Wendy's 2011 Annual Report Download - page 35

(Wendy’s Restaurants)
Omitted pursuant to General Instruction I of Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of The
Wendy’s Company (“The Wendy’s Company” and, together with its subsidiaries, the “Company”) and Wendy’s
Restaurants, LLC (“Wendy’s Restaurants”) should be read in conjunction with the consolidated financial statements
and the related combined 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 I” 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 combined notes, and other financial
information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission.
The Wendy’s Company (formerly, through July 4, 2011, Wendy’s/Arby’s Group, Inc.) is the parent company
of its 100% owned subsidiary holding company, Wendy’s Restaurants, LLC (formerly, through July 4, 2011,
Wendy’s/Arby’s Restaurants, LLC). On July 4, 2011, Wendy’s Restaurants completed the sale of 100% of the
common stock of its then wholly owned subsidiary, Arby’s Restaurant Group, Inc. (“Arby’s”). See “Executive
Overview—Sale of Arby’s” for more information on the sale of Arby’s. Arby’s operating results for all periods
presented through its July 4, 2011 date of sale are classified as discontinued operations in the accompanying
consolidated statements of operations. After this sale, the principal 100% owned subsidiary of Wendy’s Restaurants is
Wendy’s International, Inc. (“Wendy’s”) and its subsidiaries. Wendy’s franchises and operates company-owned
Wendy’s®quick service restaurants specializing in hamburger sandwiches throughout the United States of America
(the “U.S.”). Wendy’s also has franchised restaurants in 27 foreign countries and U.S. territories.
The Wendy’s Company and Wendy’s Restaurants (together, the “Companies”) manage and internally report
their business geographically. The operation and franchising of Wendy’s restaurants in North America (defined as the
U.S. and Canada) comprises virtually all of our current operations and represents a single reportable segment. The
revenues and operating results of Wendy’s restaurants outside of North America (including through our joint venture
in Japan) are not material. References herein to The Wendy’s Company corporate (“Corporate”) represent The
Wendy’s Company parent company only functions and their effect on the Company’s consolidated results of
operations and financial condition. The results of operations discussed below may not necessarily be indicative of
future results.
Executive Overview
Sale of Arby’s
During January 2011, The Wendy’s Company decided to explore strategic alternatives for the Arby’s brand,
which culminated in the sale of Arby’s, in order to focus on the development of the Wendy’s brand. On July 4, 2011,
Wendy’s Restaurants completed the sale of 100% of the common stock of Arby’s to ARG IH Corporation (“Buyer”),
a wholly owned subsidiary of ARG Holding Corporation (“Buyer Parent”), for $130 million in cash (subject to
customary purchase price adjustments) and 18.5% of the common stock of Buyer Parent (through which Wendy’s
Restaurants indirectly retained an 18.5% interest in Arby’s) with a fair value of $19.0 million. Buyer and Buyer
Parent were formed for purposes of this transaction. The Buyer also assumed approximately $190 million of Arby’s
debt, consisting primarily of capital lease and sale-leaseback obligations. In accordance with the sale agreement, The
Wendy’s Company made an election under §338(h)(10) of the Internal Revenue Code, which has the effect of
treating the transaction as a sale of assets and resulted in an approximate $230 million ordinary loss for income tax
purposes. Had this election not been made, the sale of Arby’s common stock would have resulted in a capital loss for
income tax purposes.
The Companies recorded a pre-tax loss on disposal of Arby’s of $5.2 million during the year ended January 1,
2012, which included the effect of the valuation of our indirect retained interest ($19.0 million), transaction closing
31