Wendy's 2009 Annual Report Download - page 113

The deferred income tax assets and the deferred income tax (liabilities) resulted from the following
components:
2009 2008
Year End
Deferred tax assets:
Net operating/capital loss and tax credit carryforwards . . . . . . . . . . . $ 144,478 $ 171,909
Accrued compensation and related benefits. . . . . . . . . . . . . . . . . . . . . . 34,327 34,653
Unfavorable leases............................................ 34,595 36,830
Other ....................................................... 81,449 77,612
Valuation allowances.......................................... (87,231) (80,886)
Total deferred tax assets........................................... 207,618 240,118
Deferred tax liabilities:
Intangible assets.............................................. (471,816) (464,945)
Owned and leased fixed assets and related obligations. . . . . . . . . . . . (110,033) (124,727)
Gain on sale of propane business .............................. — (34,692)
Other ....................................................... (34,750) (53,074)
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (616,599) (677,438)
$(408,981) $(437,320)
At January 3, 2010, the Company’s net deferred tax liabilities totaled $408,981. At December 28, 2008,
the Company’s net deferred tax liabilities totaled $437,320. The decrease in net deferred tax liabilities is
principally the result of recognizing the tax gain on the sale of our propane business, fixed asset differences
including impairments, and credit carryforwards partially offset by a decrease in deferred tax assets resulting
from the utilization of net operating loss carryforwards.
U.S. income taxes and foreign withholding taxes are provided on unremitted earnings of foreign
subsidiaries, primarily Canadian, which are not essentially permanent in duration. As of January 3, 2010, the
Company had unremitted earnings of approximately $9.6 million with a corresponding U.S. deferred income
tax liability of $0.1 million.
The Wendy’s Merger qualified as a tax-free reorganization. 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, for U.S. Federal tax purposes there was an ownership change at Wendy’s/Arby’s which
places a limit on the amount of a Company’s net operating losses that can be deducted annually.
As of January 3, 2010, the Company had net operating loss carryforwards for U.S. Federal income tax
purposes of approximately $154,902 which expire beginning in 2024. The utilization of loss carryforwards in
future federal income tax returns is subject to annual limitations of approximately $97,100 and $55,565 for
2010 and 2011 respectively. The net operating losses reflect deductions for federal income tax purposes of
$117,939 relating to the exercise of stock options and vesting of restricted stock. The Company has not
recognized the $42,661 tax benefit relating to these deductions because it has no income taxes currently
payable against which the benefits can be realized as a result of its net operating loss carryforward position.
When such benefits are realized against future income taxes payable by the Company, it will recognize them in
future periods as a reduction of current income taxes payable with an equal offsetting increase in “Additional
paid-in capital.”
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Wendy’s/Arby’s Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)