Wendy's 2008 Annual Report Download - page 106

companies (“LLC”), their income is includable in the Federal income tax returns of its various members in
proportion to their interests in the LLC. Deferred income taxes were provided to recognize the tax effect of
temporary differences between the bases of assets and liabilities for tax and financial statement purposes
through the respective date of sale or redemption.
Interest accrued for FIN 48 income tax liabilities is charged to “Interest expense” in the Company’s
Consolidated Statements of Operations. Penalties accrued for FIN 48 income tax liabilities are charged to
“General and administrative” in the Company’s Consolidated Statements of Operations.
Revenue Recognition
“Sales” in the Company’s Consolidated Statements of Operations includes revenues recognized upon
delivery of food to the customer, and revenues for shipments of bakery items and kid’s meal promotional items
to our franchisees and others. “Sales” excludes sales taxes collected from the Company’s customers.
“Franchise revenues”, as reported in the Company’s Consolidated Statements of Operations, include
royalties, franchise fees, and rental income. Royalties from franchised restaurants are based on a percentage of
net sales of the franchised restaurant and are recognized as earned. Initial franchise fees are recorded as deferred
income when received and are recognized as revenue when a franchised restaurant is opened since all material
services and conditions related to the franchise fee have been substantially performed by the Company upon the
restaurant opening. Renewal franchise fees are recognized as revenue when the license agreements are signed
and the fee is paid since there are no material services and conditions related to the renewal franchise fee.
Franchise commitment fee deposits are forfeited and recognized as revenue upon the termination of the related
commitments to open new franchised restaurants. Rental income from locations owned by the Company and
leased to franchisees is recognized on a straight-line basis over the respective operating lease terms.
Asset management and related fees, which are no longer being received as a result of the Deerfield Sale,
consisted of the following types of revenues generated by the Company in its capacity as the investment
manager for various investment funds and private investment accounts (collectively with the investments of
DFR, the “Funds”) and as the collateral manager for various CDOs: (1) management fees, (2) incentive fees and
(3) other related fees. Management fees were recognized as revenue when the management services had been
performed for the period and sufficient cash flows had been generated by the CDOs to pay the fees under the
terms of the related management agreements. In connection with these agreements, the Company had
subordinated receipt of certain of its management fees which were not recognized until they were no longer
subordinated. In addition, the Company recognized non-cash management fee revenue related to its restricted
stock and stock options in DFR based on their then current fair values which were amortized from deferred
income to revenues over the vesting period. Incentive fees were based upon the performance of the Funds and
CDOs and were recognized as revenues when the amounts became fixed and determinable upon the close of a
performance period for the Funds and all contingencies were resolved. Contingencies may have included the
achievement of minimum CDO or Fund performance requirements specified under certain agreements with
some investors to provide minimum rate of return or principal loss protection. Other related fees primarily
included structuring and warehousing fees earned by the Company for services provided to CDOs and were
recognized as revenues upon the rendering of such services and the closing of the respective CDO.
Vendor Incentives
The Company receives incentives from its vendors. These incentives are recognized as earned and, in
accordance with Emerging Issues Task Force Issue 02-16 “Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor,” are generally classified as a reduction of “Cost of Sales” in the
Consolidated Statements of Operations.
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Wendy’s/Arby’s Group, Inc. and Subsidiaries
(Formerly Triarc Companies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)