Wendy's 2011 Annual Report Download - page 62

amount that has a greater than fifty percent likelihood of being realized upon effective settlement. The
Wendy’s Company has unrecognized tax benefits of $30.6 million and $36.4 million, which if resolved
favorably would reduce their tax expense by $21.6 million and $25.2 million, at January 1, 2012 and
January 2, 2011, respectively. Wendy’s Restaurants has unrecognized tax benefits of $20.4 million and
$26.2 million, which if resolved favorably would reduce their tax expense by $13.5 million and $17.1
million, at January 1, 2012 and January 2, 2011, respectively.
We recognize interest accrued related to uncertain tax positions in “Interest expense” and penalties in
“General and administrative.” At January 1, 2012 and January 2, 2011, The Wendy’s Company had $4.9
million and $5.0 million accrued for interest and $1.9 million and $1.5 million accrued for penalties, both
respectively. Wendy’s Restaurants had $4.6 million and $4.7 million accrued for interest and $1.3 million
and $1.2 million accrued for penalties, both respectively.
The Wendy’s Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance
Program (“CAP”). As part of CAP, tax years are audited on a contemporaneous basis so that all or most
issues are resolved prior to the filing of the tax return. As such, our December 28, 2008 and January 3,
2010 tax returns have been settled. Our September 28, 2008 U.S. Federal income tax return (the period
prior to the merger with Wendy’s) is not currently under examination. Certain of the Companies’ state
income tax returns from its 1998 fiscal year and forward remain subject to examination. We believe that
adequate provisions have been made for any liabilities, including interest and penalties, that may result
from the completion of these examinations.
• Legal and environmental reserves:
We are involved in litigation and claims incidental to our current and prior businesses. We provide reserves
for such litigation and claims when payment is probable and reasonably estimable. Most proceedings are in
preliminary stages, with various motions either yet to be submitted or pending, discovery yet to occur, and
significant factual matters unresolved. In addition, most cases seek an indeterminate amount of damages
and many involve multiple parties. Predicting the outcomes of settlement discussions or judicial or arbitral
decisions are thus inherently difficult. We review our assumptions and estimates each quarter based on new
developments, changes in applicable law and other relevant factors, and revise our reserves accordingly.
Recently Issued Accounting Standards Not Yet Adopted
In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amendments which provide
additional guidance about how fair value should be determined under existing standards and expands existing
disclosure requirements for certain fair value measurements. The purpose of these amendments is to improve and
converge International Financial Reporting Standards and GAAP. The guidance is effective commencing with our
2012 fiscal year.
In June 2011, as amended in December 2011, the FASB issued an amendment that requires companies to present
comprehensive income in either a single statement or two consecutive statements reporting net income and other
comprehensive income. The purpose of this amendment is to increase the prominence of other comprehensive income in
financial statements. The guidance is effective commencing with our 2012 fiscal year. The guidance affects only the
presentation of comprehensive income and does not change the composition or calculation of comprehensive income.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Certain statements the Companies make under this Item 7A 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.”
We are exposed to the impact of interest rate changes, changes in commodity prices, changes in the fair value of
our investments and foreign currency fluctuations primarily related to the Canadian dollar. In the normal course of
business, we employ established policies and procedures to manage our exposure to these changes using financial
instruments we deem appropriate.
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