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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 April 3, 2011
 
OR
( )
 
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 registrants 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)
 
Commission file number: 333-161613
WENDY’S/ARBY’S RESTAURANTS, LLC
(Exact name of registrants 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.
Wendy’s/Arby’s Group, Inc.        Yes [x] No [ ]
Wendy’s/Arby’s Restaurants, LLC    Yes [ ] No [x]*
 
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).
Wendy’s/Arby’s Group, Inc.        Yes [x] No [ ]
Wendy’s/Arby’s Restaurants, LLC    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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Wendy’s/Arby’s Group, Inc.
Large accelerated filer   [x]      Accelerated filer [ ]       Non-accelerated filer [ ]      Smaller reporting company [ ]
 
Wendy’s/Arby’s Restaurants, LLC
Large accelerated filer   [ ]      Accelerated filer [ ]       Non-accelerated filer [x]      Smaller reporting company [ ]
 
Indicate by check mark whether either registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
 
There were 419,022,290 shares of Wendy’s/Arby’s Group, Inc. common stock outstanding as of May 2, 2011.
 
Wendy’s/Arby’s Restaurants, LLC meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with reduced disclosure format.
 
* Wendy’s/Arby’s Restaurants, LLC has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the period it was required to file such reports.
 
 
Table of Contents

Explanatory Note
 
This Quarterly Report on Form 10-Q is a combined report being filed separately by Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”) and Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants”), a direct 100% owned subsidiary holding company of Wendy’s/Arby’s. Unless the context indicates otherwise, any reference in this report to the “Companies,” “we,” “us,” and “our” refers to Wendy’s/Arby’s together with its direct and indirect subsidiaries, including Wendy’s/Arby’s Restaurants. Each registrant hereto is filing on its own behalf all of the information contained in this quarterly report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.
 
The principal subsidiaries of Wendy’s/Arby’s Restaurants are Wendy’s International, Inc. (“Wendy’s”) and Arby’s Restaurant Group, Inc. (“Arby’s”) and their subsidiaries. Substantially all of the operating results of Wendy’s/Arby’s are derived from the operating results of Wendy’s/Arby’s Restaurants, except for certain administrative expenses of Wendy’s/Arby’s. Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined in this Quarterly Report on Form 10-Q. Where information or an explanation is not substantially the same for each company, we have provided separate information and explanation. In addition, separate financial statements for each company are included in Part I Item 1, “Financial Statements.”
 
 

3
Table of Contents

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
INDEX TO FORM 10-Q
 
 
 
 
Page
 
Wendy’s/Arby’s Group, Inc. and Subsidiaries
 
Wendy’s/Arby’s Restaurants, LLC and Subsidiaries
 
Wendy’s/Arby’s Group, Inc. and Subsidiaries and Wendy’s/Arby’s Restaurants, LLC and
Subsidiaries
 
 
 
 

4
Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
 
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
 
 
April 3, 2011
 
January 2, 2011
ASSETS
(Unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
500,061
 
 
$
512,508
 
Accounts and notes receivable
84,623
 
 
84,258
 
Inventories
23,112
 
 
22,694
 
Prepaid expenses and other current assets
53,783
 
 
24,386
 
Deferred income tax benefit
54,996
 
 
34,389
 
Advertising funds restricted assets
85,478
 
 
76,553
 
  Total current assets
802,053
 
 
754,788
 
Properties
1,519,962
 
 
1,551,261
 
Other intangible assets
1,351,418
 
 
1,358,574
 
Goodwill
888,095
 
 
883,644
 
Investments
109,941
 
 
107,223
 
Deferred costs and other assets
69,272
 
 
77,164
 
  Total assets
$
4,740,741
 
 
$
4,732,654
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of long-term debt
$
17,350
 
 
$
18,415
 
Accounts payable
68,745
 
 
81,361
 
Accrued expenses and other current liabilities
240,519
 
 
245,157
 
Advertising funds restricted liabilities
85,478
 
 
76,553
 
  Total current liabilities
412,092
 
 
421,486
 
Long-term debt
1,526,674
 
 
1,553,987
 
Deferred income
39,745
 
 
11,460
 
Deferred income taxes
430,189
 
 
412,293
 
Other liabilities
164,928
 
 
170,254
 
Commitments and contingencies
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
Common stock
47,042
 
 
47,042
 
Additional paid-in capital
2,774,276
 
 
2,771,126
 
Accumulated deficit
(422,257
)
 
(412,464
)
Common stock held in treasury, at cost
(246,568
)
 
(249,547
)
Accumulated other comprehensive income
14,620
 
 
7,017
 
  Total stockholders’ equity
2,167,113
 
 
2,163,174
 
  Total liabilities and stockholders’ equity
$
4,740,741
 
 
$
4,732,654
 
 
See accompanying notes to condensed consolidated financial statements.
 

5
Table of Contents

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)
 
 
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
 
(Unaudited)
Revenues:
 
 
 
Sales
$
756,496
 
 
$
748,197
 
Franchise revenues
91,328
 
 
89,250
 
 
847,824
 
 
837,447
 
Costs and expenses:
 
 
 
 
 
Cost of sales
659,788
 
 
641,422
 
General and administrative
103,627
 
 
110,482
 
Depreciation and amortization
43,125
 
 
46,326
 
Impairment of long-lived assets
9,612
 
 
11,601
 
Other operating expense, net
1,032
 
 
1,283
 
 
817,184
 
 
811,114
 
Operating profit
30,640
 
 
26,333
 
Interest expense
(34,328
)
 
(36,278
)
Other income, net
323
 
 
1,408
 
Loss before income taxes
(3,365
)
 
(8,537
)
Benefit from income taxes
1,956
 
 
5,137
 
Net loss
$
(1,409
)
 
$
(3,400
)
 
 
 
 
Basic and diluted loss per share:
 
$ .00
 
 
$
(.01
)
 
 
 
 
Dividends per share:
$
.02
 
 
$
.015
 
 
See accompanying notes to condensed consolidated financial statements.
 

6
Table of Contents

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
­
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net loss
$
(1,409
)
 
$
(3,400
)
Adjustments to reconcile net loss to net cash provided by operating
   activities:
 
 
 
 
 
Depreciation and amortization
43,125
 
 
46,326
 
Net receipt of deferred vendor incentives
29,357
 
 
31,067
 
Impairment of long-lived assets
9,612
 
 
11,601
 
Share-based compensation provision
3,241
 
 
3,519
 
Distributions received from joint venture
3,113
 
 
2,968
 
Write-off and amortization of deferred financing costs
2,151
 
 
1,701
 
Accretion of long-term debt
2,130
 
 
2,715
 
Non-cash rent expense
1,807
 
 
2,879
 
Provision for doubtful accounts
903
 
 
2,600
 
Equity in earnings in joint venture
(2,363
)
 
(1,850
)
Deferred income tax benefit, net
(2,900
)
 
(8,546
)
Other, net
273
 
 
1,236
 
Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
2,342
 
 
1,762
 
Inventories
(370
)
 
1,295
 
Prepaid expenses and other current assets
(8,676
)
 
(5,300
)
Accounts payable
4,234
 
 
(13,025
)
Accrued expenses and other current liabilities
(33,107
)
 
(42,307
)
Net cash provided by operating activities
53,463
 
 
35,241
 
Cash flows from investing activities:
 
 
 
 
 
Capital expenditures
(28,568
)
 
(27,143
)
Business acquisition
(2,900
)
 
—
 
Other, net
300
 
 
2,958
 
Net cash used in investing activities
(31,168
)
 
(24,185
)
Cash flows from financing activities:
 
 
 
 
 
Repayments of long-term debt
(30,211
)
 
(10,216
)
Dividends paid
(8,374
)
 
(6,653
)
Proceeds from stock option exercises
2,902
 
 
939
 
Repurchases of common stock
—
 
 
(80,842
)
Other, net
(18
)
 
23
 
Net cash used in financing activities
(35,701
)
 
(96,749
)
Net cash used in operations before effect of exchange rate
 
 
 
changes on cash
(13,406
)
 
(85,693
)
Effect of exchange rate changes on cash
959
 
 
1,258
 
Net decrease in cash and cash equivalents
(12,447
)
 
(84,435
)
Cash and cash equivalents at beginning of period
512,508
 
 
591,719
 
Cash and cash equivalents at end of period
$
500,061
 
 
$
507,284
 
 
 
 

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Table of Contents

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)
 
 
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
 
(Unaudited)
Supplemental cash flow information:
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
Interest
$
41,721
 
 
$
43,375
 
Income taxes, net of refunds
$
2,884
 
 
$
6,062
 
 
 
 
See accompanying notes to condensed consolidated financial statements.
 

8
Table of Contents

 
WENDY’S/ARBY’S RESTAURANTS, LLC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
 
 
April 3, 2011
 
January 2, 2011
ASSETS
(Unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
181,300
 
 
$
198,686
 
Accounts and notes receivable
83,854
 
 
83,352
 
Inventories
23,112
 
 
22,694
 
Prepaid expenses and other current assets
52,922
 
 
24,032
 
Deferred income tax benefit
43,274
 
 
45,067
 
Advertising funds restricted assets
85,478
 
 
76,553
 
Total current assets
469,940
 
 
450,384
 
Properties
1,511,019
 
 
1,541,853
 
Other intangible assets
1,351,418
 
 
1,358,574
 
Goodwill
893,372
 
 
888,921
 
Investments
105,121
 
 
102,406
 
Deferred costs and other assets
68,339
 
 
74,559
 
     Total assets
$
4,399,209
 
 
$
4,416,697
 
 
 
 
 
LIABILITIES AND INVESTED EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of long-term debt
$
16,072
 
 
$
17,047
 
Accounts payable
67,912
 
 
81,148
 
Accrued expenses and other current liabilities
239,574
 
 
244,300
 
Advertising funds restricted liabilities
85,478
 
 
76,553
 
Total current liabilities
409,036
 
 
419,048
 
Long-term debt
1,515,728
 
 
1,542,684
 
Due to Wendy’s/Arby’s
17,486
 
 
30,808
 
Deferred income
39,745
 
 
11,460
 
Deferred income taxes
476,526
 
 
478,472
 
Other liabilities
152,440
 
 
157,595
 
Commitments and contingencies
 
 
 
 
 
Invested equity:
 
 
 
Member interest, $0.01 par value; 1,000 shares authorized, one share
   issued and outstanding
—
 
 
—
 
Other capital
2,426,458
 
 
2,423,459
 
Accumulated deficit
(498,475
)
 
(499,500
)
Advances to Wendy’s/Arby’s
(155,000
)
 
(155,000
)
Accumulated other comprehensive income
15,265
 
 
7,671
 
  Total invested equity
1,788,248
 
 
1,776,630
 
  Total liabilities and invested equity
$
4,399,209
 
 
$
4,416,697
 
 
 
See accompanying notes to condensed consolidated financial statements.

9
Table of Contents

WENDY’S/ARBY’S RESTAURANTS, LLC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
 
 
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
 
 (Unaudited)
Revenues:
 
 
 
Sales
$
756,496
 
 
$
748,197
 
Franchise revenues
91,328
 
 
89,250
 
 
847,824
 
 
837,447
 
Costs and expenses:
 
 
 
 
 
Cost of sales
659,788
 
 
641,422
 
General and administrative
100,276
 
 
108,760
 
Depreciation and amortization
42,660
 
 
45,860
 
Impairment of long-lived assets
9,612
 
 
11,601
 
Other operating expense, net
977
 
 
1,550
 
 
813,313
 
 
809,193
 
Operating profit
34,511
 
 
28,254
 
Interest expense
(34,101
)
 
(35,939
)
Other income, net
283
 
 
495
 
Income (loss) before income taxes
693
 
 
(7,190
)
Benefit from income taxes
332
 
 
4,630
 
Net income (loss)
$
1,025
 
 
$
(2,560
)
 
 
See accompanying notes to condensed consolidated financial statements.
 
 

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Table of Contents

WENDY’S/ARBY’S RESTAURANTS, LLC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
1,025
 
 
$
(2,560
)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
 
 
 
Depreciation and amortization
42,660
 
 
45,860
 
Net receipt of deferred vendor incentives
29,357
 
 
31,067
 
Impairment of long-lived assets
9,612
 
 
11,601
 
Distributions received from joint venture
3,113
 
 
2,968
 
Share-based compensation provision
2,999
 
 
3,307
 
Write-off and amortization of deferred financing costs
2,148
 
 
1,695
 
Accretion of long-term debt
2,130
 
 
2,715
 
Non-cash rent expense
1,807
 
 
2,879
 
Provision for doubtful accounts
903
 
 
2,600
 
Deferred income tax benefit, net
(336
)
 
(3,433
)
Other operating transactions with Wendy’s/Arby’s
(662
)
 
(3,624
)
Tax sharing payable to Wendy’s/ Arby’s, net
(914
)
 
(4,627
)
Equity in earnings in joint venture
(2,363
)
 
(1,850
)
Tax sharing payment to Wendy’s/ Arby’s
(13,078
)
 
—
 
Other, net
429
 
 
1,596
 
Changes in operating assets and liabilities:
 
 
 
Accounts and notes receivable
2,206
 
 
2,041
 
Inventories
(370
)
 
1,295
 
Prepaid expenses and other current assets
(8,497
)
 
(5,319
)
Accounts payable
3,614
 
 
(11,959
)
Accrued expenses and other current liabilities
(33,180
)
 
(39,189
)
Net cash provided by operating activities
42,603
 
 
37,063
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(28,568
)
 
(27,143
)
Business acquisition
(2,900
)
 
—
 
Other, net
303
 
 
2,432
 
Net cash used in investing activities
(31,165
)
 
(24,711
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(29,765
)
 
(4,849
)
Dividends paid to Wendy’s/ Arby’s
—
 
 
(112,000
)
Other, net
(18
)
 
161
 
Net cash used in financing activities
(29,783
)
 
(116,688
)
Net cash used in operations before effect of exchange rate
 
 
 
changes on cash
(18,345
)
 
(104,336
)
Effect of exchange rate changes on cash
959
 
 
1,258
 
Net decrease in cash and cash equivalents
(17,386
)
 
(103,078
)
Cash and cash equivalents at beginning of period
198,686
 
 
538,864
 
Cash and cash equivalents at end of period
$
181,300
 
 
$
435,786
 
 
 
 
 

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WENDY’S/ARBY’S RESTAURANTS, LLC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)
 
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
 
(Unaudited)
Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
41,449
 
 
$
42,838
 
Income taxes, net of refunds
$
2,273
 
 
$
3,202
 
 
 
See accompanying notes to condensed consolidated financial statements.
 
 

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WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED 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” and, together with its subsidiaries, the “Company”) and Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants”), a 100% owned subsidiary of Wendy’s/Arby’s, 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, the Financial Statements contain all adjustments necessary to present fairly our financial position as of April 3, 2011, and the results of our operations and cash flows for the three months ended April 3, 2011 and April 4, 2010. The results of operations for the three months ended April 3, 2011 are not necessarily indicative of the results to be expected for the full 2011 fiscal year. These Financial Statements should be read in conjunction with the audited consolidated financial statements for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, and combined notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2011 (the “Form 10-K”).
 
Except where otherwise indicated, these combined notes relate to the Financial Statements for each of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants (the “Companies”). References herein to Wendy’s/Arby’s corporate (“Corporate”) represent Wendy’s/Arby’s parent company functions only and their effect on the consolidated results of operations and financial condition.
 
In January 2011, Wendy’s/Arby’s announced that it is exploring strategic alternatives for Arby’s Restaurant Group, Inc. (“Arby’s”), including a sale of the brand.  This process is continuing and there is no assurance as to any particular outcome.  To address uncertainties for our employees created by this process, Wendy’s/Arby’s has implemented a retention program; the payment of a portion of this program is conditioned on the sale of Arby’s.  During the 2011 first quarter, Wendy’s/Arby’s Restaurants and Wendy’s/Arby’s accrued costs of $1,279 and $1,307, respectively, which are included in “General and administrative” related to the portion of this retention program not conditioned on the sale of Arby’s. While the process is pending, Arby’s will continue to execute its growth initiatives.  Arby’s did not meet the financial accounting requirements to be classified as held for sale or to be reported as discontinued operations as of April 3, 2011.  As of April 3, 2011, the carrying value of our Arby’s business (defined as total assets less all non-intercompany liabilities) was $164,000. (See Note 9 for further segment information.)
 
We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31. Both three month periods presented herein contain 13 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods.
  
(2) Acquisitions and Dispositions
 
During the first quarter of 2011, Wendy’s International, Inc. (“Wendy’s”) acquired the operating assets, net of liabilities assumed, of three Wendy’s franchised restaurants. The total consideration for this acquisition before post closing adjustments was $3,960 consisting of (1) $2,900 of cash, net of $45 cash acquired and (2) the issuance of a note payable of $1,060.
 
Other restaurant acquisitions and dispositions during the periods presented were not significant.
 
(3) 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 of accounting. Our equity in earnings from TimWen is included in “Other operating expense, net.”
 

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WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

Presented below is an unaudited summary of activity related to our portion of TimWen included in our condensed consolidated balance sheets and condensed consolidated statements of operations:
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Balance at beginning of period (a)
$
98,631
 
 
$
97,476
 
 
 
 
 
Equity in earnings for the period
2,926
 
 
2,698
 
Amortization of purchase price adjustments
(563
)
 
(848
)
 
2,363
 
 
1,850
 
 
 
 
 
Distributions
(3,113
)
 
(2,968
)
Currency translation adjustment included in “Comprehensive
   income”
3,465
 
 
4,350
 
Balance at end of period (a)
$
101,346
 
 
$
100,708
 
_____________________
 
 
 
(a) Included in “Investments.”
 
 
 
 
Presented below is a summary of unaudited financial information of TimWen as of and for the three months ended April 3, 2011 and April 4, 2010, respectively, in Canadian dollars. The summary balance sheet financial information does not distinguish between current and long-term assets and liabilities:
 
 
April 3, 2011
 
April 4, 2010
Balance sheet information:
 
 
 
Properties
C$
77,714
 
 
C$
82,005
 
Cash and cash equivalents
2,011
 
 
—
 
Accounts receivable
3,775
 
 
4,107
 
Other
2,980
 
 
3,418
 
 
C$
86,480
 
 
C$
89,530
 
 
 
 
 
Accounts payable and accrued liabilities
C$
701
 
 
C$
1,195
 
Other liabilities
9,222
 
 
9,006
 
Partners’ equity
76,557
 
 
79,329
 
 
C$
86,480
 
 
C$
89,530
 
 
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Income statement information:
 
 
 
Revenues
C$
8,906
 
 
C$
8,720
 
Income before income taxes and net income
6,129
 
 
5,376
 
 
 
 

14
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

(4) Fair Value of Financial Instruments
 
The carrying amounts and estimated fair values of the Companies’ financial instruments for which the disclosure of fair values is required were as follows:
 
April 3, 2011
 
Wendy’s/Arby’s
Restaurants
 
Corporate
 
Wendy’s/Arby’s
Financial assets
 
 
 
 
 
Carrying Amount:
 
 
 
 
 
Cash and cash equivalents
$
181,300
 
 
$
318,761
 
 
$
500,061
 
Restricted cash equivalents:
 
 
 
 
 
Current - included in “Prepaid expenses and other
     current assets”
778
 
 
—
 
 
778
 
Non-current - included in “Deferred costs and
     other assets”
3,536
 
 
685
 
 
4,221
 
Non-current cost investments
3,775
 
 
4,820
 
 
8,595
 
Interest rate swaps
7,610
 
 
—
 
 
7,610
 
 
 
 
 
 
 
Fair Value:
 
 
 
 
 
Cash and cash equivalents (a)
$
181,300
 
 
$
318,761
 
 
$
500,061
 
Restricted cash equivalents (a):
 
 
 
 
 
Current
778
 
 
—
 
 
778
 
Non-current
3,536
 
 
685
 
 
4,221
 
Non-current cost investments (b)
5,349
 
 
14,593
 
 
19,942
 
Interest rate swaps (c)
7,610
 
 
—
 
 
7,610
 
 
April 3, 2011
 
Carrying
Amount
 
Fair
Value
Financial liabilities
 
 
 
Long-term debt, including current portion:
 
 
 
10% senior notes (d)
$
553,653
 
 
$
624,325
 
Wendy’s/Arby’s Restaurants term loan (d)
469,365
 
 
475,210
 
6.20% senior notes (d)
217,015
 
 
233,100
 
Sale-leaseback obligations (e)
120,607
 
 
120,751
 
Capitalized lease obligations (e)
85,343
 
 
85,917
 
7% debentures (d)
81,487
 
 
90,000
 
Other
4,330
 
 
4,318
 
Total Wendy’s/Arby’s Restaurants long-term debt, including current portion
1,531,800
 
 
1,633,621
 
6.54% aircraft term loan (e)
12,224
 
 
12,149
 
Total Wendy’s/Arby’s long-term debt, including current portion
$
1,544,024
 
 
$
1,645,770
 
Guarantees of:
 
 
 
Lease obligations for restaurants not operated by the Companies (f)
$
279
 
 
$
279
 
Wendy’s franchisee loans obligations (g)
$
368
 
 
$
368
 
 

15
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WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

_______________
(a)
The carrying amounts approximated fair value due to the short-term maturities of the cash equivalents or restricted cash equivalents.
 
(b)
Fair value of these investments was based entirely on statements of account received from investment managers or investees which were 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 Companies relied on valuations performed by the investment managers or investees in valuing those investments or third-party appraisals.
 
(c)
The fair values were based on information provided by the bank counterparties that is model-driven and whose inputs were observable or whose significant value drivers were observable.
 
(d)
The fair values were based on quoted market prices.
 
(e)
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 U.S. Treasury bond yield for securities with similar durations.
 
(f)
The fair value was assumed to reasonably approximate the carrying amount. We have accrued liabilities for these lease obligations based on a weighted average risk percentage.
 
(g)
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 weighted average risk percentage established at the inception of each program.
 
The carrying amounts of current accounts, notes receivable and non-current notes receivable approximated fair value due to the effect of related allowances for doubtful accounts and notes receivable. The carrying amounts of accounts payable and accrued expenses approximated fair value due to the short-term maturities of those items.
 
Valuation techniques under the accounting guidance related to fair value measurements were based on observable and unobservable inputs. Observable inputs reflected readily obtainable data from independent sources, while unobservable inputs reflected our market assumptions. These inputs are classified into the following hierarchy:
 
Level 1 Inputs - Quoted prices for identical assets or liabilities in active markets.
 
Level 2 Inputs - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
 
Level 3 Inputs - Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation.
 
The following table presents the Companies’ financial assets and liabilities (other than cash and cash equivalents) measured at fair value on a recurring basis as of April 3, 2011 by the valuation hierarchy as defined in the fair value guidance:
 
 
 
 
Fair Value Measurements
 
April 3, 2011
 
Level 1
 
Level 2
 
Level 3
Interest rate swaps (included in “Deferred costs and
   other assets”)
$
7,610
 
 
$
—
 
 
$
7,610
 
 
$
—
 
 

16
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

The following table presents the fair values for those assets and liabilities measured at fair value during the three months ended April 3, 2011 on a non-recurring basis. Total losses include losses recognized from all non-recurring fair value measurements during the quarter ended April 3, 2011 for both the Wendy's and Arby's restaurant segments. The carrying value of properties presented in the table below substantially represents the remaining carrying value of land for properties that were impaired related to the Wendy’s restaurant segment. See Note 5 for more information on the impairment of our long-lived assets.
 
 
 
 
 
 
 
 
 
Three Months
Ended
April 3, 2011
Total Losses
 
 
 
Fair Value Measurements
 
 
April 3, 2011
 
Level 1
 
Level 2
 
Level 3
 
Properties
$
575
 
 
$
—
 
 
$
—
 
 
$
575
 
 
$
7,755
 
Other intangible assets
—
 
 
—
 
 
—
 
 
—
 
 
1,857
 
 
$
575
 
 
$
—
 
 
$
—
 
 
$
575
 
 
$
9,612
 
 
 
Derivative instruments
 
The Companies’ derivative instruments in the first quarter of 2011 included interest rate swaps with notional amounts totaling $225,000 that were all designated as fair value hedges on Wendy’s 6.20% senior notes. At April 3, 2011 and January 2, 2011, the fair value of these interest rate swaps of $7,610 and $9,623, respectively, has been included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the Wendy’s 6.20% senior notes.
 
Interest income on interest rate swaps was $1,413 and $1,812 for the three months ended April 3, 2011 and April 4, 2010, respectively.
 
(5) Impairment of Long-Lived Assets
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Wendy’s restaurant segment:
 
 
 
Impairment of company-owned restaurants:
 
 
 
Properties
$
6,084
 
 
$
—
 
Intangible assets
1,813
 
 
—
 
 
7,897
 
 
—
 
Arby’s restaurant segment:
 
 
 
Impairment of company-owned restaurants:
 
 
 
Properties
1,671
 
 
10,689
 
Intangible assets
44
 
 
912
 
 
1,715
 
 
11,601
 
Total impairment of long-lived assets
$
9,612
 
 
$
11,601
 
 
The Wendy’s company-owned restaurant impairment losses in the three months ended April 3, 2011 and the Arby’s company-owned restaurant impairment losses in the three months ended April 4, 2010 predominantly reflected impairment charges on all restaurant level assets resulting from the deterioration in operating performance of certain restaurants, and additional charges for capital improvements in restaurants impaired in a prior year which did not subsequently recover. The Arby’s restaurant segment impairment losses in the three months ended April 4, 2010 also reflected write-downs in the carrying value of surplus properties and properties held for sale. The Arby’s company-owned restaurant impairment losses in the three months ended April 3, 2011 reflected additional charges for capital improvements in restaurants impaired in a prior year which did not subsequently recover.
 

17
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

All of these impairment losses represented the excess of the carrying amount 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 Wendy’s and Arby’s restaurant segments were generally estimated based on the present values of the associated cash flows and on market value with respect to land (Level 3 inputs).
 
(6) Income Taxes
 
The Company’s effective tax rate benefit for the three months ended April 3, 2011 and April 4, 2010 was 58.1% and 60.2%, respectively. Wendy’s/Arby’s Restaurants effective tax rate benefit for the three months ended April 3, 2011 and April 4, 2010 was 47.9% and 64.4%, respectively. The Companies’ effective rates vary from the U.S. federal statutory rate of 35% due to the effect of (1) state income taxes, net of federal income tax benefit, (2) tax credits, and (3) a reduction in our state valuation allowances in 2010.
 
There were no significant changes to unrecognized tax benefits or related interest and penalties for either the Company or Wendy’s/Arby’s Restaurants.
 
Amounts payable for Federal and certain state income taxes are settled by Wendy’s/Arby’s Restaurants to Wendy’s/Arby’s under a tax sharing agreement. During the three months ended April 3, 2011 and April 4, 2010, Wendy’s/Arby’s Restaurants made tax sharing payments to Wendy’s/Arby’s of $13,078 and $0, respectively.
 
(7) Loss Per Share
 
(Wendy’s/Arby’s)
 
Basic loss per share for the three months ended April 3, 2011 and April 4, 2010 was computed by dividing net loss by the weighted average number of common shares outstanding.
 
Diluted loss per share for the three months ended April 3, 2011 and April 4, 2010 was the same as basic loss per share for each share since the Company reported a net loss and, therefore, the effect of all potentially dilutive securities on the net loss per share would have been antidilutive.
 
As of April 3, 2011, our potential common shares consisted of the following: (1) outstanding stock options which can be exercised into 27,036 shares of our Common Stock and (2) 3,107 restricted shares of our Common Stock.
 
The weighted average number of shares used to calculate basic and diluted loss per share was 418,520 and 443,326 for the three months ended April 3, 2011 and April 4, 2010, respectively.
 
(8) Debt and Equity
 
Debt
 
The Wendy's/Arby’s Restaurants senior secured term loan facility (the “Term Loan”), which is part of the credit agreement entered into in May 2010 and further described in our Form 10-K, requires prepayments of principal amounts resulting from certain events and on an annual basis from Wendy’s/Arby’s Restaurants excess cash flow as defined under the Term Loan. An excess cash flow payment for fiscal 2010 of $24,874 was paid in the first quarter of 2011. Should our strategic alternatives for Arby's result in a sale of the brand (as discussed in Note 1), we may be required to utilize a portion of the sales proceeds as a Term Loan prepayment.
 

18
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

Invested Equity
 
(Wendy’s/Arby’s Restaurants)
 
The following is a summary of the changes in invested equity:
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Balance, beginning of year
$
1,776,630
 
 
$
2,197,907
 
Comprehensive income (a)
8,619
 
 
7,155
 
Share-based compensation
2,999
 
 
3,307
 
Dividends paid to Wendy’s/Arby’s
—
 
 
(112,000
)
Other
—
 
 
(75
)
Balance, end of the period
$
1,788,248
 
 
$
2,096,294
 
_______________
(a) The following is a summary of the components of comprehensive income, net of income taxes:
    
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Net income (loss)
$
1,025
 
 
$
(2,560
)
Net change in currency translation adjustment
7,649
 
 
9,704
 
Net unrecognized pension (loss) gain
(55
)
 
11
 
    Other comprehensive income
7,594
 
 
9,715
 
       Comprehensive income
$
8,619
 
 
$
7,155
 
 
Stockholders’ Equity
 
(Wendy’s/Arby’s)
 
The following is a summary of the changes in stockholders’ equity:
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Balance, beginning of year
$
2,163,174
 
 
$
2,336,339
 
Comprehensive income (a)
6,194
 
 
6,340
 
Share-based compensation
3,241
 
 
3,519
 
Exercises of stock options
2,838
 
 
859
 
Dividends paid
(8,374
)
 
(6,653
)
Repurchases of common stock for treasury
—
 
 
(78,821
)
Other
40
 
 
(337
)
Balance, end of the period
$
2,167,113
 
 
$
2,261,246
 

19
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

_______________
(a) The following is a summary of the components of comprehensive income, net of income taxes:
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Net loss
$
(1,409
)
 
$
(3,400
)
Net change in currency translation adjustment
7,649
 
 
9,704
 
Net unrealized losses on available-for-sale securities
—
 
 
(59
)
Net unrecognized pension (loss) gain
(46
)
 
95
 
    Other comprehensive income
7,603
 
 
9,740
 
       Comprehensive income
$
6,194
 
 
$
6,340
 
 
 
(9) Business Segments
 
The Companies manage and internally report their operations in two segments: (1) the operation and franchising of Wendy’s restaurants 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).
 

20
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

 
The following is a summary of the Companies’ segment information:
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Revenues:
 
 
 
Sales:
 
 
 
Wendy’s (1)
$
509,323
 
 
$
512,747
 
Arby’s
247,210
 
 
235,450
 
Corporate eliminations
(37
)
 
—
 
Total
756,496
 
 
748,197
 
 
 
 
 
Franchise revenues:
 
 
 
Wendy’s
73,189
 
 
71,967
 
Arby’s
18,149
 
 
17,283
 
Corporate eliminations
(10
)
 
—
 
Total
91,328
 
 
89,250
 
 
 
 
 
Total revenues:
 
 
 
Wendy’s
582,512
 
 
584,714
 
Arby’s
265,359
 
 
252,733
 
Corporate eliminations
(47
)
 
—
 
Total
$
847,824
 
 
$
837,447
 
 
 
 
 
Depreciation and amortization:
 
 
 
Wendy’s
$
27,261
 
 
$
28,795
 
Arby’s
12,811
 
 
13,894
 
Shared services center
2,588
 
 
3,171
 
Wendy’s/Arby’s Restaurants
42,660
 
 
45,860
 
Corporate
465
 
 
466
 
Wendy’s/Arby’s
$
43,125
 
 
$
46,326
 
 
 
 
 
Impairment of long-lived assets:
 
 
 
Wendy’s
$
7,897
 
 
$
—
 
Arby’s
1,715
 
 
11,601
 
Total
$
9,612
 
 
$
11,601
 
 
 
 
 
Segment operating profit (loss):
 
 
 
Wendy’s
$
43,687
 
 
$
52,400
 
Arby’s
(5,312
)
 
(20,975
)
Corporate eliminations
3
 
 
—
 
Shared services center (2)
(3,867
)
 
(3,171
)
Wendy’s/Arby’s Restaurants
34,511
 
 
28,254
 
Corporate
(3,871
)
 
(1,921
)
Wendy’s/Arby’s
$
30,640
 
 
$
26,333
 
 
 
 
 
Wendy’s/Arby’s Restaurants:
 
 
 
Segment operating profit
$
34,511
 
 
$
28,254
 
Unallocated items:
 
 
 
Interest expense
(34,101
)
 
(35,939
)
Other income, net
283
 
 
495
 
Income (loss) before income taxes
$
693
 
 
$
(7,190
)
 

21
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

 
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Wendy’s/Arby’s:
 
 
 
Segment operating profit
$
30,640
 
 
$
26,333
 
Unallocated items:
 
 
 
 
Interest expense
(34,328
)
 
(36,278
)
Other income, net
323
 
 
1,408
 
Loss before income taxes
$
(3,365
)
 
$
(8,537
)
 
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Cash capital expenditures:
 
 
 
Wendy’s
$
20,797
 
 
$
15,680
 
Arby’s
4,478
 
 
6,470
 
Shared services center
3,293
 
 
4,993
 
Wendy’s/Arby’s Restaurants
28,568
 
 
27,143
 
Corporate
—
 
 
—
 
Wendy’s/Arby’s
$
28,568
 
 
$
27,143
 
_______________
(1)
Sales include sales of bakery items and kids’ meal promotion items sold to franchisees.
(2)
Includes costs associated with exploring strategic alternatives for Arby’s.
 
 
(10) Transactions with Related Parties
 
The following is a summary of ongoing transactions between the Companies and their related parties and includes any updates or amendments, as well as one new transaction (see footnote (e) below) since those reported in our Form 10-K:
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
SSG agreement (a)
$
(2,275
)
 
$
4,900
 
Subleases with related parties (b)
(105
)
 
(80
)
Interest income on revolving credit facility (c)
(19
)
 
(106
)
AFA dues subsidy (d)
723
 
 
—
 
Wendy’s advertising program (e)
150
 
 
—
 
Charitable contributions to the Foundation (f)
—
 
 
500
 
 
 
 
 
 
 
 
 
 
 
 
 
(Wendy’s/Arby’s)
 
 
 
 
 
Advisory fees (g)
$
250
 
 
$
250
 
Sublease income (h)
(408
)
 
(413
)
Executive use of corporate aircraft (i)
(30
)
 
(30
)
Liquidation services agreement (j)
110
 
 
110
 

22
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

___________________
Transactions with Purchasing Cooperatives, the Foundation, and AFA
 
(a)
As agreed by its board of directors in March 2011, effective April 2011 the activities of Strategic Sourcing Group Co-op, LLC (“SSG”) were transferred to the Wendy’s independent purchasing cooperative, Quality Supply Chain Co-op (“QSCC”), and Arby’s independent purchasing cooperative (“ARCOP”). Wendy’s/Arby’s Restaurants had committed to pay approximately $5,145 of SSG expenses, of which $4,900 was expensed in the first quarter of 2010, and was to be paid over a 24 month period through March 2012. During the first quarter of 2011, the remaining accrued commitment of $2,275 was reversed and credited to “General and administrative.”
 
(b)
Wendy’s and QSCC entered into a sublease amendment, effective January 1, 2011, which increased the office space subleased to QSCC to 14,333 square feet for a one year period for a revised annual base rental of $176 with five one-year renewal options.
 
The Companies received $18 and $0 of sublease income from SSG, $25 and $26 of sublease income from ARCOP, $23 and $26 of sublease income from the Arby’s Foundation, Inc. (the “Foundation”), and $39 and $28 of sublease income from QSCC during the first quarter of 2011 and 2010, respectively.
 
(c)
In December 2009, and as amended in February and August 2010 and in February 2011, AFA Service Corporation (“AFA”) entered into a revolving loan agreement with Arby’s. As of April 3, 2011 and January 2, 2011, the outstanding revolving loan balance due from AFA to Arby’s was $0 and $4,458, respectively.  Arby’s recorded interest income of $19 and $106 during the first quarter of 2011 and 2010, respectively, which is included in “Other income, net.”
 
(d)
Arby’s and most domestic Arby’s franchisees pay member dues to AFA. Beginning in January 2011 and for the remainder of 2011, the AFA board approved a dues increase based on a tiered rate structure for the payment of advertising and marketing service fees ranging between 1.25% and 3.50% of sales.  In addition and consistent with a similar arrangement in effect from April through December 2010, Arby’s agreed to partially subsidize the top two rate tiers thereby decreasing franchisees’ effective advertising and marketing service fee percentages through December 2011. Arby’s incurred $723 in the first quarter of 2011 associated with the advertising dues subsidy, which is recorded in “Cost of sales.”
 
(e)
Wendy’s participates in two national advertising funds for Wendy’s United States and Canadian locations established to collect and administer funds contributed for use in advertising through television, radio, newspapers, the Internet and a variety of promotional campaigns. During the first quarter of 2011, Wendy’s reimbursed the Canadian advertising fund approximately $150 for advertising expenses associated with new product testing.
 
(f)
During the first quarter of 2010, the Companies made a charitable contribution of $500 to the Foundation, primarily utilizing funds reimbursed to it by one of the beverage companies used by Arby’s as provided by the applicable contract. This payment is included in “General and administrative.”
 
Transactions with the Management Company
 
(g)
Wendy’s/Arby’s incurred service fees of $250 in the first quarter of 2011 and 2010, which are included in “General and administrative.” These fees were paid to a management company (the “Management Company”) which was formed by our Chairman, who was our former Chief Executive Officer, and our Vice Chairman, who was our former President and Chief Operating Officer, and a director, who was our former Vice Chairman, in connection with a services agreement, which commenced on July 1, 2009 and will continue until June 30, 2011.
 
(h)
Wendy’s/Arby’s recognized income of $408 and $413 from the Management Company under subleases for office space on two of the floors of the Company’s former New York headquarters for the first quarter of 2011 and 2010, respectively, which has been recorded as a reduction of “General and administrative.”
 

23
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

(i)
Wendy’s/Arby’s received lease income of $30 in the first quarter of 2011 and 2010 under an agreement to lease one of the Company’s aircraft, which is included as an offset to “General and administrative.” 
 
(j)
Wendy’s/Arby’s paid the Management Company a fee of $900 in two installments in June 2009 and 2010, which was deferred and is being amortized through its expiration date of June 30, 2011 for assistance in the sale, liquidation, or other disposition of certain of our investments. $110 was amortized and recorded in “General and administrative” in the first quarter of 2011 and 2010.
 
(Wendy’s/Arby’s Restaurants)
    
The following is a summary of continuing transactions between Wendy’s/Arby’s Restaurants and Wendy’s/Arby’s:
 
Three Months Ended
 
April 3, 2011
 
April 4, 2010
Dividends paid (k)
$
—
 
 
$
112,000
 
Other transactions:
 
 
 
 
 
Payments for Federal and state income tax (l)
13,078
 
 
—
 
Share-based compensation (m)
2,999
 
 
3,307
 
Expense under management service agreements (n)
1,261
 
 
1,254
 
_____________________
(k)
Wendy’s/Arby’s Restaurants paid cash dividends to Wendy’s/Arby’s which were charged to “Invested equity.”
 
(l)
Wendy’s/Arby’s Restaurants made cash payments to Wendy’s/Arby’s under a tax sharing agreement, as discussed in more detail in Note 6.
 
(m)
Wendy’s/Arby’s Restaurants provides share based compensation with respect to Wendy’s/Arby’s Common Stock to certain employees. Such compensation cost is allocated by Wendy’s/Arby’s to Wendy’s/Arby’s Restaurants and is correspondingly recorded as capital contributions from Wendy’s/Arby’s.
 
(n)
Wendy’s/Arby’s Restaurants incurred $1,261 and $1,254 for management services during the first quarter of 2011 and 2010, respectively. Such fees are included in “General and administrative” and are settled through Wendy’s/Arby’s Restaurants’ intercompany account with Wendy’s/Arby’s.
 
(11) Legal and Environmental Matters
 
We are involved in litigation and claims incidental to our current and prior businesses. We provide reserves for such litigation and claims when payment is probable and reasonably estimable. As of April 3, 2011, Wendy’s/Arby’s Restaurants had reserves for all of its legal and environmental matters aggregating $3,905 which are included in the total $3,934 accrued by Wendy’s/Arby’s for all legal and environmental matters. Although the outcome of these matters cannot be predicted with certainty and we cannot estimate the aggregate possible range of loss, 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.
 
 

24
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

(12) Guarantor/Non-Guarantor
 
(Wendy’s/Arby’s Restaurants)
 
Wendy’s/Arby’s Restaurants is the issuer of, and certain of its domestic subsidiaries have guaranteed amounts outstanding under our 10% senior notes. Each of the guaranteeing subsidiaries is a direct or indirect 100% owned subsidiary of Wendy’s/Arby’s Restaurants and each has fully and unconditionally guaranteed the 10% senior notes on a joint and several basis.
 
The following are included in the presentation of our consolidating: (1) Condensed Consolidating Balance Sheets as of April 3, 2011 and January 2, 2011, (2) Condensed Consolidating Statements of Operations for the three months ended April 3, 2011 and April 4, 2010, and (3) Condensed Consolidating Statements of Cash Flows for the three months ended April 3, 2011 and April 4, 2010 to reflect:
 
(a)Wendy’s/Arby’s Restaurants (the “Parent”);
(b)the 10% senior notes guarantor subsidiaries as a group;
(c)the 10% senior notes non-guarantor subsidiaries as a group;
(d)elimination entries necessary to combine the Parent with the guarantor and non-guarantor subsidiaries; and
(e)Wendy’s/Arby’s Restaurants on a consolidated basis.
 
Substantially all of our domestic restricted subsidiaries are guarantors of the 10% senior notes. Certain of our subsidiaries, including our foreign subsidiaries and national advertising funds, do not guarantee the 10% senior notes.
 
For purposes of presentation of such consolidating information, investments in subsidiaries are accounted for by the Parent on the equity method. The elimination entries are principally necessary to eliminate intercompany balances and transactions.
 
 
 

25
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

CONDENSED CONSOLIDATING BALANCE SHEET
April 3, 2011
 
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
     Cash and cash equivalents
$
6,664
 
 
$
142,819
 
 
$
31,817
 
 
$
—
 
 
$
181,300
 
     Accounts and notes receivable
1,450
 
 
78,353
 
 
4,051
 
 
—
 
 
83,854
 
     Inventories
—
 
 
22,050
 
 
1,062
 
 
—
 
 
23,112
 
     Prepaid expenses and other current assets
5,255
 
 
45,815
 
 
1,852
 
 
—
 
 
52,922
 
     Deferred income tax benefit
15,834
 
 
27,218
 
 
222
 
 
—
 
 
43,274
 
     Advertising funds restricted assets
—
 
 
—
 
 
85,478
 
 
—
 
 
85,478
 
              Total current assets
29,203
 
 
316,255
 
 
124,482
 
 
—
 
 
469,940
 
Properties
9,899
 
 
1,439,526
 
 
61,594
 
 
—
 
 
1,511,019
 
Other intangible assets
20,684
 
 
1,303,504
 
 
27,230
 
 
—
 
 
1,351,418
 
Goodwill
—
 
 
843,954
 
 
49,418
 
 
—
 
 
893,372
 
Investments
—
 
 
—
 
 
105,121
 
 
—
 
 
105,121
 
Deferred costs and other assets
30,470
 
 
37,188
 
 
681
 
 
—
 
 
68,339
 
Net investment in subsidiaries
2,612,303
 
 
255,422
 
 
—
 
 
(2,867,725
)
 
—
 
Deferred income tax benefit
89,126
 
 
—
 
 
—
 
 
(89,126
)
 
—
 
Due from affiliate
44,738
 
 
—
 
 
16,584
 
 
(61,322
)
 
—
 
                Total assets
$
2,836,423
 
 
$
4,195,849
 
 
$
385,110
 
 
$
(3,018,173
)
 
$
4,399,209
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND INVESTED EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
     Current portion of long-term debt
$
4,981
 
 
$
10,852
 
 
$
239
 
 
$
—
 
 
$
16,072
 
     Accounts payable
2,602
 
 
60,491
 
 
4,819
 
 
—
 
 
67,912
 
     Accrued expenses and other current liabilities
22,244
 
 
209,569
 
 
7,761
 
 
—
 
 
239,574
 
     Advertising funds restricted liabilities
—
 
 
—
 
 
85,478
 
 
—
 
 
85,478
 
                Total current liabilities
29,827
 
 
280,912
 
 
98,297
 
 
—
 
 
409,036
 
Long-term debt
1,018,348
 
 
493,462
 
 
3,918
 
 
—
 
 
1,515,728
 
Due to affiliates
—
 
 
78,808
 
 
—
 
 
(61,322
)
 
17,486
 
Deferred income
—
 
 
39,174
 
 
571
 
 
—
 
 
39,745
 
Deferred income taxes
—
 
 
548,224
 
 
17,428
 
 
(89,126
)
 
476,526
 
Other liabilities
—
 
 
142,966
 
 
9,474
 
 
—
 
 
152,440
 
Invested equity:
 
 
 
 
 
 
 
 
 
     Member interest, $0.01 par value; 1,000
shares authorized, one share issued and
outstanding
—
 
 
—
 
 
—
 
 
—
 
 
—
 
     Other capital
2,426,458
 
 
3,276,291
 
 
199,014
 
 
(3,475,305
)
 
2,426,458
 
     (Accumulated deficit) retained earnings
(498,475
)
 
(524,253
)
 
40,789
 
 
483,464
 
 
(498,475
)
     Advances to Wendy’s/Arby’s
(155,000
)
 
(155,000
)
 
—
 
 
155,000
 
 
(155,000
)
     Accumulated other comprehensive income
15,265
 
 
15,265
 
 
15,619
 
 
(30,884
)
 
15,265
 
                 Total invested equity
1,788,248
 
 
2,612,303
 
 
255,422
 
 
(2,867,725
)
 
1,788,248
 
                 Total liabilities and invested equity
$
2,836,423
 
 
$
4,195,849
 
 
$
385,110
 
 
$
(3,018,173
)
 
$
4,399,209
 
 

26
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

 
CONDENSED CONSOLIDATING BALANCE SHEET
January 2, 2011
 
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
     Cash and cash equivalents
$
79,355
 
 
$
88,936
 
 
$
30,395
 
 
$
—
 
 
$
198,686
 
     Accounts and notes receivable
320
 
 
79,404
 
 
3,628
 
 
—
 
 
83,352
 
     Inventories
—
 
 
21,558
 
 
1,136
 
 
—
 
 
22,694
 
     Prepaid expenses and other current assets
3,900
 
 
19,446
 
 
686
 
 
—
 
 
24,032
 
     Deferred income tax benefit
17,634
 
 
27,218
 
 
215
 
 
—
 
 
45,067
 
     Advertising funds restricted assets
—
 
 
—
 
 
76,553
 
 
—
 
 
76,553
 
              Total current assets
101,209
 
 
236,562
 
 
112,613
 
 
—
 
 
450,384
 
Properties
13,748
 
 
1,466,769
 
 
61,336
 
 
—
 
 
1,541,853
 
Other intangible assets
21,453
 
 
1,310,092
 
 
27,029
 
 
—
 
 
1,358,574
 
Goodwill
—
 
 
841,156
 
 
47,765
 
 
—
 
 
888,921
 
Investments
—
 
 
—
 
 
102,406
 
 
—
 
 
102,406
 
Deferred costs and other assets
32,610
 
 
41,274
 
 
675
 
 
—
 
 
74,559
 
Net investment in subsidiaries
2,559,526
 
 
246,578
 
 
—
 
 
(2,806,104
)
 
—
 
Deferred income tax benefit
86,423
 
 
—
 
 
97
 
 
(86,520
)
 
—
 
Due from affiliate
59,618
 
 
—
 
 
17,893
 
 
(77,511
)
 
—
 
                Total assets
$
2,874,587
 
 
$
4,142,431
 
 
$
369,814
 
 
$
(2,970,135
)
 
$
4,416,697
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND INVESTED EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
     Current portion of long-term debt
$
5,228
 
 
$
11,587
 
 
$
232
 
 
$
—
 
 
$
17,047
 
     Accounts payable
4,624
 
 
70,901
 
 
5,623
 
 
—
 
 
81,148
 
     Accrued expenses and other current liabilities
38,871
 
 
195,282
 
 
10,147
 
 
—
 
 
244,300
 
     Advertising funds restricted liabilities
—
 
 
—
 
 
76,553
 
 
—
 
 
76,553
 
                Total current liabilities
48,723
 
 
277,770
 
 
92,555
 
 
—
 
 
419,048
 
Long-term debt
1,043,623
 
 
495,505
 
 
3,556
 
 
—
 
 
1,542,684
 
Due to affiliates
—
 
 
108,319
 
 
—
 
 
(77,511
)
 
30,808
 
Deferred income
—
 
 
10,888
 
 
572
 
 
—
 
 
11,460
 
Deferred income taxes
—
 
 
548,088
 
 
16,904
 
 
(86,520
)
 
478,472
 
Other liabilities
5,611
 
 
142,335
 
 
9,649
 
 
—
 
 
157,595
 
Invested equity:
 
 
 
 
 
 
 
 
 
     Member interest, $0.01 par value; 1,000
shares authorized, one share issued and
outstanding
—
 
 
—
 
 
—
 
 
—
 
 
—
 
     Other capital
2,423,459
 
 
3,244,488
 
 
199,014
 
 
(3,443,502
)
 
2,423,459
 
     (Accumulated deficit) retained earnings
(499,500
)
 
(537,633
)
 
39,594
 
 
498,039
 
 
(499,500
)
     Advances to Wendy’s/Arby’s
(155,000
)
 
(155,000
)
 
—
 
 
155,000
 
 
(155,000
)
     Accumulated other comprehensive income
7,671
 
 
7,671
 
 
7,970
 
 
(15,641
)
 
7,671
 
                  Total invested equity
1,776,630
 
 
2,559,526
 
 
246,578
 
 
(2,806,104
)
 
1,776,630
 
                  Total liabilities and invested equity
$
2,874,587
 
 
$
4,142,431
 
 
$
369,814
 
 
$
(2,970,135
)
 
$
4,416,697
 
 

27
Table of Contents
WENDY’S/ ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the three months ended April 3, 2011
 
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 Revenues:
 
 
 
 
 
 
 
 
 
      Sales
$
—
 
 
$
702,738
 
 
$
53,758
 
 
$
—
 
 
$
756,496
 
      Franchise revenues
—
 
 
86,240
 
 
5,088
 
 
—
 
 
91,328
 
 
—
 
 
788,978
 
 
58,846
 
 
—
 
 
847,824
 
 
 
 
 
 
 
 
 
 
 
 Costs and expenses:
 
 
 
 
 
 
 
 
 
           Cost of sales
—
 
 
611,144
 
 
48,644
 
 
—