Wendy's 2012 Annual Report Download - page 34

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,” “we,” “us,” or
“our”) 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 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 notes and other financial information appearing elsewhere in this report and
our other filings with the Securities and Exchange Commission.
The Wendy’s Company is the parent company of its 100% owned subsidiary holding company, Wendy’s
Restaurants, LLC (“Wendy’s Restaurants”). 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 North America (defined as the
United States of America (the “U.S.”) and Canada). Wendy’s also has franchised restaurants in 26 foreign countries
and U.S. territories.
The Company manages and internally reports its business geographically. The operation and franchising of
Wendy’s restaurants in North America 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 are not
material. The results of operations discussed below may not necessarily be indicative of future results.
Executive Overview
Sale of Arby’s
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
$130.0 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 $190.0 million of Arby’s debt, consisting primarily of capital lease and sale-leaseback obligations.
The Company 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
costs ($11.5 million) and 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 $1.9 million on the
pre-tax loss on disposal and (2) income tax expense of $5.5 million due to a permanent difference between the book
and tax basis of Arby’s goodwill. The Company recorded net income from discontinued operations of $1.5 million
for the year ended December 30, 2012, which included certain post-closing Arby’s related transactions.
Wendy’s Restaurants also entered into a stockholders agreement with Buyer Parent and ARG Investment
Corporation, an entity affiliated with Buyer Parent, which sets forth certain agreements among the parties thereto
concerning, among other things, the governance of Buyer Parent and transfer rights, information rights and
registration rights with respect to the equity securities of Buyer Parent. In addition, Wendy’s Restaurants entered into
a transition services agreement with Buyer, pursuant to which it provided and was reimbursed for continuing
corporate and shared services to Buyer for a limited period of time; such services were completed in the fourth quarter
of 2011.
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