Wendy's 2008 Annual Report Download - page 68

(3) Wendy’s provided loan guarantees to various lenders on behalf of franchisees under debt arrangements for
new store development and equipment financing. Recourse on the majority of these loans is limited,
generally to a percentage of the original loan amount or the current loan balance on individual franchisee
loans or an aggregate minimum for the entire loan arrangement. Wendy’s potential recourse for the
aggregate amount of these loans amounted to $19.1 million as of December 28, 2008.
(4) Wendy’s and Arby’s have outstanding letters of credit of $18.6 million and $7.8 million, respectively,
with various parties; however, our management does not expect any material loss to result from these
letters of credit because we do not believe performance will be required.
Capital Expenditures
In 2008, cash capital expenditures amounted to $107.0 million and non-cash capital expenditures
consisting of capitalized leases and certain sale-leaseback obligations, (“Non-Cash Capital Expenditures”),
amounted to $8.4 million. In 2009, we expect that all capital expenditures will be paid in cash and will
amount to approximately $140.0 million, principally relating to (1) the opening of an estimated 5 new Arby’s
Company-owned and 10 new Wendy’s Company-owned restaurants, (2) remodeling some of our Arby’s and
Wendy’s existing Company-owned restaurants and (3) ongoing maintenance capital expenditures for our
Company-owned restaurants. We have $18.6 million of outstanding commitments for capital expenditures as
of December 28, 2008, of which we expect $12.8 million to be paid in 2009.
Dividends
During 2008, we paid cash dividends of $0.26 per share on our Class A common stock, aggregating
$30.5 million, including our fourth quarter 2008 payment of $7.0 million. We currently intend to continue to
declare and pay quarterly cash dividends; however, there can be no assurance that any quarterly dividends will
be declared or paid in the future or of the amount or timing of such dividends, if any. During the 2009 first
quarter, we declared dividends of $0.015 per share to be paid on March 30, 2009 to shareholders of record as of
March 20, 2009. If we pay regular quarterly cash dividends for the remainder of 2009 at the same rate as
declared in our 2009 first quarter, our total cash requirement for dividends for all of 2009 would be
approximately $28.0 million based on the number of shares of our Class A common stock outstanding at
February 27, 2009.
Income Taxes
The Wendy’s Merger qualified as a reorganization under Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended (the “Code”). Based on the merger exchange ratio, the former shareholders of
Wendy’s own approximately 80% of the total stock of Wendy’s/Arby’s outstanding immediately after the
Wendy’s Merger. Therefore, the Wendy’s Merger was treated as a reverse acquisition for U.S. Federal income
tax purposes. As a result of the reverse acquisition, Wendy’s/Arby’s and its subsidiaries became part of the
Wendy’s consolidated group with Wendy’s/Arby’s as its new parent. In addition, Wendy’s/Arby’s had a short
taxable year in 2008 ending on the date of the Wendy’s Merger. Also as a result of the Wendy’s Merger, there
was an ownership change at Wendy’s/Arby’s as defined in Section 382 of the Code which places a limit, as
defined in the Code, on the amount of a Company’s net operating losses that can be deducted for tax purposes
once there has been an ownership change.
The Internal Revenue Service (the “IRS”) is currently conducting an examination of our U.S. Federal
income tax return for the tax period ended December 28, 2008 as part of the Compliance Assurance Program
(“CAP”). Our December 28, 2008 U.S. Federal income tax return includes Wendy’s for all of 2008 and
Wendy’s/Arby’s for the period September 30, 2008 to December 28, 2008. Prior to the Wendy’s Merger,
Wendy’s participated 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. The 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 ending January 1, 2006 to September 29,
2008 are not currently under examination by the IRS. However, 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 $11.3 million.
60