Wendy's 2014 Annual Report Download

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2014 Annual Report

Table of contents

  • Page 1
    2014 Annual Report

  • Page 2
    DIRECTORS, OFFICERS, CORPORATE INFORMATION BOARD OF DIRECTORS Nelson Peltz Chairman, The Wendy's Company Chief Executive Officer and Founding Partner, Trian Fund Management, L.P. Peter W. May 2,4,6 Vice Chairman, The Wendy's Company President and Founding Partner, Trian Fund Management, L.P. Emil ...

  • Page 3
    ... FOR THE FISCAL YEAR ENDED December 28, 2014 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO THE WENDY'S COMPANY (Exact name of registrants as specified in its charter) Commission file number: 1-2207 Delaware (State or...

  • Page 4
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 5
    ... chicken and corn), labor, supplies, fuel, utilities, distribution and other operating costs; • availability, location and terms of sites for restaurant development by us and our franchisees; • development costs, including real estate and construction costs; • delays in opening new restaurants...

  • Page 6
    ...balance sheet on acceptable terms, as well as risks associated with such plan, including the ability to generate sufficient cash flow to meet increased debt service obligations, compliance with operational and financial covenants, and restrictions on the Company's ability to raise additional capital...

  • Page 7
    ... of four 13-week fiscal quarters, although in the years with 53 weeks, including 2015, the fourth quarter represents a 14-week period. Business Segments The Company manages and internally reports its business geographically. The operation and franchising of Wendy's restaurants in North America...

  • Page 8
    ... franchise related revenues including royalties, rents and franchise fees received from Wendy's franchised restaurants; and (3) sales from our company-owned bakery. Wendy's is also a 50% partner in a Canadian restaurant real estate joint venture with a subsidiary of Restaurant Brands International...

  • Page 9
    ...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 test conformance to our sanitation, food safety, and operational requirements. Wendy's has the right to terminate...

  • Page 10
    ..., price, and value perception of food products offered. The number and location of units, quality and speed of service, attractiveness of facilities, effectiveness of marketing and new product development by Wendy's and its competitors are also important factors. The price charged for each menu item...

  • Page 11
    ...transitional services related to new and existing franchisees acquiring company-owned restaurants and in the development and opening of new restaurants. In certain limited instances (such as the regranting of franchise rights for a previously closed restaurant, a reduced franchise agreement term, or...

  • Page 12
    ...markets will continue to be an important component of Wendy's international strategy over the coming years. Wendy's has granted development rights in certain countries and territories listed under Item 2 of this Form 10-K. Franchisees who wish to operate Wendy's restaurants outside the United States...

  • Page 13
    ...right to sub-franchise in a stated territory, subject to certain conditions. Wendy's also continually evaluates non-franchise opportunities for development of Wendy's restaurants in other international markets, including through joint ventures with third parties and opening company-owned restaurants...

  • Page 14
    ... 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 15
    ... in consumer food-away-from-home spending could hurt our revenues, results of operations, business and financial condition. If company-owned and franchised restaurants are unable to adapt to changes in consumer preferences and trends, company-owned and franchised restaurants may lose customers and...

  • Page 16
    ... beyond our control. Our restaurant business derives earnings from sales at company-owned restaurants, franchise royalties received from franchised restaurants and franchise fees from franchise restaurant operators for each new unit opened. Growth in our restaurant revenues and earnings is dependent...

  • Page 17
    ... if a significant number of franchisees do not participate in brand strategies. The Company's Image Activation program may not positively affect sales at company-owned and participating franchised restaurants or improve our results of operations. Throughout 2015, the Company expects Wendy's and its...

  • Page 18
    ...are a number of risks associated with the system optimization initiative, including the difficulty in predicting the ultimate costs associated with the sale of restaurants, employee termination costs, the timing of payments made and received, the results of negotiations with landlords, the impact of...

  • Page 19
    ...the risks associated with leasing and owning real estate. In particular, the value of our real property assets could decrease, and costs could increase, because of changes in the investment climate for real estate, demographic trends, supply or demand for the use of the restaurants, which may result...

  • Page 20
    ...") filed a charge with the National Labor Relations Board (the "NLRB") related to the Bakery Company's withdrawal from the Union Pension Fund. On July 22, 2014, The New Bakery of Zanesville, LLC ("Zanesville"), a 100% owned subsidiary of Wendy's, and the Union entered into a settlement agreement...

  • Page 21
    ... programs, which could harm our business and adversely affect our results of operations and 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...

  • Page 22
    ... franchise agreements and the collection of royalties from international franchisees, the availability and cost of land, construction costs, other legal, financial or regulatory impediments to the development and/or operation of new restaurants, and the availability of experienced management...

  • Page 23
    ...drop in our stock price. Based upon future economic and capital market conditions, as well as the operating performance of our reporting units, future impairment charges could be incurred. Further, as a result of the system optimization initiative, the Company has recorded losses on remeasuring long...

  • Page 24
    ... of other indebtedness); liens; mergers, consolidations, liquidations and dissolutions; sales 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...

  • Page 25
    ..., financial condition, cash requirements and such other factors as the Board of Directors may deem relevant from time to time. Because the Company is a holding company, its ability to declare and pay dividends is dependent upon cash, cash equivalents and short-term investments on hand and cash flows...

  • Page 26
    ... Chief Executive Officer, Peter May, the Company's Vice Chairman and former President and Chief Operating Officer, and Edward Garden, a director of the Company, beneficially own shares of the Company's outstanding Common Stock that collectively constitute more than 24% of its total voting power...

  • Page 27
    ...generally written for terms of 15 to 20 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 in excess of...

  • Page 28
    The location of company-owned and franchised restaurants as of December 28, 2014 is set forth below. State Wendy's Company Franchise Alabama ...Alaska ...Arizona ...Arkansas ...California ...Colorado ...Connecticut ...Delaware ...Florida ...Georgia ...Hawaii ...Idaho ...Illinois ...Indiana ...Iowa ...

  • Page 29
    ... available to us, and given the aforementioned accruals and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will have a material effect on our consolidated financial position or results of operations. Item 4. Mine Safety Disclosures. Not applicable...

  • Page 30
    .... For the fourth quarter of the 2014 fiscal year, The Wendy's Company paid a quarterly cash dividend of $0.055 per share of common stock. During the first quarter of 2015, The Wendy's Company declared a dividend of $0.055 per share to be paid on March 16, 2015 to shareholders of record as of March...

  • Page 31
    ... during the fourth fiscal quarter of 2014: Issuer Repurchases of Equity Securities Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (2) Period Total Number of Shares Purchased (1) Average Price Paid per...

  • Page 32
    ... Condition and Results of Operations" and our consolidated financial statements and notes thereto. December 28, 2014 Year Ended (1) (2) December 29, December 30, January 1, 2013 2012 2012 (In millions, except per share amounts) January 2, 2011 Sales (3) ...Franchise revenues (3) ...Revenues ...Cost...

  • Page 33
    ... the related increase in franchise revenues in 2014 and 2013 is primarily a result of the sale of Wendy's company-owned restaurants to franchisees under our system optimization initiative which began in 2013. See Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 34
    ... and quarters relate to fiscal periods rather than calendar periods. Executive Overview Our Continuing Business As of December 28, 2014, the Wendy's restaurant system was comprised of 6,515 restaurants, of which 957 were owned and operated by the Company. Our company-owned restaurants are located...

  • Page 35
    ... and other operating costs. Sales and cost of sales exclude amounts related to the bakery. Restaurant margin is influenced by factors such as restaurant openings and closures, price increases, the effectiveness of our advertising and marketing initiatives, featured products, product mix, the...

  • Page 36
    ...severance and related employee costs and professional fees. The Company is unable to estimate any gains or losses or System Optimization Remeasurement resulting from future sales of its Canadian restaurants. The Company plans to retain its ownership in a Canadian restaurant real estate joint venture...

  • Page 37
    ... into agreements under which a management company formed by the Former Executives and a director, who was our former Vice Chairman (the "Management Company") subleased (the "Subleases") office space on two of the floors of the Company's former New York headquarters. During the second quarter of 2010...

  • Page 38
    ... part of its Jet Card program fleet. The Company entered into the lease agreement as a means of offsetting the cost of owning and operating the corporate aircraft by receiving revenue from third parties' use of such aircraft. Under the terms of the lease agreement, the Company paid annual management...

  • Page 39
    ... the Company's consolidated results of operations for the years ended December 28, 2014, December 29, 2013 and December 30, 2012 (except average unit volumes, which are in thousands). 2014 Amount Change 2013 Amount Change 2012 Amount Revenues: Sales ...Franchise revenues ...Costs and expenses: Cost...

  • Page 40
    ... franchise revenues ... $ 308.7 68.8 13.3 $ 390.8 % of Sales $ 285.9 27.4 8.3 $ 321.6 % of Sales $ 282.6 21.8 2.5 $ 306.9 % of Sales 2014 2013 2012 Cost of sales: Wendy's Food and paper ...Restaurant labor ...Occupancy, advertising and other operating costs ...Total cost of sales ...Bakery...

  • Page 41
    ... increased primarily due to benefits from strategic price increases on our menu items and changes in the composition of our sales. Same-restaurant sales also benefited from higher sales growth at our new and remodeled Image Activation restaurants. However, sales during 2014 were negatively impacted...

  • Page 42
    ...company-owned restaurants. Franchise revenues were also positively impacted by initial franchise fees and rental income recognized as a result of our system optimization initiative. Cost of Sales Change 2014 2013 Food and paper ...Restaurant labor ...Occupancy, advertising and other operating costs...

  • Page 43
    ...as part of our system optimization initiative, (2) incentive compensation accruals due to weaker operating performance as compared to plan in 2014 versus 2013, (3) franchise incentives due to lower cash incentives offered under our 2014 Image Activation incentive program compared to our 2013 program...

  • Page 44
    ... equipment which will not be reimbursed. During 2013 and 2012, the Company recorded transaction related costs aggregating $0.3 million and $1.4 million, respectively, as a result of the sale of Arby's in July 2011. Impairment of Long-Lived Assets Change 2014 2013 Restaurants, primarily properties...

  • Page 45
    ... goodwill recorded for our international franchise restaurants reporting unit. In 2014, 2013 and 2012, we concluded there was no impairment of goodwill for our North America company-owned and franchise restaurants reporting unit. Other Operating Expense, Net 2014 Year Ended 2013 2012 Lease expense...

  • Page 46
    ... $28.6 During 2012, the Company incurred a loss on the early extinguishment of debt related to the repayment of debt with the proceeds of the 2012 term loan under the Credit Agreement, as follows: Year Ended 2012 Premium payment to redeem/purchase the Senior Notes ...Unaccreted discount on the...

  • Page 47
    ... gain on sale of restaurants in connection with our system optimization initiative of $4.9 million and $7.5 million in 2014 and 2013, respectively, and a related increase in net deferred state taxes of $5.1 million in 2013 and (4) certain corrections in 2012 related to tax matters in prior years for...

  • Page 48
    ... periods. This unfavorable impact was primarily due to (1) a decrease in the incentive compensation accrual for the 2014 fiscal year due to weaker operating performance as compared to plan in 2014 versus 2013, as well as an increase in payments for the 2013 fiscal year, (2) an increase in income tax...

  • Page 49
    ... periods. This favorable impact was primarily due to (1) an increase in accruals for capital expenditures primarily related to our Image Activation program and (2) changes in accounts payable due to the timing of payments between comparable periods. Additionally in 2013, we received a cash dividend...

  • Page 50
    ... its balance sheet. Based upon current levels of operations, the Company expects that available cash and cash flows from operations will provide sufficient liquidity to meet operating cash requirements for the next 12 months. Capitalization Year End 2014 Long-term debt, including current portion...

  • Page 51
    ... expected payments under our outstanding contractual obligations at December 28, 2014: 2015 2016-2017 Fiscal Years 2018-2019 After 2019 Total Long-term debt obligations (a) ...Capital lease obligations (b) ...Operating lease obligations (c) ...Purchase obligations (d) ...Other ...Total (e) ... $105...

  • Page 52
    ... pays regular quarterly cash dividends for the remainder of 2015 at the same rate as declared in the first quarter of 2015, The Wendy's Company's total cash requirement for dividends for all of 2015 would be approximately $80.9 million based on the number of shares of its common stock outstanding...

  • Page 53
    ... markets, such as those for beef, chicken and corn had a significant effect on our results of operations in 2014, 2013 and 2012 and may have an adverse effect on us in the future. The extent of any impact will depend on our ability and timing to increase food prices. Seasonality Wendy's restaurant...

  • Page 54
    ... is made of short-term interest rate yields of long-term corporate and government bonds, as well as the typical capital structure of companies in the industry. The discount rates used for each reporting unit may vary depending on the risk inherent in the cash flow projections, as well as the risk...

  • Page 55
    ...statements of operations for the years ended December 28, 2014 and December 29, 2013. The fair value of these long-lived assets is based upon discounted cash flows of future anticipated lease and sublease income. The Company records similar losses related to sales or anticipated sales of restaurants...

  • Page 56
    .... 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 so that all or most issues are resolved prior to the filing of the tax return. As such, our tax returns for fiscal years 2009...

  • Page 57
    ... to manage our exposure to these changes using financial instruments we deem appropriate. Interest Rate Risk Our objective in managing our exposure to interest rate changes is to limit the impact on our earnings and cash flows. As of December 28, 2014, our long-term debt, including current portion...

  • Page 58
    ...for those financial instruments entered into as of December 28, 2014 and December 29, 2013 based upon assumed immediate adverse effects as noted below (in millions): Year End 2014 Carrying Interest Value Rate Risk Cash flow hedges ...Variable-rate long-term debt, excluding capital lease obligations...

  • Page 59
    ...Cash Flows for the years ended December 28, 2014, December 29, 2013 and December 30, 2012 ...Notes to Consolidated Financial Statements ...(1) Summary of Significant Accounting Policies ...(2) Facilities Action (Income) Charges, Net ...(3) Acquisitions and Dispositions ...(4) Income (Loss) Per Share...

  • Page 60
    ...Term Footnote Where Defined 2010 Plan ...2010 Term Loan ...2012 Lease ...280 BT ...401(k) Plan ...6.20% Senior Notes ...Advertising Funds ...Aircraft Lease Agreement ...Amendment ...Arby's ...ARC ...Bakery Company ...Black-Scholes Model ...Buyer ...Buyer Parent ...CAP ...Company ...Contingent Rent...

  • Page 61
    ... Fund ...U.S...Wendy's ...Wendy's Co-op ...Wendy's Japan ...Wendy's Restaurants ...Zanesville ... (18) (1) (21) (20) (2) (21) (10) (10) (10) (1) (1) (18) (18) (1) (1) (21) (6) (1) (18) Retirement Benefit Plans Summary of Significant Accounting Policies Transactions with Related Parties Guarantees...

  • Page 62
    ..., the financial position of the Company as of December 28, 2014 and December 29, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2014, in conformity with accounting principles generally accepted in the United States of...

  • Page 63
    ...) December 28, 2014 December 29, 2013 ASSETS Current assets: Cash and cash equivalents ...Accounts and notes receivable ...Inventories ...Prepaid expenses and other current assets ...Deferred income tax benefit ...Advertising funds restricted assets ...Total current assets ...Properties ...Goodwill...

  • Page 64
    THE WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) Year Ended December 28, 2014 December 29, 2013 December 30, 2012 Revenues: Sales ...Franchise revenues ...Costs and expenses: Cost of sales ...General and administrative ......

  • Page 65
    THE WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Year Ended December 29, 2013 December 28, 2014 December 30, 2012 Net income ...Other comprehensive (loss) income, net: Foreign currency translation adjustment ...Change in unrecognized pension loss...

  • Page 66
    ... 29, 2013 ...Net income ...Other comprehensive loss, net ...Cash dividends ...Repurchases of common stock ...Share-based compensation ...Common stock issued upon exercises of stock options ...Common stock issued upon vesting of restricted shares ...Tax benefit from share-based compensation ...Other...

  • Page 67
    ... long-term debt ...Deferred financing costs ...Premium payments on redemptions/purchases of notes ...Proceeds from termination of interest rate swaps ...Repurchases of common stock ...Dividends ...Distribution to noncontrolling interests ...Proceeds from stock option exercises ...Excess tax benefits...

  • Page 68
    THE WENDY'S COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED (In Thousands) Year Ended December 29, 2013 December 28, 2014 December 30, 2012 Detail of cash flows from operating activities: Impairment: System Optimization Remeasurement ...Impairment of long-lived assets ......

  • Page 69
    ... reflect Wendy's subleasing of restaurant facilities to franchisees for the operation of Wendy's/Tim Hortons combo units in Canada. The Company's previously reported rental income in "Franchise revenues" and lease expense in "Other operating expense, net" for the years ended December 29, 2013 and...

  • Page 70
    ... loss is recognized for the excess of the carrying amount over the fair value of an asset group to be held and used or over the fair value less cost to sell of an asset to be disposed. Asset groups are primarily comprised of our individual restaurant properties. The Company classifies assets...

  • Page 71
    ... losses related to sales or anticipated sales of restaurants in connection with the Company's announced system optimization initiative are recorded to "Facilities action (income) charges, net." The fair value of the long-lived assets is based upon discounted cash flows of future anticipated lease...

  • Page 72
    ... and franchised restaurants and the resulting cash flows. Investments The Company has a 50% share in a partnership in a Canadian restaurant real estate joint venture ("TimWen") with a subsidiary of Restaurant Brands International Inc., a quick-service restaurant company that owns the Tim Hortons...

  • Page 73
    ...records favorable or unfavorable lease assets/liabilities with a corresponding offset to the gain or loss on the sale of the restaurants. The cash consideration per restaurant for technical assistance fees and development fees is consistent with the amounts stated in the related franchise agreements...

  • Page 74
    ... no material services and conditions related to the franchise fees. Franchise fee deposits are forfeited and recognized as revenue upon the termination of the related commitments to open new franchised restaurants. Rental income from properties owned and leased by the Company and leased or subleased...

  • Page 75
    ... new lease and sublease agreement, renewal and 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 or sublease as operating or capital, including direct...

  • Page 76
    ... 2015 fiscal year. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. New Accounting Standards Adopted In July 2013, the FASB issued an amendment that requires companies to present unrecognized tax benefits as a reduction to deferred tax...

  • Page 77
    ... activity recorded under our system optimization initiative: Year Ended 2014 2013 Total Incurred Since Inception Gain on sales of restaurants, net ...System Optimization Remeasurement (a) ...Accelerated depreciation and amortization (b) ...Severance and related employee costs ...Professional fees...

  • Page 78
    ... 423 $2,804 Balance December 29, 2013 Charges Payments Severance and related employee costs ...Professional fees ...Other ... $- - - $- $ 9,650 2,389 863 $12,902 $(2,599) (2,252) (603) $(5,454) $7,051 137 260 $7,448 Assets Held for Sale Year End 2014 2013 Number of restaurants classified as...

  • Page 79
    ...-term growth and share-based compensation of $4,000 to $6,000. The Company anticipates this initiative will be substantially completed by the end of the second quarter of 2015. The following is a summary of the activity recorded under our G&A realignment plan: Year Ended 2014 Severance and related...

  • Page 80
    ... the relocation of the Company's Atlanta restaurant support center to Ohio, which was substantially completed during 2012. The Company did not incur any expenses during 2014 and does not expect to incur additional costs related to the relocation. Year Ended 2013 2012 Total Incurred Since Inception...

  • Page 81
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) (3) Acquisitions and Dispositions Acquisitions During the year ended December 28, 2014, Wendy's acquired 45 franchised restaurants for total net cash consideration of $...

  • Page 82
    ... asset. 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 the real...

  • Page 83
    ... in "Accrued expenses and other current liabilities." During the year ended December 29, 2013, Wendy's received cash proceeds of $18,958 from dispositions not included in the system optimization initiative, consisting of (1) $10,305 primarily from the sale of surplus properties and (2) $8,653...

  • Page 84
    ... FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) (5) Cash and Receivables Year End 2014 2013 Cash and cash equivalents Cash ...Cash equivalents ...Restricted cash equivalents Current (a) Collateral supporting letters of credit ...Trust for termination costs for former Wendy...

  • Page 85
    ... 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 28, 2014, December 29, 2013 and December 30, 2012. 2014 Year...

  • Page 86
    ... ended December 28, 2014, December 29, 2013 and December 30, 2012. The summary balance sheet financial information does not distinguish between current and long-term assets and liabilities. Year End 2014 2013 Balance sheet information: Properties ...Cash and cash equivalents ...Accounts receivable...

  • Page 87
    ... our capital contributions totaling $4,800, net of cash acquired of $188, for the year ended December 29, 2013 in "Acquisitions" in our consolidated statement of cash flows. Therefore, Wendy's deconsolidated the Japan JV and recognized a loss of $1,658, which was included in "Other operating expense...

  • Page 88
    ... WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) (7) Properties Year End 2014 2013 Owned: Land ...Buildings and improvements ...Office, restaurant and transportation equipment ...Leasehold improvements ...Leased: Capital...

  • Page 89
    ... on previously acquired franchise rights in territories sold as a part of our system optimization initiative of $474 and $16,907, respectively. (9) Accrued Expenses and Other Current Liabilities Year End 2014 2013 Accrued compensation and related benefits ...Accrued taxes ...Accrued pension...

  • Page 90
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) (10) Long-Term Debt Long-term debt consisted of the following: Year End 2014 2013 Term A Loans, due in 2018 (a) ...Term B Loans, due in 2019 (a) ...7% debentures, due ...

  • Page 91
    ...a benefit from the cumulative effect of our fair value hedges, as illustrated in the table below. During the year ended December 30, 2012, proceeds from the Term B Loans were used (1) to repay all amounts outstanding under the 2010 Term Loan, (2) to redeem the Wendy's Restaurants 10.00% Senior Notes...

  • Page 92
    ... debt as follows: Year End 2013 2012 Unaccreted discount on Term B Loans ...Deferred costs associated with the Credit Agreement ...Unaccreted fair value adjustment associated with the 6.20% Senior Notes ...Benefit from cumulative effect of the fair value hedges ...Premium payment to redeem/purchase...

  • Page 93
    ...CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) The following is a summary of the Company's assets pledged as collateral for certain debt: Year End 2014 Cash and cash equivalents ...Accounts and notes receivable (including long-term) ...Inventories ...Properties...

  • Page 94
    ... our fair value hedges, which was included in "Loss on early extinguishment of debt" for the year ended December 29, 2013. See Note 10 for more information. Upon termination of the interest rate swaps, we received a $5,708 cash payment, which was recorded against the derivative asset and the related...

  • Page 95
    ...annual goodwill impairment test. Such losses totaling $9,397 represent the total amount of goodwill recorded for our international franchise restaurants reporting unit and have been presented as "Impairment of goodwill" in our consolidated statement of operations for the year ended December 29, 2013...

  • Page 96
    ... for) benefit from income taxes from continuing operations is set forth below: 2014 Year Ended 2013 2012 Current: U.S. Federal ...State ...Foreign ...Current tax provision ...Deferred: U.S. Federal ...State ...Foreign ...Deferred tax (provision) benefit ...Income tax (provision) benefit ... $ 6,087...

  • Page 97
    ... FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Deferred tax assets (liabilities) are set forth below: Year End 2014 2013 Deferred tax assets: Net operating loss and credit carryforwards ...Accrued compensation and related benefits ...Unfavorable leases ...Accrued expenses...

  • Page 98
    ... available to utilize certain state net operating loss carryforwards. Valuation allowances increased $3,655 during the year ended December 30, 2012 primarily as a result of changes in state net operating losses. During the first quarter of 2013, the Company finalized its long-term investment plan...

  • Page 99
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) deferred tax rate of $70 in 2014 and (3) changes to the state deferred tax rate of $5,122 in 2013. These amounts are included in the state income tax provision, the ...

  • Page 100
    ... up to $275,000 of our common stock through the end of fiscal year 2014. As part of the repurchase program, the Board of Directors also authorized the commencement of a modified Dutch auction tender offer to repurchase shares of our common stock for an aggregate purchase price of up to $275,000. On...

  • Page 101
    ...Wendy's Company, net of tax as applicable: Foreign Currency Translation Cash Flow Hedges Pension Total Balance at January 1, 2012 ...Current-period other comprehensive income (loss) ...Balance at December 30, 2012 ...Current-period other comprehensive (loss) income ...Balance at December 29, 2013...

  • Page 102
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) The following table summarizes stock option activity during 2014: Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Number of Options...

  • Page 103
    ... 2014 and 2013 were 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. Share-based compensation expense recorded for performance condition awards is reevaluated at each reporting period...

  • Page 104
    .... Share-Based Compensation Total share-based compensation and the related income tax benefit recognized in the Company's consolidated statements of operations were as follows: 2014 Year Ended 2013 2012 Stock options ...Restricted Shares ...Performance shares: Performance condition awards ...Market...

  • Page 105
    ... 2013, the Company decided to sell its company-owned aircraft and recorded an impairment charge of $5,327 to reflect the aircraft at fair value based on current market values. The aircraft were sold during 2014 resulting in a net loss of $261. During 2012, we closed 15 company-owned restaurants...

  • Page 106
    ... year ended December 30, 2012, includes the after tax effect of amounts paid to the prior owner of an Arby's location that was transferred to Wendy's Restaurants during 2012, as contemplated in the sale agreement, and as such, had no impact on the total purchase price. (18) Retirement Benefit Plans...

  • Page 107
    ... 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 108
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Pursuant to the terms of the employment agreement that was entered into with our President and Chief Executive Officer as of September 12, 2011, the Company implemented ...

  • Page 109
    ... in "Current portion of long- term debt" and "Long-term debt," respectively. Properties owned by the Company and leased to franchisees and other third parties under operating leases include: Year End 2014 2013 Land ...Buildings and improvements ...Office, restaurant and transportation equipment...

  • Page 110
    ... in royalty payments in 2014 as well as cash incentives for franchisees' participation in Wendy's Image Activation program throughout 2014 and 2013. The Company recognized expense of $4,369 and $9,178 for cash incentives in "General and administrative" during the years ended December 28, 2014 and...

  • Page 111
    ... parties including for the Image Activation financing program described above, totaling $17,060, of which $16,843 were cash collateralized. The related cash collateral is classified as restricted cash and included in "Prepaid expenses and other current assets" in the consolidated balance sheet...

  • Page 112
    ...FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) (21) Transactions with Related Parties The following is a summary of transactions between the Company and its related parties, which are included in continuing operations: 2014 Year Ended 2013 2012 Transactions with QSCC: Wendy...

  • Page 113
    ... part of its Jet Card program fleet. The Company entered into the lease agreement as a means of offsetting the cost of owning and operating the corporate aircraft by receiving revenue from third parties' use of such aircraft. Under the terms of the lease agreement, the Company paid annual management...

  • Page 114
    ... 2014, is a 10% owner and manager of ARC. Pursuant to an Asset Purchase Agreement dated November 20, 2013 and related transaction documents: (1) the Company sold to ARC substantially all of the assets (other than real property) used in the operation of the restaurants for an aggregate purchase price...

  • Page 115
    ... and related liabilities of the Advertising Funds at December 28, 2014 and December 29, 2013 were as follows: Year End 2014 2013 Cash and cash equivalents ...Accounts and notes receivable ...Other assets ...Total assets ...Accounts payable ...Accrued expenses and other current liabilities ...Member...

  • Page 116
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) 2013 Quarter Ended June 30 (c) September 29 (c) March 31 (c) December 29 (c) Revenues ...Cost of sales ...Operating profit ...Income (loss) from continuing operations ...

  • Page 117
    ...28, 2014, 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 26, 2015 on the Company's internal control over financial reporting. Changes in Internal Control...

  • Page 118
    ... 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 28, 2014 and our report dated February 26, 2015, expressed an unqualified opinion on...

  • Page 119
    ... Condensed Statements of Cash Flows (Parent Company Only) - for the fiscal years ended December 28, 2014, December 29, 2013 and December 30, 2012. All other schedules have been omitted since they are either not applicable or the information is contained elsewhere in "Item 8. Financial Statements and...

  • Page 120
    ...and Wendy's/Arby's Restaurants, LLC Current Reports on Form 8-K filed on July 8, 2011 (SEC file nos. 001-02207 and 333-161613, respectively). Asset Purchase Agreement by and among Wendy's International, Inc., Pisces Foods, L.P., Near Holdings, L.P., David Near and Jason Near dated as of June 5, 2012...

  • Page 121
    ....1 to The Wendy's Company and Wendy's Restaurants, LLC Form 10-Q for the quarter ended July 3, 2011 (SEC file nos. 001-02207 and 333-161613, respectively).** Form of Long Term Performance Unit Award Agreement for 2012 under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated herein...

  • Page 122
    ...NO. DESCRIPTION 10.18 Form of Restricted Stock Unit Award Agreement for 2011 under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated herein by reference to Exhibit 10.1 of The Wendy's Company and Wendy's Restaurants, LLC Form 10-Q for the quarter ended October 2, 2011 (SEC file...

  • Page 123
    ... to Exhibit 10.1 of The Wendy's Company Current Report on Form 8-K filed on September 24, 2013 (SEC file no. 001-02207). Amendment No. 2, dated September 12, 2014, to the Amended and Restated Credit Agreement, dated May 16, 2013, among Wendy's International, LLC, as borrower, Bank of America...

  • Page 124
    ... by reference to Exhibit 10.3 of the Wendy's/Arby's Group, Inc. Form 10-Q for the quarter ended April 3, 2011 (SEC file no. 001-02207). Assignment and Assumption of Lease, dated as of June 30, 2007, between Triarc Companies, Inc. and Trian Fund Management, L.P., incorporated herein by reference to...

  • Page 125
    ... 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, L.P., incorporated herein by reference to Exhibit 10.7 to Triarc's Current Report...

  • Page 126
    ... 10.4 of the Wendy's/Arby's Group and Wendy's/Arby's Restaurants, LLC Form 10-Q for the quarter ended April 3, 2011 (SEC file nos. 001-02207 and 333-161613, respectively).** Letter Agreement between The Wendy's Company and Stephen E. Hare dated as of May 7, 2013, incorporated herein by reference...

  • Page 127
    ...'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, incorporated herein by reference to Exhibit 10.5 of The Wendy's Company and Wendy's Restaurants, LLC Form 10-Q for the quarter ended...

  • Page 128
    ... (Emil J. Brolick) President, Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President, Chief Financial Officer and International (Principal Financial Officer) Senior Vice President, Chief Accounting and Tax Officer (Principal Accounting Officer) Chairman and...

  • Page 129
    ... I THE WENDY'S COMPANY (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS (In Thousands) December 28, 2014 December 29, 2013 ASSETS Current assets: Cash and cash equivalents ...Amounts due from subsidiaries ...Deferred income tax benefit and other current assets ...Total current assets ...Investments...

  • Page 130
    SCHEDULE I (Continued) THE WENDY'S COMPANY (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF OPERATIONS (In Thousands) December 28, 2014 Year Ended December 29, 2013 December 30, 2012 Income: Equity in income from continuing operations of subsidiaries ...Costs and expenses: General and administrative ...

  • Page 131
    ... (Continued) THE WENDY'S COMPANY (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) December 28, 2014 Year Ended December 29, 2013 December 30, 2012 Net income ...Other comprehensive (loss) income, net: Foreign currency translation adjustment ...Change in unrecognized...

  • Page 132
    ... costs ...Dividends from subsidiaries ...Tax sharing receivable from subsidiaries, net ...Tax sharing payments received from subsidiaries ...Other operating transactions with Wendy's Restaurants, LLC . . Other, net ...Changes in operating assets and liabilities: Other current assets ...Other current...

  • Page 133
    ...and Wendy's/Arby's Restaurants, LLC Current Reports on Form 8-K filed on July 8, 2011 (SEC file nos. 001-02207 and 333-161613, respectively). Asset Purchase Agreement by and among Wendy's International, Inc., Pisces Foods, L.P., Near Holdings, L.P., David Near and Jason Near dated as of June 5, 2012...

  • Page 134
    ....1 to The Wendy's Company and Wendy's Restaurants, LLC Form 10-Q for the quarter ended July 3, 2011 (SEC file nos. 001-02207 and 333-161613, respectively).** Form of Long Term Performance Unit Award Agreement for 2012 under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated herein...

  • Page 135
    ...30, 2013 (SEC file no. 001-02207).** Form of Restricted Stock Award Agreement under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated herein by reference to Exhibit 10.16 of The Wendy's Company and Wendy's Restaurants, LLC Form 10-K for the year ended January 1, 2012 (SEC file nos...

  • Page 136
    ... 1999 among National Propane Corporation, Triarc Companies, Inc. and Nelson Peltz and Peter W. May, incorporated herein by reference to Exhibit 10.30 to Triarc's Annual Report on Form 10-K for the fiscal year ended January 3, 1999 (SEC file no. 001-02207). Indemnity Agreement, dated as of October 25...

  • Page 137
    ...between Wendy's/Arby's Group, Inc. (f/k/a Triarc Companies, Inc.) and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.10 to Wendy's/Arby's Group's Form 10-Q for the quarter ended July 4, 2010 (SEC file no. 001-02207). Form of Aircraft Time Sharing Agreement between Triarc...

  • Page 138
    ... 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, L.P., incorporated herein by reference to Exhibit 10.7 to Triarc's Current Report...

  • Page 139
    ...'s Company Form 10-Q for the quarter ended June 29, 2014 (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 140
    ....5 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 Indemnification Agreement between Arby's Restaurant Group, Inc. and certain directors, officers and employees thereof, incorporated...

  • Page 141
    ...LLC The New Bakery Transportation Company, LLC The New Bakery of Zanesville, LLC Wendy's Old Fashioned Hamburgers of New York, LLC Wendy's Restaurants of New York, LLC Wendy's International Finance, Inc. Wendy's of Denver, LLC Wendy's of N.E. Florida, Inc. Oldemark LLC Restaurant Finance Corporation...

  • Page 142
    ... 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 28, 2014. /s/ Deloitte & Touche LLP Columbus, Ohio February 26, 2015

  • Page 143
    ... Company, of our report dated February 25, 2015 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 Professional Accountants, Licensed Public Accountants Toronto, Ontario, Canada...

  • Page 144
    ...financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 26, 2015 /S/ EMIL J. BROLICK Emil J. Brolick President and Chief Executive Officer

  • Page 145
    ... Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 26, 2015 /S/ TODD A. PENEGOR Todd A. Penegor Executive Vice President, Chief Financial Officer and International

  • Page 146
    ..., the financial condition and results of operations of the Company. Date: February 26, 2015 /S/ EMIL J. BROLICK Emil J. Brolick President and Chief Executive Officer Date: February 26, 2015 /S/ TODD A. PENEGOR Todd A. Penegor Executive Vice President, Chief Financial Officer and International

  • Page 147
    ... total stockholder return on its Common Stock relative to the S&P Midcap 400® and to a specified peer group of restaurant companies for the five fiscal years ended December 28, 2014. The measurement points in the graph are the last trading days of our 2009, 2010, 2011, 2012, 2013 and 2014...

  • Page 148
    CELEBRATING YEARS OF QUALITY! At Wendy's, we don't just do things differently, we strive to do things be er. We stand for "honest" food - high quality, wholesome food, freshly prepared when you order it by people who honor the values of Founder Dave Thomas. We do it "Dave's Way™." We don't cut ...