Wendy's 2012 Annual Report Download

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2012 Annual Report

Table of contents

  • Page 1
    2012 Annual Report

  • Page 2
    ... exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2012, a copy of which (including the certifications) is included herein. Roland C. Smith President and Chief Executive Officer, Delhaize America Executive Vice President, Delhaize Group Investor Inquiries...

  • Page 3
    ... market value of common equity held by non-affiliates of The Wendy's Company as of July 1, 2012 was approximately $1,327,737,274. As of February 22, 2013, there were 392,939,774 shares of The Wendy's Company common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information required...

  • Page 4
    ... and our franchisees; • development costs, including real estate and construction costs; • delays in opening new restaurants or completing remodels of existing restaurants, including risks associated with the Image Activation program; • the timing and impact of acquisitions and dispositions of...

  • Page 5
    ... after the date of this Annual Report on Form 10-K as a result of new information, future events or developments, except as required by Federal securities laws. In addition, it is our policy generally not to endorse any projections regarding future performance that may be made by third parties. Item...

  • Page 6
    ... Item 8 herein, for financial information attributable to our geographic areas. The Wendy's Restaurant System Wendy's is the worlds third largest quick-service restaurant company in the hamburger sandwich segment. Wendy's is primarily engaged in the business of operating, developing and franchising...

  • Page 7
    ...order with the customer's choice of condiments. Wendy's menu also includes chicken nuggets, chili, french fries, baked potatoes, freshly prepared salads, soft drinks, FrostyTM desserts and kids' meals. In addition, the restaurants sell a variety of promotional products on a limited time basis. Wendy...

  • Page 8
    ... in 2009 for payments to QSCC required over an 18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and cash reserves. Since the third quarter of 2010, all QSCC members (including Wendy's) pay sourcing fees to third party vendors on products which...

  • Page 9
    ...of beef, poultry, and other core menu products from our distribution centers are randomly sampled and analyzed by a third party laboratory to test conformance to our quality specifications. Each year, Wendy's representatives conduct unannounced inspections of all company and franchise restaurants to...

  • Page 10
    ... established a lease guarantee program to promote new franchisee unit development for up to an aggregate of C$5.0 million for periods of up to five years. Franchisees pay WROC a nominal fee for the guarantee. In order to encourage franchisees to participate in Wendy's Image Activation program, which...

  • Page 11
    ...governed by the Wendy's Unit Franchise Agreement. Required contributions by company-owned restaurants for advertising and promotional programs are at the same percent of retail sales as franchised restaurants within the Wendy's system. As of December 30, 2012, the contribution rate for United States...

  • Page 12
    ... adverse effect on the Company's consolidated financial position or results of operations. We cannot predict the effect on our operations, particularly on our relationship with franchisees, of any pending or future legislation. Changes in government-mandated health care benefits under the Patient...

  • Page 13
    ... have introduced lower cost, value meal menu options. Our revenues and those of our franchisees may be hurt by this product and price competition. Moreover, new companies, including operators outside the quick service restaurant industry, may enter our market areas and target our customer base. For...

  • Page 14
    ...increase in these costs, especially beef or chicken prices, could harm operating results. In addition, our brand is susceptible to increases in these costs as a result of other factors beyond its control, such as weather conditions, global demand, food safety concerns, product recalls and government...

  • Page 15
    ... Company's Image Activation program may not positively affect sales at company-owned and participating franchised restaurants or improve our results of operations. Throughout 2013, the Company plans to reimage approximately 100 existing company-owned restaurants and open approximately 25 new company...

  • Page 16
    ...'s results of operations will improve. In addition, most of the Wendy's system consists of franchised restaurants. Many of our franchisees will need to borrow funds in order to participate in the Image Activation program. Other than the cash incentive program described above, the Company generally...

  • Page 17
    ...that the landlord may increase the rent over the term of the lease and any renewals thereof. Most leases require us to pay all of the costs of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases. If an existing or future restaurant is not profitable, and we decide to...

  • Page 18
    ... sales during these periods hurts our operating margins, and can result in restaurant operating losses. For these reasons, a quarter-to-quarter comparison may not be a good indication of Wendy's performance or how it may perform in the future. Wendy's business could be hurt by increased labor costs...

  • Page 19
    ...would incur a withdrawal liability occurred during fiscal 2012. A future incurrence of withdrawal liability could have a material effect on the Company's results of operations. Complaints or litigation may hurt the Wendy's brand. Wendy's customers file complaints or lawsuits against us alleging that...

  • Page 20
    ... financial condition. Changes in legal or regulatory requirements, including franchising laws, payment card industry rules, overtime rules, minimum wage rates, government-mandated health care benefits, tax legislation, federal ethanol policy and accounting standards, may hurt our ability to open new...

  • Page 21
    ...contract terms, it could require us to notify customers, employees or other groups, result in adverse publicity, loss of sales and profits, increase fees payable to third parties, and incur penalties or remediation and other costs that could adversely affect the operation of our business and results...

  • Page 22
    ...of assets; dividends and other payments in respect of capital stock; investments; payments of certain indebtedness; transactions with affiliates; changes in fiscal year; negative pledge clauses and clauses restricting subsidiary distributions; and material changes in lines of business. The financial...

  • Page 23
    ...to fund its or The Wendy's Company's dividend and other liquidity needs. As a result of the indemnification provisions of the Purchase and Sale Agreement pursuant to which the sale of Arby's occurred on July 4, 2011, Wendy's Restaurants may incur expenses and liabilities for taxes related to periods...

  • Page 24
    ... Stock will only be entitled to receive such dividends as its Board of Directors may declare out of funds legally available for such payments. Any dividends will be made at the discretion of the Board of Directors and will depend on the Company's earnings, financial condition, cash requirements...

  • Page 25
    ... members of the Board of Directors and the outcome of corporate actions requiring majority stockholder approval, including mergers, consolidations and the sale of all or substantially all of the Company's assets. They would also be in a position to prevent or cause a change in control of the Company...

  • Page 26
    ... leases are generally written for terms of 10 to 25 years with one or more five-year renewal options. In certain lease agreements Wendy's has the option to purchase the real estate. Certain leases require the payment of additional rent equal to a percentage, generally less than 6%, of annual sales...

  • Page 27
    The location of company-owned and franchised restaurants as of December 30, 2012 is set forth below. State Wendy's Company Franchise Alabama ...Alaska ...... ...Missouri ...Montana ...Nebraska ...Nevada ...New Hampshire ...New Jersey ...New Mexico ...New York ...North Carolina ...North Dakota ......

  • Page 28
    ... financial position or results of operations. Wendy's completed the initial public offering of Tim Hortons Inc. ("THI") in March, 2006 and the spin-off of THI in September, 2006. In connection with the initial public offering, Wendy's and THI entered into a tax sharing agreement that governed...

  • Page 29
    ... the tax sharing agreement, to Wendy's under the master separation agreement between Wendy's and THI that was executed contemporaneously with the tax sharing agreement. The dispute resolution provision of the master separation agreement calls for good faith negotiations between the parties, followed...

  • Page 30
    ... 2012 cash dividend was $0.04 per share of common stock. During the 2013 first quarter, The Wendy's Company declared a dividend of $0.04 per share to be paid on March 15, 2013 to shareholders of record as of March 1, 2013. Although The Wendy's Company currently intends to continue to declare and pay...

  • Page 31
    ... common stock by us and our "affiliated purchasers" (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the fourth fiscal quarter of 2012: Issuer Repurchases of Equity Securities Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares that...

  • Page 32
    Item 6. Selected Financial Data. December 30, 2012 Year Ended (1) (2) January 1, January 2, January 3, 2012 2011 2010 (In Millions, except per share amounts) December 28, 2008 (3) Sales ...Franchise revenues ...Revenues ...Operating profit (loss) ...Income (loss) from continuing operations ......

  • Page 33
    ..., 2.0 million and 1.9 million dilutive stock options and restricted shares for 2009, 2010, 2011 and 2012, respectively. The weighted average number of shares used in the calculation of diluted loss per share for 2008 is the same as basic loss per share since all potentially dilutive securities would...

  • Page 34
    ... post closing purchase price adjustments primarily related to working capital ($14.8 million). The Company recognized income tax expense associated with the loss on disposal of $3.6 million during the year ended January 1, 2012. This income tax expense was comprised of (1) an income tax benefit of...

  • Page 35
    ... in 2012 and 2011. Increased commodity costs negatively affected our cost of food and paper in those years. Wendy's long-term growth opportunities include improving our North America business by elevating the total customer experience through continuing core menu improvement, step-change product...

  • Page 36
    ..., assets and certain Wendy's purchasing employees to QSCC in 2010. Pursuant to the terms of the Wendy's Co-op, Wendy's expensed $15.5 million in 2009 for payments to QSCC required over an 18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and cash...

  • Page 37
    ... that we received from Deerfield Capital Corp. (the "DFR Notes"). The Liquidation Services Agreement required The Wendy's Company to pay the Management Company a fee of $0.9 million in two installments in June 2009 and 2010, which was deferred and amortized through its June 30, 2011 expiration date...

  • Page 38
    ... JV to fund working capital requirements. As of December 30, 2012, our portion of these contingent obligations totaled approximately $3.0 million based upon then current rates of exchange. The fair value of our guarantees is immaterial. In early 2013, the joint venture partners agreed on a plan to...

  • Page 39
    ... of operations for the years ended December 30, 2012, January 1, 2012 and January 2, 2011 (except company-owned average unit volumes, which are in thousands): 2012 Amount Change 2011 Amount Change 2010 Amount Revenues: Sales ...Franchise revenues ...Costs and expenses: Cost of sales ...General and...

  • Page 40
    ... quarter of 2011, QSCC began managing the operations for kids' meal promotion items sold to franchisees. 2012 New Method 2011 2010 2012 Old Method 2011 2010 Wendy's restaurant statistics: North America same-store sales: ...Company-owned restaurants ...Franchised restaurants ...Systemwide ...Total...

  • Page 41
    ... per customer check amount increased in 2012 primarily due to strategic price increases on our menu items and, to a lesser extent, the composition of our sales which included more premium products in 2012. Wendy's company-owned restaurants opened or acquired subsequent to January 1, 2012 resulted in...

  • Page 42
    ... corporate and shared services incurred in the second half of 2011 in connection with the transition service agreement related to the sale of Arby's (these services were completed during the fourth quarter of 2011), (2) the effect of the various franchise incentive programs in 2012 compared to 2011...

  • Page 43
    ... depreciation on existing assets that were replaced, (2) $7.2 million related to other restaurant capital expenditures, including the effect from restaurants acquired from franchisees subsequent to 2011 and (3) $2.9 million related to point-of-sale system hardware purchased during 2012. The decrease...

  • Page 44
    ... and stock compensation costs related to the relocation of a corporate executive are being amortized over a three year period in accordance with the terms of an agreement. Interest Expense Change 2012 2011 Senior Notes ...Amortization of deferred financing costs ...Term loans ...Interest rate swaps...

  • Page 45
    ...Taxes 2012 Change 2011 Federal and state benefit on variance in (loss) income from continuing operations before income taxes and noncontrolling interests ...Foreign tax credit, net of tax on foreign earnings ...Corrections related to prior years' tax matters ...Adjustments related to prior year tax...

  • Page 46
    ... growth opportunities through our Image Activation program which includes our new restaurants and the reimaging of approximately 100 restaurants during 2013. The net impact of new store openings and closings is not expected to have a significant impact on sales. Franchise Revenues We expect that the...

  • Page 47
    ... offset by increases in cash related to accounts and notes receivable of $6.7 million, prepaid expenses and other current assets of $6.2 million and a cash dividend received from our investment in Arby's of $4.6 million in 2012. Additionally, for the year ended December 30, 2012, the Company had the...

  • Page 48
    ...the management for kids' meal promotion items sold to franchisees was transferred to QSCC in the first quarter of 2011. These increases were partially offset by a $9.1 million decrease to cash related to prepaid expenses and other current assets. Additionally, for the year ended January 1, 2012, the...

  • Page 49
    ... amount outstanding, payable in quarterly installments which commenced on December 31, 2012, with the remaining balance payable on the maturity date. In addition, the Term Loan requires prepayments of principal amounts resulting from certain events and excess cash flow on an annual basis from Wendy...

  • Page 50
    ...of assets; dividends and other payments in respect of capital stock; investments; payments of certain indebtedness; transactions with affiliates; changes in fiscal year; negative pledge clauses and clauses restricting subsidiary distributions; and material changes in lines of business. The financial...

  • Page 51
    ... 2013 at the same rate as declared in the first quarter of 2013, The Wendy's Company's total cash requirement for dividends for all of 2013 would be approximately $62.9 million based on the number of shares of its common stock outstanding at February 22, 2013. Although The Wendy's Company currently...

  • Page 52
    ...such menu price increases and competitive pressures may limit our ability to recover such cost increases in the future. Inherent volatility experienced in certain commodity markets, such as those for beef, chicken, corn and wheat had a significant effect on our results of operations in 2012 and 2011...

  • Page 53
    ... plans that may not be comparable to other companies and that are not yet publicly available, is dependent on several critical management assumptions. These assumptions include estimates of future sales growth, gross margins, operating costs, income tax rates, terminal value growth rates, capital...

  • Page 54
    ... of the fair value of our indefinite-lived intangible assets include the anticipated future revenues of company-owned and franchised restaurants and the resulting cash flows. We performed our annual indefinite-lived intangible asset impairment test in the fourth quarter of 2012, which indicated that...

  • Page 55
    ...our business plans, changing economic conditions and the competitive environment. Should actual cash flows and our future estimates vary adversely from those estimates we used, we may be required to recognize additional impairment charges in future years. • Realizability of deferred tax assets: We...

  • Page 56
    ... rate changes is to limit the impact on our earnings and cash flows. Our practice is to maintain a target, over time and subject to market conditions, of between 25% and 50% of "Long-term debt" as fixed, or effectively fixed, rate debt. As of December 30, 2012, our long-term debt, including current...

  • Page 57
    ...exchange rates on the Company's cash flows primarily includes imports paid for by Canadian operations in U.S. dollars and payments from the Company's Canadian operations to the Company's U.S. operations in U.S. dollars. Revenues from our Canadian operations for both the years ended December 30, 2012...

  • Page 58
    ... of Defined Terms ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 30, 2012 and January 1, 2012 ...Consolidated Statements of Operations for the years ended December 30, 2012, January 1, 2012 and January 2, 2011 ...Consolidated Statements of...

  • Page 59
    ... Rent ...Credit Agreement ...DFR ...DFR Notes ...Double Cheese ...Eligible Arby's Employees ...Equity Plans ...FASB ...Former Executives ...GAAP ...Grants ...IRS ...Japan JV ...Jurl ...Jurlique ...Liquidation Services Agreement ...Management Company ...New CBA ...Pisces ...Pisces Acquisition...

  • Page 60
    ... Fund ...U.S...Wendy's ...Wendy's Co-op ...Wendy's Restaurants ... (12) (20) (23) (23) (1) (23) (22) (23) (12) (1) (1) (1) (20) (1) (1) (23) (1) Long-Term Debt Retirement Benefit Plans Transactions with Related Parties Transactions with Related Parties Summary of Significant Accounting Policies...

  • Page 61
    ..., the financial position of the Company as of December 30, 2012 and January 1, 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2012, in conformity with accounting principles generally accepted in the United States of America...

  • Page 62
    THE WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands) December 30, 2012 January 1, 2012 ASSETS Current assets: Cash and cash equivalents ...Accounts and notes receivable ...Inventories ...Prepaid expenses and other current assets ...Deferred income tax benefit ......

  • Page 63
    THE WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) Year Ended December 30, 2012 January 1, 2012 January 2, 2011 Revenues: Sales ...Franchise revenues ...Costs and expenses: Cost of sales ...General and administrative ...Depreciation ...

  • Page 64
    ... WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Year Ended January 1, 2012 December 30, 2012 January 2, 2011 Net income (loss) ...Other comprehensive income (loss), net: Foreign currency translation adjustment ...Change in unrecognized pension loss...

  • Page 65
    ... Total Balance at January 3, 2010 ...Net loss ...Changes in accumulated other comprehensive income (loss) ...Cash dividends ...Accrued dividends on non-vested restricted stock ...Repurchases of common stock ...Share-based compensation expense ...Common stock issued upon exercises of stock options...

  • Page 66
    ...term debt ...Amortization of deferred financing costs ...Non-cash rent expense ...Loss on disposal of Arby's ...Equity in earnings in joint ventures, net ...Deferred income tax ...Operating investment adjustments, net (see below) ...Other, net ...Changes in operating assets and liabilities: Accounts...

  • Page 67
    THE WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED (In Thousands) Year Ended January 1, 2012 December 30, 2012 January 2, 2011 Detail of cash flows related to investments: Operating investment adjustments, net: Gain on sale of investments ...Income on collection ...

  • Page 68
    ... reportable segment. The revenues and operating results of Wendy's restaurants outside of North America are not material. Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States...

  • Page 69
    ... other non-current investments in which the Company does not have significant influence over the investees, which includes our indirect 18.5% interest in Arby's Restaurant Group, Inc. ("Arby's"), are recorded at cost with related realized gains and losses reported as income or loss in the period in...

  • Page 70
    ... COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Properties and Depreciation and Amortization Properties are stated at cost, including internal costs of employees to the extent such employees are dedicated to specific restaurant...

  • Page 71
    ... to certain employees under several equity plans. The Company measures the cost of employee services received in exchange for an equity award, which include grants of employee stock options and restricted shares, based on the fair value of the award at the date of grant. Share-based compensation...

  • Page 72
    ...." Revenue Recognition "Sales" includes revenues recognized upon delivery of food to the customer at company-owned restaurants and upon shipment of bakery items and kids' meal promotional items to our franchisees and others. During the first quarter of 2011, Wendy's purchasing cooperative, Quality...

  • Page 73
    ... renewal and lease amendment, including, but not limited to, property values, market rents, property lives, discount rates and probable term, all of which can impact (1) the classification and accounting for a lease as capital or operating, (2) the Rent Holiday and escalations in payment that are...

  • Page 74
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Concentration of Risk Wendy's had no customers which accounted for 10% or more of consolidated revenues in 2012, 2011 or 2010. As of December 30, 2012, Wendy's had one ...

  • Page 75
    ... corporate and shared services to Buyer for a limited period of time; such services were completed in the fourth quarter of 2011. Information related to Arby's has been reflected in the accompanying consolidated financial statements as follows: • Balance sheets - As a result of our sale of Arby...

  • Page 76
    ... FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) limitations and favorable settlements. The benefit from income taxes for the year ended December 30, 2012 includes approximately $580 of employment credits realized by the Company for 2011 through the date of the sale of Arby...

  • Page 77
    ... acquisitions On July 13, 2012, Wendy's acquired 24 franchised restaurants in the Albuquerque, New Mexico area from Double Cheese Corporation and Double Cheese Realty Corporation ("Double Cheese"). The purchase price was $19,181 in cash, including closing adjustments. Wendy's also agreed to lease...

  • Page 78
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) The table below presents the allocation of the total purchase price to the fair value of assets acquired and liabilities assumed at the acquisition date. Total purchase ...

  • Page 79
    ... "Investment income, net" for the year ended January 2, 2011. (5) Income (Loss) Per Share Basic income (loss) per share for 2012, 2011 and 2010 was computed by dividing income (loss) amounts attributable to The Wendy's Company by the weighted average number of common shares outstanding. Income (loss...

  • Page 80
    ... (6) Cash and Receivables Year End 2012 2011 Cash and cash equivalents Cash ...Cash equivalents ...Restricted cash equivalents Current (a) Trust for termination costs for former Wendy's executives ...Other ...Non-current (b) ...Trust for termination costs for former Wendy's executives ...Collateral...

  • Page 81
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) The following is an analysis of the allowance for doubtful accounts: 2012 Year End 2011 2010 Balance at beginning of year: Current ...$4,053 $7,321 $ 6,540 Non-current ...

  • Page 82
    ...purchase price adjustments from the Wendy's merger. Presented below is activity related to our portion of TimWen included in our consolidated balance sheets and consolidated statements of operations as of and for the years ended December 30, 2012, January 1, 2012 and January 2, 2011. 2012 Year Ended...

  • Page 83
    ... below is activity related to our portion of the Japan JV included in our consolidated balance sheets and consolidated statements of operations as of and for the years ended December 30, 2012 and January 1, 2012. Year Ended 2012 2011 Balance at beginning of period ...Initial investment ...Equity in...

  • Page 84
    ... JV to fund working capital requirements. As of December 30, 2012, our portion of these contingent obligations totaled approximately $3,000 based upon then current rates of exchange. The fair value of our guarantees is immaterial. In early 2013, the joint venture partners agreed on a plan to finance...

  • Page 85
    ...'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) (9) Properties Year End 2012 2011 Owned: Land ...Buildings and improvements ...Office, restaurant and transportation equipment (a) ...Leasehold improvements ...Leased: Capital...

  • Page 86
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) The following is a summary of the components of other intangible assets: Year End 2012 Accumulated Amortization Year End 2011 Accumulated Amortization Cost Net Cost ...

  • Page 87
    ... amount outstanding, payable in quarterly installments which commenced on December 31, 2012, with the remaining balance payable on the maturity date. In addition, the Term Loan requires prepayments of principal amounts resulting from certain events and excess cash flow on an annual basis from Wendy...

  • Page 88
    ...of assets; dividends and other payments in respect of capital stock; investments; payments of certain indebtedness; transactions with affiliates; changes in fiscal year; negative pledge clauses and clauses restricting subsidiary distributions; and material changes in lines of business. The financial...

  • Page 89
    ...December 30, 2012. (13) Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair...

  • Page 90
    ...Amount Fair Value Fair Value Measurements Financial assets Non-current cost method investments (a) . . $ 23,913 $ 50,761 Interest rate swaps (b) ...8,169 8,169 Financial liabilities Term Loan, due in 2019 (c) ...1,114,826 1,130,434 Senior Notes, repaid in July 2012 (c) ...- - 2010 Term Loan, repaid...

  • Page 91
    ... the years ended December 30, 2012, January 1, 2012 and January 2, 2011. Our interest rate swaps (and cash and cash equivalents as described above) are the only financial assets and liabilities measured and recorded at fair value on a recurring basis. The Company may be exposed to credit losses in...

  • Page 92
    ... $(6,528) Year End 2012 2011 Deferred tax assets: Operating and capital loss carryforwards ...Tax credit carryforwards ...Accrued compensation and related benefits ...Unfavorable leases ...Accrued expenses and reserves ...Other ...Valuation allowances ...Total deferred tax assets ...Deferred tax...

  • Page 93
    ...in 2025. State net operating loss carryforwards are subject to various limitations including carryforward periods and begin expiring in 2013. As of December 30, 2012, the Company had a deferred tax asset, net of U.S. Federal taxes, of $44,716 related to state net operating losses. Tax credits of $91...

  • Page 94
    ... WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) The Company participates in the Internal Revenue Service (the "IRS") Compliance Assurance Process ("CAP"). As part of CAP, tax years are examined on a contemporaneous basis...

  • Page 95
    ... 30, 2012. Under the prior repurchase program, which expired at the end of fiscal 2011, our Board of Directors had authorized in aggregate the repurchase of $495,000 of our common stock. During 2011 and 2010, the Company repurchased 30,983 and 35,406 shares with an aggregate purchase price of...

  • Page 96
    ... based on the historical market price volatility of our common stock. The expected dividend yield represents the Company's annualized average yield for regular quarterly dividends declared prior to the respective stock option grant dates. The Black-Scholes Model has limitations on its effectiveness...

  • Page 97
    ... common stock share prices (a market condition). The fair value of the performance condition awards granted in 2010 was determined using the average of the high and low trading prices of our common stock on the date of grant. There were no performance condition awards granted in 2012 or 2011. Share...

  • Page 98
    ... Total share-based compensation expense and the related income tax benefit recognized in the Company's consolidated statements of operations were as follows: 2012 Year Ended 2011 2010 Stock options (a) ...Restricted Shares ...Performance Shares: ...Performance Condition Shares ...Market Condition...

  • Page 99
    ... its relocation and other transition activities which were substantially completed during 2012. The costs expected to be expensed in 2013 primarily relate to relocation, severance and consulting and professional fees. Year Ended 2012 2011 Total Incurred Since Inception Total Expected to be Incurred...

  • Page 100
    ... which will not be reimbursed. Arby's Transaction Related Costs As a result of the sale of Arby's in July 2011, we expensed costs related to the Arby's transaction during 2012 and 2011 as detailed in the table below. Year Ended 2012 2011 Total Incurred Since Inception Total Expected to Be Incurred...

  • Page 101
    ... for capital improvements in restaurants impaired in prior years which did not subsequently recover. Additionally, in 2012 and 2010, our impairment losses included write-downs in the carrying value of certain surplus properties and properties held for sale. During 2012, we closed 15 company-owned...

  • Page 102
    ... the sale of Arby's, Wendy's Restaurants transferred the liabilities related to the Eligible Arby's Employees to The Wendy's Company. The measurement date used by The Wendy's Company in determining amounts related to its defined benefit plans is the same as the Company's fiscal year end. The balance...

  • Page 103
    ... 2012, 2011 and 2010, respectively, which were included in "General and administrative." In addition, The Wendy's Company recognized $47 and $64 in benefit plan expenses related to the Eligible Arby's Employees in 2011 and 2010, respectively, which were included in discontinued operations. The Wendy...

  • Page 104
    ...31/2013 (a) The Union Pension Fund elected an expanded asset smoothing period of 10 years for the investment loss incurred in the plan year ended December 31, 2008 and an increase in the limits on the actuarial value of the assets to 130% of market value for the plan years beginning January 1, 2009...

  • Page 105
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Rental expense under operating leases consists of the following components: 2012 Year Ended 2011 2010 Minimum rentals ...Contingent rentals ...Less sublease income ... ...

  • Page 106
    ... JV to fund working capital requirements. As of December 30, 2012, our portion of these contingent obligations totaled approximately $3,000 based upon then current rates of exchange. The fair value of our guarantees is immaterial. In early 2013, the joint venture partners agreed on a plan to finance...

  • Page 107
    ... various parties of $20,601. We do not expect any material loss to result from these letters of credit. Purchase and Capital Commitments Beverage Agreements Wendy's had an agreement with a beverage vendor which provided fountain beverage products and certain marketing support funding to the Company...

  • Page 108
    ..., assets and certain Wendy's purchasing employees to QSCC in 2010. Pursuant to the terms of the Wendy's Co-op, Wendy's expensed $15,500 in 2009 for payments to QSCC required over an 18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and cash reserves...

  • Page 109
    ... to manage and operate purchasing programs for certain non-perishable goods, equipment and services. Wendy's Restaurants had committed to pay approximately $5,145 of SSG expenses, which were expensed in 2010 and included in "General and administrative," and were to be paid over a 24 month period...

  • Page 110
    ...Notes. The Liquidation Services Agreement required The Wendy's Company to pay the Management Company a fee of $900 in two installments in June 2009 and 2010, which was deferred and amortized through its June 30, 2011 expiration date. Related amortization of $220 and $441 was recorded in "General and...

  • Page 111
    ... Funds We currently participate in two national advertising funds (the "Advertising Funds") established to collect and administer funds contributed for use in advertising and promotional programs. Contributions to the Advertising Funds are required from both company-owned and franchised restaurants...

  • Page 112
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Restricted assets and related liabilities of the Advertising Funds at December 30, 2012 and January 1, 2012 were as follows: Year End 2012 2011 Cash and cash ...

  • Page 113
    ... common stock of Arby's. Arby's results for all periods presented through its July 4, 2011 date of sale are classified as discontinued operations. 2012 Quarter Ended September 30 July 1 (a)(c) (a)(c)(d) December 30 (a)(d) April 1 (a)(b) Revenues ...Cost of sales ...Operating profit ...Income (loss...

  • Page 114
    .... See Note 12 for additional information. (d) (Loss) income from continuing operations was materially affected during the third and fourth quarters of 2012 by corrections related to prior years' tax matters which had an effect of increasing our benefit from income taxes by $2,181 and $5,439...

  • Page 115
    ...30, 2012, internal control over financial reporting of the Company was effective. Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report dated February 28, 2013 on the Company's internal control over financial reporting. Changes in Internal Control...

  • Page 116
    ... accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's consolidated financial statements and financial statement schedule as of and for the year ended December 30, 2012 and our report dated February 28, 2013, expressed an unqualified opinion on...

  • Page 117
    ... to Financial Statements (Item 8). 2. Financial Statement Schedules: Schedule I - Condensed Balance Sheets (Parent Company Only) - as of December 30, 2012 and January 1, 2012; Condensed Statements of Operations (Parent Company Only) - for the fiscal years ended December 30, 2012, January 1, 2012 and...

  • Page 118
    ...the year ended December 28, 2008 (SEC file no. 001-02207).** Form of Non-Incentive Stock Option Agreement under the Wendy's/Arby's Group, Inc. Amended and Restated 2002 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 99.6 to Wendy's/Arby's Group's Current Report on...

  • Page 119
    ... of The Wendy's Company and Wendy's Restaurants, LLC Form 10-Q for the quarter ended October 2, 2011 (SEC file nos. 001-02207 and 333-161613, respectively).** Form of Non-Employee Director Restricted Stock Award Agreement under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated by...

  • Page 120
    ... year ended December 28, 2008 (SEC file no. 001-02207).** Form of Stock Option Award Letter for U.S. Grantees under the Wendy's International, Inc. 2007 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3 to Wendy's/Arby's Group's Form 10-Q for the quarter ended September 27, 2009...

  • Page 121
    ... dated June 10, 2009 between TCMG-MA, LLC and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.3 to Wendy's/Arby's Group's Current Report on Form 8-K filed on June 11, 2009 (SEC file no. 001-02207). Separation Agreement, dated as of April 30, 2007, between Triarc Companies...

  • Page 122
    ...between Triarc Companies, Inc. and Peter W. May, incorporated herein by reference to Exhibit 10.3 to Triarc's Current Report on Form 8-K filed on January 4, 2008 (SEC file no. 001-02207).** Agreement dated June 10, 2009 between Wendy's/Arby's Group, Inc. and Trian Fund Management, L.P., incorporated...

  • Page 123
    ... DWG Acquisition Group, L.P., incorporated herein by reference to Exhibit 10.36 to Wendy's/Arby's Group's Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (SEC file no. 001-02207). Letter Agreement dated August 6, 2007, between Triarc Companies, Inc. and Trian Fund Management...

  • Page 124
    ... Group, Inc. and certain officers, directors, and employees thereof, incorporated herein by reference to Exhibit 10.47 to Wendy's/Arby's Group's Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (SEC file no. 001-02207).** Form of Indemnification Agreement of The Wendy's Company...

  • Page 125
    ... certain directors, officers and employees thereof, incorporated herein by reference to Exhibit 10.40 to Triarc's Annual Report on Form 10-K for the fiscal year ended December 30, 2007 (SEC file no. 001-02207).** Form of Indemnification Agreement for officers and employees of Wendy's International...

  • Page 126
    ...by the undersigned, thereunto duly authorized. THE WENDY'S COMPANY (Registrant) Date: February 28, 2013 By: /S/ EMIL J. BROLICK Emil J. Brolick President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 28...

  • Page 127
    SCHEDULE I THE WENDY'S COMPANY (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS (In Thousands) December 30, 2012 January 1, 2012 ASSETS Current assets: Cash and cash equivalents ...Amounts due from subsidiaries ...Other current assets ...Total current assets ...Investments in consolidated ...

  • Page 128
    ...) THE WENDY'S COMPANY (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF OPERATIONS (In Thousands) December 30, 2012 Year Ended January 1, 2012 January 2, 2011 Income: Equity in income from continuing operations of subsidiaries ...Investment income ...Costs and expenses: General and administrative...

  • Page 129
    ...) THE WENDY'S COMPANY (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) December 30, 2012 Year Ended January 1, 2012 January 2, 2011 Net income (loss) ...Other comprehensive income (loss), net: ...Foreign currency translation adjustment ...Change in unrecognized...

  • Page 130
    ...THE WENDY'S COMPANY (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS (In Thousands) December 30, 2012 Year Ended January 1, 2012 January 2, 2011 Cash flows from operating activities: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by operating activities...

  • Page 131
    ...the year ended December 28, 2008 (SEC file no. 001-02207).** Form of Non-Incentive Stock Option Agreement under the Wendy's/Arby's Group, Inc. Amended and Restated 2002 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 99.6 to Wendy's/Arby's Group's Current Report on...

  • Page 132
    ... of The Wendy's Company and Wendy's Restaurants, LLC Form 10-Q for the quarter ended October 2, 2011 (SEC file nos. 001-02207 and 333-161613, respectively).** Form of Non-Employee Director Restricted Stock Award Agreement under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated by...

  • Page 133
    ... year ended December 28, 2008 (SEC file no. 001-02207).** Form of Stock Option Award Letter for U.S. Grantees under the Wendy's International, Inc. 2007 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3 to Wendy's/Arby's Group's Form 10-Q for the quarter ended September 27, 2009...

  • Page 134
    ... dated June 10, 2009 between TCMG-MA, LLC and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.3 to Wendy's/Arby's Group's Current Report on Form 8-K filed on June 11, 2009 (SEC file no. 001-02207). Separation Agreement, dated as of April 30, 2007, between Triarc Companies...

  • Page 135
    ...between Triarc Companies, Inc. and Peter W. May, incorporated herein by reference to Exhibit 10.3 to Triarc's Current Report on Form 8-K filed on January 4, 2008 (SEC file no. 001-02207).** Agreement dated June 10, 2009 between Wendy's/Arby's Group, Inc. and Trian Fund Management, L.P., incorporated...

  • Page 136
    ... DWG Acquisition Group, L.P., incorporated herein by reference to Exhibit 10.36 to Wendy's/Arby's Group's Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (SEC file no. 001-02207). Letter Agreement dated August 6, 2007, between Triarc Companies, Inc. and Trian Fund Management...

  • Page 137
    ...'s Company Form 10-Q for the quarter ended July 1, 2012 (SEC file no. 001-02207).** Form of Indemnification Agreement, between Wendy's/Arby's Group, Inc. and certain officers, directors, and employees thereof, incorporated herein by reference to Exhibit 10.47 to Wendy's/Arby's Group's Annual Report...

  • Page 138
    ... the quarter ended October 2, 2011 (SEC file nos. 001-02207 and 333-161613, respectively).** Form of Indemnification Agreement between Arby's Restaurant Group, Inc. and certain directors, officers and employees thereof, incorporated herein by reference to Exhibit 10.40 to Triarc's Annual Report on...

  • Page 139
    ...New York, LLC Wendy's of Denver, Inc. Wendy's of N.E. Florida, Inc. Oldemark LLC Restaurant Finance Corporation Café Express, LLC Wendy Restaurant, Inc. The Wendy's National Advertising Program, Inc. 256 Gift Card Inc. SEPSCO, LLC TXL Corp. Home Furnishing Acquisition Corporation Triarc Acquisition...

  • Page 140
    ... statement schedule of The Wendy's Company, and the effectiveness of The Wendy's Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of The Wendy's Company for the year ended December 30, 2012. /s/ Deloitte & Touche LLP Columbus, Ohio February 28, 2013

  • Page 141
    ... of The Wendy's Company, of our report dated February 27, 2013 relating to the financial statements of TIMWEN Partnership, which appears in this Annual Report on Form 10-K of The Wendy's Company. /s/ PricewaterhouseCoopers LLP Chartered Accountants, Licensed Public Accountants Mississauga, Ontario...

  • Page 142
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer...

  • Page 143
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer...

  • Page 144
    ... Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 28, 2013 /S/ EMIL J. BROLICK Emil J. Brolick President and Chief Executive Officer Date: February 28, 2013...

  • Page 145
    ... peer group. The measurement points in the graph are the last trading days of our 2007, 2008, 2009, 2010, 2011 and 2012 fiscal years. The returns set forth below assume an initial investment of $100 and that all dividends were reinvested when received. On September 29, 2008, Wendy's International...

  • Page 146