. CAP is a voluntary, real-time audit arrangement whereby taxpayers and the IRS address issues throughout the year as they emerge. Any matters relating to Wendy’s U.S. Federal income tax returns for 2007 and prior years have been settled.

Wendy’s/Arby’s U.S. Federal income tax returns for periods ended December 31, 2006 to September 29, 2008 are not currently under examination by the IRS. Our foreign income tax returns and Wendy’s foreign income tax returns for periods prior to the Wendy’s Merger are open to examination primarily for periods ending on or after January 1, 2006. Certain of these foreign income tax returns are currently under examination. Some of our state income tax returns and some of the Wendy’s state income tax returns for periods prior to the Wendy’s Merger are currently under examination. Certain of these states have issued notices of proposed tax assessments aggregating $8,865. We dispute these notices and believe their ultimate resolution will not have a material adverse impact on our consolidated financial position or results of operations.

(10) Income (loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. As described in the Form 10-K, in connection with the Wendy’s Merger, Wendy’s/Arby’s stockholders approved the Conversion whereby each of the then outstanding shares of Triarc class B common stock (“Class B Common Stock”) were converted into one share of Wendy’s/Arby’s Class A common stock and accordingly we now only have one class of common stock. In connection with the May 28, 2009 amendment and restatement of our Certificate of Incorporation, our Class A common stock is now referred to as Common Stock. Net loss for the three and nine month periods ended September 28, 2008 of $12,147 and $86,523, respectively, was allocated equally among each share of Common Stock and Class B Common Stock resulting in the same loss per share for each class.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Diluted income per share for the three and nine month periods ended September 27, 2009 has been computed by dividing the allocated income for the Common Stock by the weighted average number of shares plus the potential common share effect of dilutive stock options and nonvested restricted Common Shares (the “Nonvested Shares”), both computed using the treasury stock method. Diluted income per share for the three and nine month periods ended September 28, 2008 were the same as basic loss per share for each share of the Common Stock and Class B Common Stock since we reported a loss and, therefore, the effect of all potentially dilutive securities on the loss per share would have been antidilutive. The shares used to calculate diluted income per share exclude any effect of our 5% convertible notes due 2023 (the “Convertible Notes”) which would have been antidilutive since the after-tax interest on the Convertible Notes per share of Common Stock obtainable on conversion exceeded the reported basic income from continuing operations per share. For the three and nine months ended September 27, 2009, we excluded 19,928 potential common shares from our diluted per share calculation as they would have had anti-dilutive effects. The basic and diluted income from discontinued operations per share for the three and nine month periods ended September 27, 2009 was less than $0.01 and, therefore, is not presented.

Our securities as of September 27, 2009 that could dilute basic income per share for periods subsequent to September 27, 2009 are (1) outstanding stock options which can be exercised into 27,965 shares of our Common Stock, (2) 1,472 restricted shares of Common Stock which principally vest over three years and (3) $2,100 of Convertible Notes which are convertible into 160 shares of Common Stock.

Income (loss) per share has been computed by allocating the income or loss as follows:

	Three Months Ended					Nine Months Ended
	September 27,		September 28,			September 27,		September 28,
	2009		2008			2009		2008
Common Stock:
Continuing Operations	$	14,266	$	(4,170	)	$	18,234	$	(27,380	)
Discontinued Operations		422		380			422		380
Net income (loss)	$	14,688	$	(3,790	)	$	18,656	$	(27,000	)

Class B Common Stock:
Continuing Operations		N/A	$	(9,196	)		N/A	$	(60,362	)
Discontinued Operations		N/A		839			N/A		839
Net income (loss)		N/A	$	(8,357	)		N/A	$	(59,523	)

The number of shares used to calculate basic and diluted income (loss) per share are as follows:

	Three Months Ended		Nine Months Ended
	September 27,	September 28,	September 27,	September 28,
	2009	2008	2009	2008
Common Stock:
Basic shares - weighted average shares outstanding	468,008	28,905	468,670	28,903
Dilutive effect of stock options and restricted shares	3,385	-	2,423	-
Diluted shares	471,393	28,905	471,093	28,903

Class B Common Stock:
Basic shares - weighted average shares outstanding	N/A	63,745	N/A	63,720
Dilutive effect of stock options and restricted shares	N/A	-	N/A	-
Diluted shares	N/A	63,745	N/A	63,720

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(11) Equity

The following is a summary of the changes in equity:

	Nine Months Ended
	September 27,			September 28,
	2009			2008
Balance, beginning of year	$	2,383,291		$	448,874
Effect of change in accounting for non-controlling interests		154			154
Beginning balance, as adjusted		2,383,445			449,028
Comprehensive income (loss) (1)		48,999			(80,421	)
Share-based compensation expense		11,654			3,932
Stock option exercises		1,935			-
DFR stock dividend distribution		-			(14,464	)
Dividends declared but not yet paid		-			(7,404	)
Dividends paid		(21,088	)		(16,101	)
Repurchases of common stock for treasury		(25,244	)		-
Other		(195	)		(181	)
Balance, end of period	$	2,399,506		$	334,389

(1) The following is a summary of the components of comprehensive income (loss), net of income taxes:

	Nine Months Ended
	September 27,			September 28,
	2009			2008
Net income (loss)	$	18,656		$	(86,523	)
Net change in currency translation adjustment		30,415			(149	)
Net unrealized (losses) gains on available-for-sale securities (a)		(72	)		6,196
Net unrealized gains on cash flow hedges (b)		-			55
Other comprehensive income		30,343			6,102
Comprehensive income (loss)	$	48,999		$	(80,421	)

(a) Net unrealized (losses) gains on available-for-sale securities:	Nine Months Ended
	September 27,			September 28,
	2009			2008
Unrealized holding gains arising during the period	$	62		$	1,664
Reclassifications of prior period unrealized holding (gains) losses into net loss		(168	)		8,262
Change in unrealized holding gains and losses arising during the period from investments under the equity method of accounting		-			(201	)
		(106	)		9,725
Income tax benefit (provision)		34			(3,529	)
	$	(72	)	$	6,196

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

	Nine Months Ended
(b) Net unrealized gains on cash flow hedges	September 28,
	2008
Unrealized holding losses arising during the period	$	(1,526	)
Reclassifications of prior period unrealized holding losses into net income or loss		1,613
Change in unrealized holding gains and losses arising during the period from investments under the equity method of accounting		3
		90
Income tax provision		(35	)
	$	55

(12) Business Segments

We manage and internally report our operations in two brand segments: (1) the operation and franchising of Wendy’s restaurants, including its wholesale bakery operations, and (2) the operation and franchising of Arby’s restaurants. We evaluate segment performance and allocate resources based on each segment’s operating profit (loss) and other financial and non-financial factors.

In the first quarter of 2009, Wendy’s/Arby’s began charging the restaurant segments for support services based upon budgeted segment revenues. Prior to that date, the restaurant segments had directly incurred such costs. Commencing with the second quarter of 2009, Wendy’s/Arby’s Restaurants established a shared service center in Atlanta and allocated its operating costs to the restaurant segments based also on budgeted segment revenues.

The following is a summary of our segment information:

	Three months ended September 27, 2009
	Wendy’s		Arby’s
	Restaurants		Restaurants			Corporate			Total
Revenues:
Sales	$	536,802	$	269,236		$	-		$	806,038
Franchise revenues		76,713		20,470			-			97,183
	$	613,515	$	289,706		$	-		$	903,221
Depreciation and amortization	$	31,444	$	14,343		$	1,233		$	47,020
Operating profit (loss)	$	69,876	$	(8,862	)	$	(4,192	)	$	56,822
Interest expense										(36,457	)
Investment expense, net										737
Other income, net										1,319
Income from continuing operations before income taxes									$	22,421

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

	Three months ended September 28, 2008
	Arby’s
	Restaurants		Corporate			Total
Revenues:
Sales	$	287,641	$	-		$	287,641
Franchise revenues		22,730		-			22,730
	$	310,371	$	-		$	310,371
Depreciation and amortization	$	15,875	$	622		$	16,497
Operating profit (loss)	$	23,731	$	(19,934	)	$	3,797
Interest expense							(13,585	)
Investment income, net							6,724
Other than temporary losses on investments							(8,100	)
Other income, net							736
Loss from continuing operations before income tax benefit						$	(10,428	)

	Nine months ended September 27, 2009
	Wendy’s		Arby’s
	Restaurants		Restaurants			Corporate			Total
Revenues:
Sales	$	1,582,928	$	812,548		$	-		$	2,395,476
Franchise revenues		224,006		60,410			-			284,416
	$	1,806,934	$	872,958		$	-		$	2,679,892
Depreciation and amortization	$	96,739	$	42,481		$	4,149		$	143,369
Operating profit (loss)	$	155,400	$	(3,950	)	$	(24,187	)	$	127,263
Interest expense										(89,671	)
Investment expense, net										(3,850	)
Other than temporary losses on investments										(3,916	)
Other income, net										303
Income from continuing operations before income taxes									$	30,129

	Nine months ended September 28, 2008
	Arby’s
	Restaurants		Corporate			Total
Revenues:
Sales	$	860,560	$	-		$	860,560
Franchise revenues		65,679		-			65,679
	$	926,239	$	-		$	926,239
Depreciation and amortization	$	45,978	$	2,788		$	48,766
Operating profit (loss)	$	58,344	$	(38,242	)	$	20,102
Interest expense							(41,020	)
Investment income, net							3,189
Other than temporary losses on investments							(79,686	)
Other expense, net							(2,619	)
Loss from continuing operations before income tax benefit						$	(100,034	)

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

	Wendy’s Restaurants		Arby’s Restaurants		Corporate (a)		Total
Three months ended September 27, 2009
Cash capital expenditures	$	14,029	$	6,799	$	4,437	$	25,265

Three months ended September 28, 2008
Cash capital expenditures			$	17,958	$	-	$	17,958

Nine months ended September 27, 2009
Cash capital expenditures	$	30,614	$	22,660	$	12,006	$	65,280

Nine months ended September 28, 2008
Cash capital expenditures			$	58,401	$	-	$	58,401

(a)

The corporate capital expenditures are primarily related to the establishment of our shared services center.

There have been no material changes in total assets since the date of the last annual report, therefore total assets by business segment is not presented.

(13) Transactions with Related Parties

Wendy’s/Arby’s has not entered into any transactions with related parties since the date of our last Form 10-Q except for the following agreement:

Supply Chain Relationship Agreement

During the 2009 fourth quarter, Wendy’s and its franchisees entered into a purchasing co-op (the “Co-op”) relationship agreement (the “Co-op Agreement”). The Co-op will manage food and related product purchases and distribution services for the Wendy’s system in the United States and Canada. The Co-op’s supply chain management will ensure continuity of supply and provide consolidated purchasing efficiencies while monitoring possible obsolete inventory. The system’s current purchasing function is being performed and paid for by Wendy’s. In order to facilitate the orderly transition of the current purchasing function, Wendy’s will transfer certain contracts and certain current Wendy’s purchasing employees to the Co-op in January 2010. Pursuant to the terms of the Co-op Agreement, Wendy’s is required to pay $15,500 to the Co-op over an 18 month period in order to provide funding for start-up costs and cash reserves, as well as pay for services provided by the Co-op. Future operations of the Co-op will be paid by all members of the Co-op. The Co-op, as an independent organization, is not expected to be consolidated with the Company’s financial statements. Wendy’s expects to expense all required payments under the Co-op Agreement in the fourth quarter of 2009.

(14) Legal and Environmental Matters

In the Form 10-K for the fiscal year ended December 28, 2008, the Company disclosed an environmental matter with Adams Packing Association, Inc., an inactive subsidiary of the Company, whereby Adams was listed by the United States Environmental Protection Agency on the Comprehensive Environmental Response, Compensation and Liability Information System list of known or suspected contaminated sites. Adams completed additional testing at the site in August 2009 and reported the results to the Florida Department of Environmental Protection (the “FDEP”) at that time. Adams and the FDEP have been corresponding since then regarding additional testing and documentation that the FDEP has asked Adams to perform and provide. As discussed in our Form 10-K, based on amounts spent prior to 2008 of approximately $1,667 and after taking into consideration various legal defenses available to us, including Adams, we expect that the final resolution of this matter will not have a material effect on our financial position or results of operations.

The Company disclosed putative class action complaints in the Form 10-K for the fiscal year ended December 28, 2008 that had been filed against Wendy’s, its directors, and in two cases also the Company, between April 25 and June 13, 2008, alleging breach of fiduciary duties arising out of the Wendy’s board of directors’ search for a merger partner and out of its approval of the merger agreement with the Company on April 23, 2008, and failure to disclose material information related to the merger in Amendment No. 3 to the Form S-4 under the Securities Act of 1933. These cases were described in the Form 10-K as the Guiseppone, Henzel, Smith and Ravanis cases. Updates on the status of these cases were also included in the Company’s Form 10-Q for the quarters ended March 29 and June 28, 2009.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

On July 1, 2009, the Common Pleas Court of Franklin County, Ohio entered a final order approving settlement of all claims in the Guiseppone, Henzel and Smith cases and certifying a class for settlement purposes only. On July 9, 2009, the Supreme Court of the State of New York, New York County, entered a dismissal of the Ravanis case, with prejudice. The disposition of these cases was not material to the results of operations or financial condition of the Company.

In addition to the matters described above, we are involved in other litigation and claims incidental to our current and prior businesses. We have reserves for all of our legal and environmental matters aggregating $3,221 as of September 27, 2009. Although the outcome of these matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to us, based on currently available information, including legal defenses available to us, and given the aforementioned reserves and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will have a material adverse effect on our consolidated financial position or results of operations.

(15) Accounting Standards

Accounting Standards Adopted during 2009

In December 2007, the Financial Accounting Standards Board (“FASB”) issued guidance on business combinations and noncontrolling interests in consolidated financial statements. This guidance changes the way companies account for business combinations and noncontrolling interests by, among other things, requiring (1) more assets and liabilities to be measured at fair value as of the acquisition date, including a valuation of the entire company being acquired where less than 100% of the company is acquired, (2) an acquirer in preacquisition periods to expense all acquisition-related costs, (3) changes in acquisition related deferred tax balances after the completion of the purchase price allocation be recognized in the statement of operations as opposed to through goodwill and (4) noncontrolling interests in subsidiaries initially to be measured at fair value and classified as a separate component of stockholders’ equity.

In addition, in April 2008, the FASB issued guidance on the determination of the useful life of intangible assets. In determining the useful life of acquired intangible assets, the new guidance removes the requirement to consider whether an intangible asset can be renewed without substantial cost or material modifications to the existing terms and conditions and, instead, requires an entity to consider its own historical experience in renewing similar arrangements. The new guidance also requires expanded disclosure related to the determination of intangible asset useful lives.

In April 2009, the FASB issued guidance on accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies which requires acquirers to recognize an asset acquired or liability assumed in a business combination that arises from a contingency at fair value if the acquisition-date fair value of that asset or liability can be determined during the measurement period.

The guidance on business combinations will not impact our recording of the Wendy’s Merger except for certain potential adjustments to deferred taxes included in the final allocation of the purchase price. The presentation and disclosure requirements for noncontrolling interests in consolidated financial statements have been applied retrospectively for all periods presented. The adoption of these noncontrolling interest requirements resulted in a reclassification of our minority interests from a liability to “Additional paid in capital” in our condensed consolidated balance sheets and the income statement effect for our minority interests has been included in “Other income (expense), net”, as such amounts are insignificant. The new guidance on business combinations and noncontrolling interests in consolidated financial statements will impact future acquisitions, if any, the effect of which will depend upon the nature and terms of such agreements.

In March 2008, the FASB published additional disclosure requirements for companies with derivative instruments and hedging activities that are designed to enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under the guidance for accounting for derivative instruments and hedging activities and how these items affect a company's financial position, results of operations and cash flows. The guidance affects only these disclosures and does not change the accounting for derivatives. The guidance has been applied prospectively beginning with the first quarter of our 2009 fiscal year.

In April 2009, a FASB Staff Position described expanded required interim disclosures for all publicly traded entities about the fair value of financial instruments which included disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments. We have applied these disclosure requirements effective with our 2009 second quarter.

In May 2009, the FASB issued guidance that defines the period after the balance sheet date during which a reporting entity’s

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures an entity should make about events or transactions that occurred after the balance sheet date (collectively, “Subsequent Events”). The Subsequent Events guidance is effective for interim and annual periods ending after June 15, 2009, and we have applied the guidance effective with our 2009 second quarter.

In June 2009, the FASB issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the “Codification”) which authorized the Codification as the sole source for authoritative U.S. GAAP and any accounting literature that is not in the Codification will be considered nonauthoritative. We have commenced utilizing the Codification as our sole source of authoritative US GAAP for our 2009 third quarter.

In September 2009, the FASB issued additional implementation guidance on accounting for uncertainty in income taxes. The guidance is effective for interim and annual periods ending after September 15, 2009. We have applied the new guidance effective with our 2009 third quarter; such guidance had no impact on our accounting for uncertainty in income taxes.

Accounting Standards Not Yet Adopted

In June 2009, the FASB issued guidelines on the consolidation of variable interest entities which alters how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be consolidated. A company has to determine whether it should provide consolidated reporting of an entity based upon the entity's purpose and design and the parent company's ability to direct the entity's actions. The guidance is effective commencing with our 2010 fiscal year. We are currently evaluating the effects, if any, that adoption of this standard will have on our consolidated financial statements.

In August 2009, the FASB issued a standard on the fair value measurement of liabilities which is based on an assumed transfer of the liability to a market participant as of the measurement date and also provides guidance for the measurement of the fair value of liabilities. The guidance is effective commencing with our 2009 fourth quarter. We are currently evaluating the effects, if any, that adoption of this standard will have on our consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Wendy’s/Arby’s Group, Inc (“Wendy’s/Arby’s” or “Wendy’s/Arby’s Group” and, together with its subsidiaries, the “Company” or “we”) should be read in conjunction with our accompanying unaudited condensed consolidated financial statements included elsewhere herein and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (the “Form 10-K”). There have been no significant changes as of September 27, 2009 to the application of our critical accounting policies, contractual obligations (except as described below) or guarantees and commitments as described in Item 7 of our Form 10-K. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II – Other Information” preceding “Item 1.” You should consider our forward-looking statements in light of our unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this report, our Form 10-K and our other filings with the Securities and Exchange Commission.

Introduction and Executive Overview

Our Business

Wendy’s/Arby’s is the indirect parent company of Wendy’s International, Inc. (“Wendy’s”) and Arby’s Restaurant Group, Inc. (“ARG”), which are the owners and franchisors of the Wendy’s® and Arby’s® restaurant systems, respectively. We currently manage and internally report our operations as two business segments: the operation and franchising of Wendy’s restaurants, including its wholesale bakery operations, and the operation and franchising of Arby’s restaurants. As of September 27, 2009, the Wendy’s restaurant system was comprised of 6,608 restaurants, of which 1,395 were owned and operated by the Company. As of September 27, 2009, the Arby’s restaurant system was comprised of 3,739 restaurants, of which 1,165 were owned and operated by the Company. All 2,560 Wendy’s and Arby’s Company-owned restaurants are located principally in the United States and to a lesser extent in Canada (the “North America Restaurants”).

Restaurant business revenues for the 2009 first nine months include: (1) $2,314.2 million of revenues from Company-owned restaurants, (2) $81.3 million from the sale of bakery items and kid’s meal promotion items to our franchisees and others, (3) $263.1 million from royalty income from franchisees and (4) $21.3 million of other franchise related revenue. Our revenues increased significantly in the 2009 first nine months due to the merger with Wendy’s (the “Wendy’s Merger”). The Wendy’s royalty rate was 4.0% for the nine months ended September 27, 2009. While approximately 80% of our existing Arby’s royalty agreements and substantially all of our new domestic royalty agreements provide for royalties of 4.0% of franchise revenues, our average Arby’s royalty rate was 3.6% for the nine months ended September 27, 2009.

Our restaurant businesses have recently experienced trends in the following areas:

Revenues

Industry-wide declines in same-store sales of all segments of the restaurant industry, including quick service restaurants (“QSR”);

Continued lack of general consumer confidence in the economy and the effect of decreases in many consumers’ discretionary income caused by factors such as (1) volatility in the financial markets and recessionary economic conditions, including high unemployment levels, (2) a significant decline in the real estate market, although that market has shown some improvement in recent months, (3) fluctuations in fuel costs, with some stabilization in recent months and (4) moderate food cost inflation through the first half of 2009 followed by decreases in most commodity costs;

Continued and increasingly aggressive price competition in the QSR industry, as evidenced by (1) value menu concepts, which offer comparatively lower prices on some menu items, (2) the use of coupons and other price discounting, (3) product promotions focused on lower prices of certain menu items, including signature items, and (4) combination meal concepts, which offer a complete meal at an aggregate price lower than the price of individual food and beverage items;

Competitive pressures due to extended hours of operation by many QSR competitors, including breakfast and late night hours;

Competitive pressures from operators outside the QSR industry, such as the deli sections and in-store cafes of major grocery and other retail store chains, convenience stores and casual dining outlets offering take-out food;

Increased availability to consumers of product choices, including (1) healthy products driven by a greater consumer awareness of nutritional issues, (2) products that tend to offer a variety of portion sizes and different types of ingredients; (3) beverage programs which offer a wider selection of premium non-carbonated beverages, including coffee and tea products; and (4) sandwiches with perceived higher levels of freshness, quality and customization; and

Competitive pressures from an increasing number of franchise opportunities seeking to attract qualified franchisees.

Cost of Sales

Decreasing commodity prices which have reduced our food costs in the second half of 2009;

Relatively stabilized fuel costs, in recent months, which have contributed to decreases in utility, distribution and freight costs;

Federal, state and local legislative activity, such as minimum wage increases and mandated health and welfare benefits which is expected to continue to increase wages and related fringe benefits, including health care and other insurance costs; and

Legal or regulatory activity related to nutritional content or menu labeling which results in increased operating costs.

Other

A significant portion of both our Wendy’s and Arby’s restaurants are franchised and, as a result, we receive revenue in the form of royalties (which are generally based on a percentage of sales at franchised restaurants), rent and other fees from franchisees. Arby’s franchisee related accounts receivable and estimated reserves for uncollectibility have increased, and may continue to increase, as a result of the deteriorating financial condition of some of our franchisees. The deteriorating financial condition of these franchisees also affects their ability to make required contributions to national and local advertising programs;

Weakness in the overall credit markets, including higher borrowing costs in the lending markets typically used to finance new unit development and remodels. These tightened credit conditions and economic pressures are negatively impacting franchisees, including the ability of some franchisees to meet their commitments under development, rental and franchise license agreements; and

Continued competition for development sites among QSR competitors and other businesses.

We experience these trends directly to the extent they affect the operations of our Company-owned restaurants and indirectly to the extent they affect sales by our franchisees and, accordingly, the royalties and franchise fees we receive from them.

Business Highlights

We believe there are significant opportunities to grow our business, strengthen our competitive position and enhance our profitability through the execution of the following strategies:

Revitalizing the Wendy’s and Arby’s brands by creating innovative new menu items, expanding our breakfast daypart at Wendy’s, increasing Arby’s customer traffic by targeting our “medium Arby’s customers” and improving affordability at Arby’s by expanding everyday value menu items;

Continued improvement in Wendy’s Company-owned restaurant profitability;

Realizing cost savings related to the Wendy’s/Arby’s integration;

Strategically growing our franchise base by leveraging our brands to expand in North America as well as into new international markets with dual branded Wendy’s and Arby’s franchised restaurants; and

Acquisitions of other restaurant companies.

Key Business Measures

We track our results of operations and manage our business using the following key business measures:

Same-Store Sales

We report Arby’s North America Restaurants same-store sales commencing after a store has been open for fifteen continuous months. Wendy’s North America Restaurants same-store sales are reported after a store has been open for at

least fifteen continuous months as of the beginning of the fiscal year. These methodologies are consistent with the metrics 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 (excluding sales of bakery items and kid’s meal promotion items to franchisees) less cost of sales (excluding costs of bakery items and kid’s meal promotion items), divided by sales from Company-owned restaurants (excluding sales of bakery items and kid’s meal promotion items to franchisees). 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.

Merger with Wendy’s International, Inc.

On September 29, 2008, we completed the Wendy’s Merger in an all-stock transaction in which Wendy’s shareholders received 4.25 shares of Wendy’s/Arby’s Class A Common Stock for each share of Wendy’s common stock owned. Our consolidated results of operations commencing September 29, 2008 include Wendy’s results of operations.

Senior Notes

On June 23, 2009, Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants”), a direct wholly-owned subsidiary of Wendy’s/Arby’s, issued $565.0 million principal amount of Senior Notes (the “Senior Notes”). The Senior Notes will mature on July 15, 2016 and accrue interest at 10.00% per annum, payable semi-annually on January 15 and July 15, with the first payment on January 15, 2010. The Senior Notes were issued at 97.533% of the principal amount, representing a yield to maturity of 10.50% and resulting in net proceeds paid to us of $551.1 million. The $13.9 million discount is being accreted and the related charge included in interest expense until the Senior Notes mature. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by certain direct and indirect domestic subsidiaries of Wendy’s/Arby’s Restaurants (collectively, the “Guarantors”).

Deerfield

On December 21, 2007, we completed the sale (the “Deerfield sale”) of our majority capital interest in Deerfield & Company LLC (“Deerfield”), our former subsidiary, to Deerfield Capital Corp. (“DFR”) resulting in non-cash proceeds aggregating $134.6 million, consisting of 9.6 million shares of convertible preferred stock of DFR (“the DFR Preferred Stock”) with a then estimated fair value of $88.4 million and $48.0 million principal amount of series A senior secured notes of DFR due in December 2012 (the “DFR Notes”) with a then estimated fair value of $46.2 million. As discussed in the Form 10-K, we recorded a valuation allowance of $21.2 million during the fourth quarter of 2008 for these DFR Notes. We also owned an additional 0.2 million common shares in DFR.

The DFR Notes bear interest at the three-month LIBOR (0.28% at September 27, 2009) plus a factor, initially 5% through December 31, 2009, increasing 0.5% each quarter from January 1, 2010 through June 30, 2011 and 0.25% each quarter from July 1, 2011 through their maturity. The DFR Notes are secured by certain equity interests of DFR and certain of its subsidiaries. As of September 27, 2009, there is no publicly available information from DFR, known economic trends or indications from the credit markets that we anticipate will affect the collectability of our DFR Notes.

On March 11, 2008, DFR stockholders approved the one-for-one conversion of all its outstanding convertible preferred stock into DFR common stock which converted the 9.6 million preferred shares we held into a like number of shares of common stock. During the first quarter of 2008, our Board of Directors approved the distribution of our 9.8 million shares of DFR common stock, which also included the 0.2 million common shares of DFR discussed above, to our stockholders. The dividend, which was valued at $14.5 million, was paid on April 4, 2008 to holders of record of our Class A common stock and our then outstanding Class B common stock.

In the first quarter of 2008, in response to unanticipated credit and liquidity events in the first quarter of 2008, DFR announced changes to its business model and significant losses. Based on these events and their negative effect on the market price of DFR common stock, we concluded that the fair value and, therefore, the carrying value of our investment in the 9.8 million common shares was impaired. As a result, we recorded an other than temporary loss which is included in “Other than temporary losses on investments,” of $68.1 million (without tax benefit as described below). As a result of the distribution of the DFR common stock, the income tax loss that resulted from the decline in value of our investment of $68.1 million is not deductible for income tax purposes and no income tax benefit was recorded related to this loss.

Related Party Transactions

Wendy’s/Arby’s has not entered into any transactions with related parties since the date of our last Form 10-Q except for the following agreement:

Supply Chain Relationship Agreement

During the 2009 fourth quarter, Wendy’s and its franchisees entered into a purchasing co-op (the “Co-op”) relationship agreement (the “Co-op Agreement”). The Co-op will manage food and related product purchases and distribution services for the Wendy’s system in the United States and Canada. The Co-op’s supply chain management will ensure continuity of supply and provide consolidated purchasing efficiencies while monitoring possible obsolete inventory. The system’s current purchasing function is being performed and paid for by Wendy’s. In order to facilitate the orderly transition of the current purchasing function, Wendy’s will transfer certain contracts and certain current Wendy’s purchasing employees to the Co-op in January 2010. Pursuant to the terms of the Co-op Agreement, Wendy’s is required to pay $15.5 million to the Co-op over an 18 month period in order to provide funding for start-up costs and cash reserves, as well as pay for services provided by the Co-op. Future operations of the Co-op will be paid by all members of the Co-op. The Co-op, as an independent organization, is not expected to be consolidated with the Company’s financial statements. Wendy’s expects to expense all required payments under the Co-op Agreement in the fourth quarter of 2009.

Presentation of Financial Information

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31. All quarters presented contain 13 weeks. Because our 2009 fiscal year ending on January 3, 2010 will contain 53 weeks, our fourth quarter of 2009 will contain 14 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods.

Results of Operations

Three Months Ended September 27, 2009 Compared with Three Months Ended September 28, 2008

	Three Months Ended
	September 27, 2009		September 28, 2008		Total Change
	(In Millions)
Revenues:
Sales	$	806.1	$	287.6	$	518.5
Franchise revenues		97.1		22.8		74.3
		903.2		310.4		592.8
Costs and expenses: