Wendy's 2015 Annual Report Download

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Table of contents

  • Page 1
    DOUBLE â„¢ THE W COM MPANY 015 PORT nual

  • Page 2
    ... Marketing Officer and Senior Vice President, Microsoft Corporation TODD A. PENEGOR President and Chief Financial Officer Vice Chairman, The Wendy's Company President and Founding Partner, Trian Fund Management, L.P. ROBERT D. WRIGHT Executive Vice President, Chief Operations Officer MATTHEW...

  • Page 3
    ... value of common equity held by non-affiliates of The Wendy's Company as of June 26, 2015 was approximately $3,272.9 million. As of February 24, 2016, there were 270,010,291 shares of The Wendy's Company common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part...

  • Page 4
    ... or pandemics impacting the Company's customers or food supplies; • the effects of negative publicity that can occur from increased use of social media; • success of operating and marketing initiatives, including advertising and promotional efforts and new product and concept development by us...

  • Page 5
    ... termination costs, the timing of payments made and received, the results of negotiations with landlords, the impact of the sale of restaurants on ongoing operations, any tax impact from the sale of restaurants and the future impact to the Company's earnings, restaurant operating margins, cash flow...

  • Page 6
    ...'s Restaurant Group, Inc. ("Arby's"), Wendy's/Arby's Group, Inc. changed its name to The Wendy's Company. The Company's principal executive offices are located at One Dave Thomas Blvd., Dublin, Ohio 43017, and its telephone number is (614) 764-3100. We make our annual reports on Form 10-K, quarterly...

  • Page 7
    ... sold as part of the system optimization initiative which is further described in "Acquisitions and Dispositions of Wendy's Restaurants" below. The following table sets forth the number of Wendy's restaurants at the beginning and end of each year from 2013 to 2015: 2015 2014 2013 Restaurants open...

  • Page 8
    ...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 9
    ...other restaurant companies and food outlets, primarily through the quality, variety, convenience, 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...

  • Page 10
    ...base, drive new restaurant development and accelerate Image Activation adoption. Wendy's generally retains a right of first refusal in connection with any proposed sale of a franchisee's interest. Franchised Restaurants As of January 3, 2016, Wendy's franchisees operated 5,444 Wendy's restaurants in...

  • Page 11
    ... in Canada. 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 January 3, 2016, the contribution rate for United States restaurants was generally 3.5% of...

  • Page 12
    ...enrollment and participation in our health plans by newly full-time employees in 2015, the cost increases did not result in modifications to our business practices. However, future cost increases could be material and any future compliance-related modifications to our benefits policies and practices...

  • Page 13
    ... October 5, 2015 that President and Chief Executive Officer Emil Brolick planned to retire from management duties with the Company in May 2016. The Company also announced that Mr. Brolick was expected to be succeeded by current Executive Vice President, Chief Financial Officer and International Todd...

  • 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
    ... beef or chicken prices, could adversely affect future operating results. In addition, our business 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 regulations...

  • Page 16
    ...if a significant number of franchisees do not participate in brand strategies. Our Image Activation program may not positively affect sales at company-owned and participating franchised restaurants or improve our results of operations. Throughout 2016, the Company expects Wendy's and its franchisees...

  • Page 17
    ... financial results are affected by the operating results of franchisees. As of January 3, 2016, approximately 90% of the Wendy's system were franchise restaurants. We receive revenue in the form of royalties, which are generally based on a percentage of sales at franchised restaurants, rent and fees...

  • Page 18
    ..., any tax impact from the sale of restaurants, and the future impact to the Company's earnings, restaurant operating margin, cash flow and depreciation. If Wendy's is unable to manage these risks effectively, our business and financial results could be adversely affected. Further, Wendy's generally...

  • Page 19
    ...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 close it...

  • Page 20
    ...rights to protect our brand and other intellectual property. The success of our business strategy depends, in part, on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products in both existing and new markets...

  • Page 21
    ...enrollment and participation in our health plans by newly full-time employees in 2015, the cost increases did not result in modifications to our business practices. However, future cost increases could be material and any future compliance-related modifications to our benefits policies and practices...

  • Page 22
    ... systems or information technology could require us to notify customers, employees or other groups, result in adverse publicity, loss of sales and profits, and incur penalties or other costs that could adversely affect the operation of our business and results of operations. As part of our marketing...

  • Page 23
    ... also require the Company 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 the Company's business and results...

  • Page 24
    ... our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet debt payment obligations. The Company has approximately $2.4 billion of outstanding debt, including debt issued in the securitization transaction on June 1, 2015. Additionally...

  • Page 25
    ... that the Company's business will generate cash flow from operations, or that future borrowings will be available to it under existing or any future credit facilities or otherwise, in an amount sufficient to enable its subsidiaries to meet their debt payment obligations and to fund other liquidity...

  • Page 26
    ... on the Company's future growth prospects, financial condition, results of operations and liquidity. To service debt and meet its other cash needs, Wendy's will require a significant amount of cash, which may not be generated or available to it. The ability of Wendy's to make payments on, repay...

  • Page 27
    ... 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 28
    ...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 specified amounts. As of January 3, 2016, Wendy's also...

  • Page 29
    ...location of company-owned and franchised restaurants as of January 3, 2016 is set forth below. State Wendy's Company Franchise...New Hampshire ...New Jersey ...New Mexico ...New... ...Wisconsin ...Wyoming ...District of Columbia ...Domestic subtotal ...Canada ...North America subtotal ...26 - - - - -...

  • Page 30
    ... will have a material effect on our consolidated financial position or results of operations. The Company was named as a defendant in a civil complaint that was filed in the U.S. District Court for the Middle District of Florida on February 8, 2016 by plaintiff Jonathan Torres. The complaint asserts...

  • Page 31
    ..., Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company's common stock is traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol "WEN." The high and low market prices for The Wendy's Company common stock are set forth below: Fiscal Quarters Market Price...

  • Page 32
    ... during the fourth fiscal quarter of 2015: 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 33
    ... Results of Operations" and our consolidated financial statements and notes thereto. January 3, 2016 Year Ended (1) (2) (3) December 28, December 29, December 30, 2014 2013 2012 (In millions, except per share amounts) January 1, 2012 Sales (4) ...Franchise revenues (4) ...Revenues ...Cost of sales...

  • Page 34
    ...discontinued operations. (4) The decline in sales and cost of sales and the related increase in franchise revenues in 2015, 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...

  • Page 35
    ... (subject to customary purchase price adjustments) and 18.5% of the common stock of ARG Parent (through which Wendy's Restaurants indirectly retained an 18.5% interest in Arby's) with a fair value of $19.0 million. We received a $54.9 million dividend from our investment in Arby's in 2015, which was...

  • Page 36
    ... restaurants in Canada to franchisees. Wendy's operating results are impacted by a number of external factors, including unemployment, general economic trends, intense price competition, commodity costs and weather. Increased commodity costs negatively affected our cost of food during 2014 and 2013...

  • Page 37
    ...in Canada. The Company recognized net gains totaling $74.0 million, $91.5 million and $51.3 million on the sale of company-owned restaurants and other assets during 2015, 2014 and 2013, respectively, which were recorded to "System optimization gains, net" in our consolidated statements of operations...

  • Page 38
    ... cash flow hedges. As a result, the Company recorded a loss on early extinguishment of debt of $7.3 million during the second quarter of 2015, primarily consisting of the write-off of deferred costs related to the 2013 Restated Credit Agreement of $7.2 million and fees paid to terminate the related...

  • Page 39
    ...2014 and 2013, respectively. TimWen lease and management fee payments A wholly-owned subsidiary of Wendy's leases restaurant facilities from TimWen for the operation of Wendy's/Tim Hortons combo units in Canada. Prior to the second quarter of 2015, Wendy's operated certain of the Wendy's/Tim Hortons...

  • Page 40
    ... results of operations for the years ended January 3, 2016, December 28, 2014 and December 29, 2013 (except average unit volumes, which are in thousands). 2015 Amount Change 2014 Amount Change 2013 Amount Revenues: Sales ...Franchise revenues ...Costs and expenses: Cost of sales ...General...

  • Page 41
    ... ...Franchise fees ...Total franchise revenues ...322.6 87.0 21.9 431.5 $1,608.5 308.7 68.0 13.3 390.0 $1,998.5 % of Sales % of Sales $2,102.9 285.9 26.6 8.3 320.8 $2,423.7 % of Sales Total revenues ...$1,870.3 2015 2014 2013 Cost of sales: Food and paper ...$ 460.0 32.0% Restaurant labor...

  • Page 42
    ... due to the impact of Wendy's company-owned restaurants sold under our system optimization initiative, which resulted in a reduction in sales of $499.5 million. Company-owned same-restaurant sales during 2014 increased due to an increase in our average per customer check amount, in part offset by...

  • Page 43
    ...fees resulting primarily from sales of company-owned restaurants to franchisees under our system optimization initiative. In addition, royalty revenue increased due to a net increase in the number of franchise restaurants in operation during 2014 compared to 2013. Royalty revenue was also positively...

  • Page 44
    ... During 2015, 2014 and 2013, the Company sold 327, 255 and 244 company-owned restaurants to franchisees, respectively, under its system optimization initiative. System optimization gains, net in 2014 includes the impact of recording net favorable lease assets of $36.3 million as a result of leasing...

  • Page 45
    ... 2013, the Company reflected costs totaling $1.1 million resulting from the discontinuation of the breakfast daypart at certain restaurants and recorded transaction related costs aggregating $0.3 million as a result of the sale of Arby's in July 2011. Impairment of Long-Lived Assets 2015 Change 2014...

  • Page 46
    ...2014 was primarily due to increases in lease expense resulting from subleasing properties to franchisees that were previously operated as company-owned restaurants and as such, had been previously recorded in cost of sales. Lease expense in 2015 also increased as a result of entering into new leases...

  • Page 47
    ... allowances increased in 2015 and 2014 primarily as a result of changes in expected future state taxable income available to offset certain state net operating loss carryforwards and (3) a deduction for a dividend received in 2015 from our investment in Arby's. The impact of our system optimization...

  • Page 48
    ... innovation and focused execution of operational excellence and brand positioning. The impact of Wendy's restaurants sold in 2015 and expected to be sold under our ongoing system optimization initiative in 2016 will continue to have a negative impact on sales. Franchise Revenues We expect that...

  • Page 49
    ... fiscal year due to stronger operating performance as compared to plan in 2015 versus 2014, as well as a decrease in payments for the 2014 fiscal year. This favorable impact was partially offset by an increase in income tax payments, net of refunds. Additionally in 2015, we received a cash dividend...

  • Page 50
    ... expenditures primarily for our Image Activation program; • an increase in cash used for acquisitions of franchised restaurants of $49.3 million; • a decrease of $20.6 million in cash provided by investment activities, net due to the dividend received from Arby's in 2013, of which $19.0 million...

  • Page 51
    Capitalization Year End 2015 Long-term debt, including current portion ...Stockholders' equity ... $2,426.1 752.9 $3,179.0 The Wendy's Company's total capitalization at January 3, 2016 increased $23.2 million from $3,155.8 million at December 28, 2014 and was impacted principally by the following:...

  • Page 52
    ...of credit were outstanding against the Series 2015-1 Class A-1 Notes, which relate primarily to interest reserves required under the Indenture. During the year ended January 3, 2016, the Company incurred debt issuance costs of $43.8 million in connection with the issuance of the Series 2015-1 Senior...

  • Page 53
    ...As a result, the Company recorded a loss on early extinguishment of debt of $7.3 million during the second quarter of 2015, primarily consisting of the write-off of deferred costs related to the 2013 Restated Credit Agreement of $7.2 million and fees paid to terminate the related interest rate swaps...

  • Page 54
    ...850.0 million share repurchase program that commenced on June 3, 2015 was completed during the third quarter of 2015. During 2015, the Company incurred costs of $2.3 million in connection with the tender offer and Trian Group stock purchase agreement, which were recorded to treasury stock. In August...

  • Page 55
    ... markets, such as those for beef, chicken and corn had a significant effect on our results of operations in 2014 and 2013 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 56
    ... estimates of future sales growth, gross margins, operating costs, income tax rates, terminal value growth rates, capital expenditures and the weighted average cost of capital (discount rate). Anticipated cash flows used under the income approach are developed every fourth quarter in conjunction...

  • Page 57
    ... 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 2015, which indicated that...

  • Page 58
    ... development fees and future cash consideration for royalties and lease payments. The Company considers the future lease payments in allocating the initial cash consideration received. The Company obtains third-party evidence to estimate the relative selling price of the stated rent under the lease...

  • Page 59
    ...interest rate changes is to limit the impact on our earnings and cash flows. Our policies prohibit the use of derivative instruments for trading purposes and we had no outstanding derivative instruments as of January 3, 2016. As discussed in "Item 7. Management's Discussion and Analysis of Financial...

  • Page 60
    ... subsidiary exposures relate to its franchise and administrative operations and company-owned restaurant operations through the second quarter of 2015 when we completed the sale of such restaurants to franchisees. The exposure to Canadian dollar exchange rates on the Company's cash flows primarily...

  • Page 61
    ...THE WENDY'S COMPANY AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Glossary of Defined Terms ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of January 3, 2016 and December 28, 2014 ...Consolidated Statements of Operations for the years...

  • Page 62
    ... Accounting Policies Long-Term Debt Investments Long-Term Debt Income Taxes Investments Investments Investments Transactions with Related Parties Long-Term Debt Retirement Benefit Plans Investments Transactions with Related Parties Summary of Significant Accounting Policies Share-Based Compensation...

  • Page 63
    ... with Related Parties Retirement Benefit Plans Retirement Benefit Plans Summary of Significant Accounting Policies Summary of Significant Accounting Policies Transactions with Related Parties Long-Term Debt Investments Summary of Significant Accounting Policies Retirement Benefit Plans 60

  • Page 64
    ..., the financial position of The Wendy's Company and subsidiaries as of January 3, 2016 and December 28, 2014, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 2016, in conformity with accounting principles generally accepted in...

  • Page 65
    ...2014 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 ...Current assets of discontinued operations ...Total current assets ...Properties...

  • Page 66
    ... STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) Year Ended January 3, 2016 December 28, 2014 December 29, 2013 Revenues: Sales ...Franchise revenues ...Costs and expenses: Cost of sales ...General and administrative ...Depreciation and amortization ...System optimization...

  • Page 67
    ... of cash flow hedges, net of income tax benefit (provision) of $918, $1,767 and $(468), respectively ...(1,527) Other comprehensive loss, net ...Comprehensive income ...Comprehensive loss attributable to noncontrolling interests ...Comprehensive income attributable to The Wendy's Company ...(39...

  • Page 68
    ... of stock options ...Common stock issued upon vesting of restricted shares ...Tax benefit from share-based compensation ...Other ...Balance at December 28, 2014 ...Net income ...Other comprehensive loss, net ...Cash dividends ...Repurchases of common stock ...Share-based compensation ...Common stock...

  • Page 69
    ...-term debt ...Change in restricted cash ...Deferred financing costs ...Premium payment on redemption of notes ...Proceeds from termination of interest rate swaps ...Repurchases of common stock ...Dividends ...Proceeds from stock option exercises ...Excess tax benefits from share-based compensation...

  • Page 70
    ...on sales of restaurants, net ...Gain on disposal of the Bakery ...Loss on disposal of the Japan JV ...Long-term debt-related activities, net Accretion of long-term debt ...Amortization of deferred financing costs ...Loss on early extinguishment of debt ...Payments for termination of cash flow hedges...

  • Page 71
    ... statements of operations. The Company participates in two national advertising funds established to collect and administer funds contributed for use in advertising and promotional programs for company-owned and franchised restaurants. The revenue, expenses and cash flows of such advertising funds...

  • Page 72
    ... disclosed in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014. Such reclassifications had no impact on operating profit, net income or net income per share. The following table illustrates the reclassifications...

  • Page 73
    ...interest and commitment fees required for the Company's senior secured notes and is included in "Prepaid expenses and other current assets" in the consolidated balance sheet as of January 3, 2016. Changes in such restricted cash are presented as a component of cash flows from operating and financing...

  • Page 74
    ... 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 75
    ... loss. Our estimates in the determination of the fair value of indefinite-lived intangible assets include the anticipated future revenues of company-owned and franchised restaurants and the resulting cash flows. Investments The Company has a 50% share in a partnership in a Canadian restaurant real...

  • Page 76
    ...manage its exposure to changes in interest rates as well as to maintain an appropriate mix of fixed and variable rate debt. In May 2015, the Company terminated its floating to fixed interest rate swap agreements which were accounted for as cash flow hedges. Changes in the fair value of the cash flow...

  • Page 77
    ... are recognized as revenue when a franchised restaurant is opened as all material services and conditions related to the franchise fee have been substantially performed upon the restaurant opening. Initial franchise fees received in connection with sales of company-owned restaurants to franchisees...

  • Page 78
    ... the lease will be accounted for as an operating or capital lease, including the determination of direct financing leases based on its terms. Capital lease assets and related obligations are recorded at the lower of the present value of future minimum lease payments or fair market value at lease...

  • Page 79
    ... revenues." Amounts related to leases for corporate offices and equipment are recorded to "General and administrative." Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market...

  • Page 80
    ... 2015, the Financial Accounting Standards Board (the "FASB") issued an amendment that requires deferred tax assets and deferred tax liabilities be classified as non-current in the consolidated balance sheet. The Company early adopted this amendment, prospectively, during the fourth quarter of 2015...

  • Page 81
    ...adoption of this amendment on our consolidated financial statements. (2) Discontinued Operations Sale of the Bakery On May 31, 2015, Wendy's completed the sale of 100% of its membership interest in the Bakery to East Balt US, LLC (the "Buyer") for $78,500 in cash (subject to customary purchase price...

  • Page 82
    ... CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) The following table presents the Bakery's results of operations and the gain on disposal which have been included in discontinued operations: 2015 Year Ended 2014 2013 Revenues (a) ...Cost of sales (b) ...General...

  • Page 83
    ... insurance benefits to the Bakery's employees through December 31, 2015 of $1,993 and transaction closing costs paid directly by the Company. (e) Includes the impact of non-deductible goodwill disposed of as a result of the sale. Sale of Arby's On July 4, 2011, Wendy's Restaurants completed the sale...

  • Page 84
    ... and employee related costs, professional fees and other associated costs, which are further described in Note 5. The following is a summary of the disposition activity recorded as a result of our system optimization initiative: 2015 Year Ended 2014 (a) (b) 2013 (a) Number of restaurants sold to...

  • Page 85
    ... of the total purchase price to the fair value of assets acquired and liabilities assumed for acquisitions of franchised restaurants: Year Ended 2015 2014 Restaurants acquired from franchisees ...Total consideration paid, net of cash received ...Identifiable assets acquired and liabilities...

  • Page 86
    ... to drive long-term growth. The following is a summary of the activity recorded as a result of our G&A realignment plan: Year Ended 2015 2014 Total Incurred Since Inception Severance and related employee costs ...Recruitment and relocation costs ...Other ...Share-based compensation (a) ...Total...

  • Page 87
    ... rights related to company-owned restaurants in territories that will be sold to franchisees of approximately $1,600. The following is a summary of the costs recorded as a result of our system optimization initiative: Year Ended 2014 Total Incurred Since Inception 2015 2013 Severance and related...

  • Page 88
    ... Costs During 2012, the Company substantially completed the relocation of the Company's Atlanta restaurant support center to Ohio. The Company did not incur any expenses during 2015 or 2014 and does not expect to incur additional costs related to the relocation. Year Ended 2013 Total Incurred...

  • Page 89
    ... and Receivables Year End 2015 2014 Cash and cash equivalents Cash ...Cash equivalents ...Restricted cash equivalents Current (a) Collateral supporting letters of credit ...Accounts held by trustee for the securitized financing facility ...Trust for termination costs for former Wendy's executives...

  • Page 90
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Year End 2015 2014 Accounts and Notes Receivable Current Accounts receivable: Franchisees ...Other (a) ...Notes receivable from franchisees (b) (c) ...Allowance for ...

  • Page 91
    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: 2015 Year End 2014 2013 Balance at beginning of year: Current ...Non-current ...Provision for ...

  • Page 92
    ... for the years ended January 3, 2016, December 28, 2014 and December 29, 2013. The summary balance sheet financial information does not distinguish between current and long-term assets and liabilities. Year End 2015 2014 Balance sheet information: Properties ...Cash and cash equivalents ...Accounts...

  • Page 93
    ... method investment. Our share of the Japan JV's net loss of $1,090 during the year ended December 29, 2013 is included in "Other operating expense, net" in our consolidated statements of operations. In January 2013, Wendy's and the Higa Partners agreed to fund future anticipated cash requirements of...

  • Page 94
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Sale of Investment in Jurlique International Pty Ltd. On February 2, 2012, Jurl Holdings, LLC ("Jurl"), a 99.7% owned subsidiary completed the sale of our investment in ...

  • Page 95
    ... of the anticipated cash flows associated with the reporting unit. The decline in the fair value of the international franchise restaurants reporting unit resulted from lower than anticipated current and future operating results including lower projected growth rates and profitability levels than...

  • Page 96
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) (11) Accrued Expenses and Other Current Liabilities Year End 2015 2014 Accrued compensation and related benefits ...Accrued taxes ...Other ... $ 60,566 19,925 43,913 ...

  • Page 97
    ...of credit were outstanding against the Series 2015-1 Class A-1 Notes, which relate primarily to interest reserves required under the Indenture. During the year ended January 3, 2016, the Company incurred debt issuance costs of $43,817 in connection with the issuance of the Series 2015-1 Senior Notes...

  • Page 98
    ... rate swaps. As a result, the Company recorded a loss on early extinguishment of debt of $7,295 during the second quarter of 2015, primarily consisting of the write-off of deferred costs related to the 2013 Restated Credit Agreement of $7,233 and fees paid to terminate the related interest rate...

  • Page 99
    ... Rate. The debt is guaranteed by Wendy's. The full amount of the line was available under this line of credit as of January 3, 2016. The following is a summary of the Company's assets pledged as collateral for certain debt: Year End 2015 Cash and cash equivalents ...Accounts and notes receivable...

  • Page 100
    ...guarantees are the only financial assets and liabilities measured and recorded at fair value on a recurring basis. Derivative Instruments The Company's primary objective for entering into interest rate swap agreements was to manage its exposure to changes in interest rates, as well as to maintain an...

  • Page 101
    ... discounted cash flows of future anticipated lease and sublease income or current market values. Total losses for the years ended January 3, 2016 and December 28, 2014 also include the impact of remeasuring long-lived assets held for sale which primarily include surplus properties. The fair values...

  • Page 102
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Fair Value Measurements December 28, 2014 Level 1 Level 2 Level 3 2014 Total Losses Held and used ...Held for sale ...Total ... $ 8,651 4,967 $13,618 $- - $- $- - $- ...

  • Page 103
    ... below: Year End 2015 2014 Deferred tax assets: Net operating loss and credit carryforwards ...Unfavorable leases ...Accrued compensation and related benefits ...Accrued expenses and reserves ...Deferred rent ...Other ...Valuation allowances ...Total deferred tax assets ...Deferred tax liabilities...

  • Page 104
    ...tax assets related to state net operating loss carryforwards. The Company's system optimization initiative described in Note 3 impacted our tax provision due to the following: 1) goodwill disposal and other non-deductible expenses incurred in connection with the sale of restaurants during 2015, 2014...

  • Page 105
    ... amount of unrecognized tax benefits follows: 2015 Year End 2014 2013 Beginning balance ...Additions: Tax positions of current year ...Tax positions of prior years ...Reductions: Tax positions of prior years ...Settlements ...Lapse of statute of limitations ...Ending balance ... $25,715 927 476...

  • Page 106
    ... price of $210,867. As a result, the $850,000 share repurchase program that commenced on June 3, 2015 was completed during the third quarter of 2015. During 2015, the Company incurred costs of $2,288 in connection with the tender offer and Trian Group stock purchase agreement, which were recorded...

  • Page 107
    ...720 shares with an aggregate purchase price of $69,167, excluding commissions of $153. The authorization for the repurchase program expired at the end of the 2013 fiscal year. Preferred Stock There were 100,000 shares authorized and no shares issued of preferred stock throughout 2015, 2014 and 2013...

  • Page 108
    ... 3, 2016, there were approximately 41,564 shares of common stock available for future grants under the 2010 Plan. During the periods presented in the consolidated financial statements, the Company settled all exercises of stock options and vesting of restricted shares, including performance shares...

  • Page 109
    ...the performance and market conditions. The fair values of the performance condition awards granted in 2015, 2014 and 2013 were determined using the average of the high and low trading prices of our common stock on the date of grant. Share-based compensation expense recorded for performance condition...

  • Page 110
    .... 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: 2015 Year Ended 2014 2013 Stock options ...Restricted Shares ...Performance shares: Performance condition awards ...Market...

  • Page 111
    ... were sold during 2014 resulting in a net loss of $261. The following is a summary of impairment losses recorded, which represent the excess of the carrying amount over the fair value of the affected assets and are included in "Impairment of long-lived assets." 2015 Year Ended 2014 2013 Restaurants...

  • Page 112
    ... 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 113
    ... contingent rent provisions that require additional rental payments based upon restaurant sales volume in excess of specified amounts. The Company also leases restaurant, office and transportation equipment. Certain leases also provide for payments of other costs such as real estate taxes, insurance...

  • Page 114
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Rental expense for operating leases consists of the following components: 2015 Year Ended 2014 2013 Rental expense: Minimum rentals ...Contingent rentals ...Total ...

  • Page 115
    ... FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) Properties owned by the Company and leased to franchisees and other third parties under operating leases include: 2015 Year End 2014 (a) Land ...Buildings and improvements ...Office, restaurant and transportation equipment...

  • Page 116
    ... in royalty payments in 2015 and 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...

  • Page 117
    ... the Company and its related parties, which are included in continuing operations: 2015 Year Ended 2014 2013 Transactions with QSCC: Wendy's Co-Op (a) ...Lease income (b) ...Use of company-owned aircraft by the Management Company (c) TimWen lease and management fee payments (d) ...Transactions...

  • Page 118
    ... 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 and flight crew fees to CitationAir and reimbursed CitationAir for maintenance costs and fuel usage related to the corporate...

  • Page 119
    ... FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) TimWen lease and management fee payments (d) A wholly-owned subsidiary of Wendy's leases restaurant facilities from TimWen for the operation of Wendy's/Tim Hortons combo units in Canada. Prior to the second quarter of 2015...

  • Page 120
    ...-owned and franchised restaurants make additional contributions to other local and regional advertising programs. Restricted assets and related liabilities of the Advertising Funds at January 3, 2016 and December 28, 2014 were as follows: Year End 2015 2014 Cash and cash equivalents ...Accounts and...

  • Page 121
    ...'s assets and liabilities, for all periods presented through its May 31, 2015 date of sale are included in discontinued operations. U.S. Canada Other International Total 2015 Revenues ...Properties ...2014 Revenues ...Properties ...2013 Revenues ...Properties ...(26) Quarterly Financial Information...

  • Page 122
    THE WENDY'S COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED (In Thousands Except Per Share Amounts) 2014 Quarter Ended June 29 September 28 (b) March 30 (b) December 28 (b) Revenues ...Cost of sales ...Operating profit ...Income from continuing operations ...Net ...

  • Page 123
    ... that information required to be disclosed by the Company in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management's Report on Internal Control...

  • Page 124
    ... the standards of the Public Company Accounting Oversight Board (United States), the Company's consolidated financial statements as of and for the year ended January 3, 2016 and our report dated March 3, 2016, expressed an unqualified opinion on those financial statements. /s/ Deloitte & Touche LLP...

  • Page 125
    .... None. PART III Items 10, 11, 12, 13 and 14. The information required by Items 10, 11, 12, 13 and 14 will be furnished on or prior to May 2, 2016 (and is hereby incorporated by reference) by an amendment hereto or pursuant to a definitive proxy statement involving the election of directors pursuant...

  • Page 126
    ... Corporation, ARG IH Corporation, and Roark Capital Partners II, LP, incorporated by reference to Exhibit 2.2 of the Wendy's/Arby's Group, Inc. 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...

  • Page 127
    ... Triarc's Current Report on Form 8- K filed on May 13, 1998 (SEC file no. 001-02207).** Wendy's/Arby's Group, Inc. Amended and Restated 2002 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 10.5 to Wendy's/Arby's Group's Form 10-K for the fiscal year ended December...

  • Page 128
    ... 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 Restricted Stock Unit Award Agreement for 2013 (ratable vesting) under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated...

  • Page 129
    ... 10.25 to Wendy's/Arby's Group's Form 10-K for the fiscal year ended January 3, 2010 (SEC file no. 001-02207).** Wendy's International, LLC Executive Severance Pay Policy, effective as of December 14, 2015.* ** Wendy's/Arby's Group, Inc. 2009 Directors' Deferred Compensation Plan, effective as of...

  • Page 130
    ...to The Wendy's Company Current Report on Form 8-K filed on June 2, 2015 (SEC file no. 001-02207). Management Agreement, dated as of June 1, 2015, by and among Wendy's Funding, LLC, Quality Is Our Recipe, LLC, Wendy's Properties, LLC, Wendy's SPV Guarantor, LLC, Wendy's International, LLC, as Manager...

  • Page 131
    ... 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 Exhibit 10.1 to Triarc's Current...

  • Page 132
    ... 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 133
    ....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 134
    ... Exhibit 10 of the Wendy's International, Inc. Current Report on Form 8-K filed on July 12, 2005 (SEC file no. 001-08116).** Form of First Amendment to Indemnification Agreement between Wendy's International, Inc. and its directors and certain officers and employees, incorporated herein by reference...

  • Page 135
    ... Executive Officer) President and Chief Financial Officer (Principal Financial Officer) Senior Vice President, Chief Accounting and Tax Officer (Principal Accounting Officer) Chairman and Director Vice Chairman and Director Director Director Director Director Director Director Director Director...

  • Page 136
    ... Corporation, ARG IH Corporation, and Roark Capital Partners II, LP, incorporated by reference to Exhibit 2.2 of the Wendy's/Arby's Group, Inc. 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...

  • Page 137
    ....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 138
    ... 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 Restricted Stock Unit Award Agreement for 2013 (ratable vesting) under the Wendy's/Arby's Group, Inc. 2010 Omnibus Award Plan, incorporated...

  • Page 139
    ... 10.25 to Wendy's/Arby's Group's Form 10-K for the fiscal year ended January 3, 2010 (SEC file no. 001-02207).** Wendy's International, LLC Executive Severance Pay Policy, effective as of December 14, 2015.* ** Wendy's/Arby's Group, Inc. 2009 Directors' Deferred Compensation Plan, effective as of...

  • Page 140
    ...to The Wendy's Company Current Report on Form 8-K filed on June 2, 2015 (SEC file no. 001-02207). Management Agreement, dated as of June 1, 2015, by and among Wendy's Funding, LLC, Quality Is Our Recipe, LLC, Wendy's Properties, LLC, Wendy's SPV Guarantor, LLC, Wendy's International, LLC, as Manager...

  • Page 141
    ... 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 142
    ... 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 143
    ....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 144
    ... Document* XBRL Taxonomy Extension Presentation Linkbase Document* Filed herewith. Identifies a management contract or compensatory plan or arrangement. Instruments defining the rights of holders of certain issues of long-term debt of the Company and its consolidated subsidiaries have not been...

  • Page 145
    ...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, LLC Oldemark LLC Wendy's SPV Guarantor, LLC Wendy's Funding, LLC Quality Is Our Recipe, LLC Wendy's Properties, LLC Restaurant Finance Corporation Café Express, LLC...

  • Page 146
    ... our reports dated March 3, 2016, relating to the consolidated financial statements 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 January 3, 2016...

  • Page 147
    EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the use of our report, dated February 26, 2016, with respect to the TIMWEN Partnership financial statements included in this Annual Report on Form 10-K. We also consent to the incorporation by reference of such ...

  • Page 148
    ..., summarize and report 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. March 3, 2016 /S/ EMIL J. BROLICK Emil J. Brolick Chief Executive Officer

  • Page 149
    ... 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 150
    ... and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. March 3, 2016 /S/ EMIL J. BROLICK Emil J. Brolick Chief Executive Officer March 3, 2016 /S/ TODD A. PENEGOR Todd A. Penegor President and Chief...

  • Page 151
    ... the graph are the last trading days of our 2010, 2011, 2012, 2013, 2014 and 2015 fiscal years. The returns set forth below assume an initial investment of $100 and reinvestment of all dividends when received. COMPARISON of 5 YEAR CUMULATIVE TOTAL RETURN* (The Wendy's Company vs. the S&P Midcap 400...

  • Page 152
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