Wendy's 2009 Annual Report Download - page 41

Item 7. 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” and, together with its subsidiaries, the “Company” or “we”)
should be read in conjunction with the consolidated financial statements and the related notes that appear
elsewhere within this report. Certain statements we make under this Item 7 constitute “forward-looking
statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-
Looking Statements and Projections” in “Part 1” preceding “Item 1—Business.” You should consider our
forward-looking statements in light of the risks discussed under the heading “Risk Factors” in Item 1A above
as well as our consolidated financial statements, related notes, and other financial information appearing
elsewhere in this report and our other filings with the Securities and Exchange Commission.
On September 29, 2008, we completed the merger (the “Wendy’s Merger”) with Wendy’s International,
Inc. (“Wendy’s”) described below under “Introduction and Executive Overview—Merger with Wendy’s
International, Inc.”, and our corporate name Triarc Companies, Inc., (“Triarc”), was changed to Wendy’s/Arby’s
Group, Inc. The references to the “Company” or “we” for periods prior to September 29, 2008 refer to Triarc
and its subsidiaries. Because the Wendy’s Merger did not occur until the first day of our 2008 fourth quarter,
only the fourth quarter results of operations of Wendy’s are included in our 2008 results. The results of
operations discussed below for 2008 and 2007 will not be indicative of future results due to the consummation
of the Wendy’s Merger as well as the 2007 sale of our interest in Deerfield & Company LLC (“Deerfield”)
discussed below.
Introduction and Executive Overview
Our Business
Wendy’s/Arby’s is the parent company of its wholly-owned subsidiary holding company Wendy’s/Arby’s
Restaurants, LLC (“Wendy’s/Arby’s Restaurants”). Wendy’s/Arby’s Restaurants is the parent company of
Wendy’s International, Inc. and Arby’s Restaurant Group, Inc. (“ARG” or “Arby’s”), 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
January 3, 2010, the Wendy’s restaurant system was comprised of 6,541 restaurants, of which 1,391 were
owned and operated by the Company. As of January 3, 2010, the Arby’s restaurant system was comprised of
3,718 restaurants, of which 1,169 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”). In 2007, we also operated in the asset management business through our
63.6% capital interest in Deerfield which was sold on December 21, 2007 (the “Deerfield Sale”) to Deerfield
Capital Corp. (“DFR”).
Restaurant business revenues for 2009 include: (1) $3,086.5 million of sales from Company-owned
restaurants, (2) $111.8 million from the sale of bakery items and kid’s meal promotion items to our franchisees
and others, (3) $353.1 million from royalty income from franchisees and (4) $29.4 million of other franchise
related revenue. Our revenues increased significantly in 2009 and 2008 due to the Wendy’s Merger. All of our
Wendy’s and substantially all of our Arby’s royalty agreements provide for royalties of 4.0% of franchise
revenues for the year ended January 3, 2010. In our former asset management business, revenues were derived
through the date of the Deerfield Sale in the form of asset management and related fees from our management
of (1) collateralized debt obligation vehicles (“CDOs”) and (2) investment funds and private investment
accounts (“Funds”).
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 and (2) a significant
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