UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 20102, 2011
OR
(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ______________.

COMMISSION FILE NUMBER 333-161613
------------------------
WENDY’S/ARBY’S RESTAURANTS, LLCGROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
------------------------Commission File Number 1-2207

Delaware 38-0471180
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
1155 Perimeter Center West, Atlanta, Georgia 30338
(Address of principal executive offices) (Zip Code)

Registrant'sRegistrant’s Telephone Number, Including Area Code: (678) 514-4100
------------------------
Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each ClassName of Each Exchange on Which Registered
NoneCommon Stock, $.10 par valueNew York Stock Exchange
 
N/ASecurities Registered Pursuant to Section 12(g) of the Act: None

Securities Registered Pursuant to Section 12(g)WENDY’S/ARBY’S RESTAURANTS, LLC.
(Exact Name of the Act:Registrant as Specified in its Charter)
NoneCommission File Number 333-161613

Delaware38-0471180
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1155 Perimeter Center West, Atlanta, Georgia30338
(Address of principal executive offices)(Zip Code)
Registrant’s Telephone Number, Including Area Code: (678) 514-4100
------------------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if theeither registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  □Yes ýNo

Wendy’s/Arby’s Group, Inc.
ýYes □No
Wendy’s/Arby’s Restaurants, LLC
□Yes ýNo

Indicate by check mark if theeach registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act   □Yes  ýNoAct.

Wendy’s/Arby’s Group, Inc.
□Yes ýNo
Wendy’s/Arby’s Restaurants, LLC
ýYes □No

Indicate by check mark whether theeach registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. □Yes  ýNo*
Wendy’s/Arby’s Group, Inc.
ýYes □No
Wendy’s/Arby’s Restaurants, LLC
□Yes ýNo*



Indicate by check mark whether theeach registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). □Yes  □No
Wendy’s/Arby’s Group, Inc.
ýYes □No
Wendy’s/Arby’s Restaurants, LLC
□Yes □No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'seach registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is aregistrants are large accelerated filer, anfilers, accelerated filer, afilers, non-accelerated filerfilers or a smaller reporting company.companies. See the definitions of "large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Wendy’s/Arby’s Group, Inc.
Large accelerated filer  ý
Accelerated filer  □Non-accelerated filer  □Smaller reporting company □

Wendy’s/Arby’s Restaurants, LLC
Large accelerated filer  □
Accelerated filer  □
Non-accelerated filer  ý
Smaller reporting company □

Indicate by check mark whether theeither registrant is a shell company (as defined in Rule 12b-2 of the Act).  □Yes ýNo

The aggregate market value of common equity held by non-affiliates of Wendy’s/Arby’s Group, Inc. as of July 2, 2010 was approximately $1,250,922,364.  As of February 25, 2011, there were 419,005,869 shares of Wendy’s/Arby’s Group, Inc. Common Stock outstanding.

As a limited liability company, the registrantWendy’s/Arby’s Restaurants, LLC does not issue common stock but has one member’s interest issued and outstanding.  The registrant’sWendy’s/Arby’s Restaurants, LLC’s sole member is Wendy’s/Arby’s Group, Inc.  TheThere is no aggregate market value of the registrant’s common equity held by non-affiliates of the registrantfor Wendy’s/Arby’s Restaurants, LLC member’s interest as of June 28, 2009 was zero.February 25, 2011.

The registrantWendy’s/Arby’s Restaurants, LLC meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.

*The registrant      Wendy’s/Arby’s Restaurants, LLC has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the period it was required to file such reports.


DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Form 10-K, to the extent not set forth herein, is incorporated herein by reference from Wendy’s/Arby’s Group, Inc.’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after January 2, 2011.



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Explanatory Note

This Annual Report on Form 10-K is a combined report being filed separately by Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”) and Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants”), a direct 100% owned subsidiary holding company of Wendy’s/Arby’s. Unless the context indicates otherwise, any reference in this report to the “Companies,” “we,” “us” and “our” refers to Wendy’s/Arby’s together with its direct and indirect subsidiaries, including Wendy’s/Arby’s Restaurants. Each registrant hereto is filing on its own behalf all of the information contained in this annual report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.

The principal subsidiaries of Wendy’s/Arby’s Restaurants are Wendy’s International, Inc. (“Wendy’s”) and Arby’s Restaurant Group, Inc. (“Arby’s”) and their subsidiaries.  Substantially all of the operating results of Wendy’s/Arby’s are derived from the operating results of Wendy’s/Arby’s Restaurants, except expenses of Wendy’s/Arby’s.  Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined in the Annual Report on Form 10-K.  Where information or an explanation is not substantially the same for each company, we have provided separate information and explanation.  In addition, separate financial statements for ea ch company are included in Item 8, “Financial Statements and Supplementary Data.”

PART 1
Special Note Regarding Forward-Looking Statements and Projections

Wendy’s/Arby’s Restaurants, LLC is the parent company of Wendy’s International, Inc. (“Wendy’s”) and Arby’s Restaurant Group, Inc. (“Arby’s” or “ARG”) and a wholly-owned subsidiary of Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”).  The terms “we,” “us,” “our,” “Wendy’s/Arby’s Restaurants,” and the “Company” refer collectively to Wendy’s/Arby’s Restaurants, LLC and its subsidiaries.
This Annual Report on Form 10-K and oral statements made from time to time by representatives of the CompanyCompanies may contain or incorporate by reference certain statements that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of the Company.Companies.  Those statements, as well as statements preceded by, followed by, or that include the words “may,” “believes,” “plans,” “expects,” “anticipates,” or the negation thereof, or similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).  All statements that address future operating, financial or business performance; strategiesstrategie s or expectations; future synergies, efficiencies or overhead savings; anticipated costs or charges; future capitalization; and anticipated financial impacts of recent or pending transactions are forward-looking statements within the meaning of the Reform Act.  The forward-looking statements are based on our expectations at the time such statements are made, speak only as of the dates they are made and are susceptible to a num bernumber of risks, uncertainties and other factors.  Our actual results, performance and achievements may differ materially from any future results, performance or achievements expressed or implied by our forward-looking statements.  For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act.  Many important factors could affect our future results and could cause those results to differ materially from those expressed in, or implied by the forward-looking statements containedc ontained herein.  Such factors, all of which are difficult or impossible to predict accurately, and many of which are beyond our control, include, but are not limited to, the following:

 ·uncertainty regarding the outcome of the Companies’ exploration of strategic alternatives for the Arby’s brand and its impact on the Companies’ businesses;
·competition, including pricing pressures, aggressive marketing and the potential impact of competitors’ new unit openings on sales of Wendy’s® and Arby’s® restaurants;

 ·consumers’ perceptions of the relative quality, variety, affordability and value of the food products we offer;

·food safety events, including instances of food-borne illness (such as salmonella or E. coli) involving Wendy’s or Arby’s or their respective supply chains;
·consumer concerns over nutritional aspects of beef, poultry, French fries or other products we sell, or concerns regarding the effects of disease outbreaks such as “mad cow disease” and avian influenza or “bird flu”;
 ·success of operating and marketing initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors;

 ·development costs, including real estatethe impact of general economic conditions and construction costs;high unemployment rates on consumer spending, particularly in geographic regions that contain a high concentration of Wendy’s or Arby’s restaurants;

 ·changes in consumer tastes and preferences, including changes resulting from concerns over nutritional or safety aspects of beef, poultry, French fries or other foods or the effects of food-borne illnesses such as “mad cow disease” and avian influenza or “bird flu,” and in discretionary consumer spending;
·changes in spending patterns and demographic trends, such as the extent to which consumers eat meals away from home;

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 ·certain factors affecting our franchisees, including the business and financial viability of key franchisees, with a significant number of Arby’s franchisees having experienced a prolonged period of declining sales and profitability, the timely payment of such franchisees’ obligations due to us or to national or local advertising organizations, and the ability of our franchisees to open new restaurants in accordance with their development commitments, including their ability to finance restaurant development and remodels;

·changes in commodity costs (including beef and chicken), labor, supply, 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 or completing remodels of existing restaurants;

 ·the timing and impact of acquisitions and dispositions of restaurants;

 ·our ability to successfully integrate acquired restaurant operations;

 ·anticipated or unanticipated restaurant closures by us and our franchisees;

 ·our ability to identify, attract and retain potential franchisees with sufficient experience and financial resources to develop and operate Wendy’s and Arby’s restaurants successfully;

 ·availability of qualified restaurant personnel to us and to our franchisees, and the ability to retain such personnel;

 ·our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to Wendy’s and Arby’s restaurants at competitive rates and in adequate amounts, and the potential financial impact of any interruptions in such distribution;

·changes in commodity costs (including beef and chicken), labor, supply, fuel, utilities, distribution and other operating costs;

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 ·availability and cost of insurance;

 ·adverse weather conditions;

 ·availability, terms (including changes in interest rates) and deployment of capital;

 ·changes in, and our ability to comply with, legal, regulatory or regulatorysimilar requirements, including franchising laws, accounting standards, payment card industry rules, overtime rules, minimum wage rates, wage and hour laws, government-mandated health care benefits, tax legislation and menu-board labeling requirements;

 ·the costs, uncertainties and other effects of legal, environmental and administrative proceedings;

·the impact of general economic conditions and high unemployment rates on consumer spending, particularly in geographic regions that contain a high concentration of Wendy’s or Arby’s restaurants, and the effects of war or terrorist activities;

 ·the effects of charges for impairment of goodwill or for the impairment of other long-lived assets due to deteriorating operating results;
·the effects of war or terrorist activities; and

 ·other risks and uncertainties affecting us and our subsidiaries referred to in this Form 10-K (see especially “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and in our other current and periodic filings with the Securities and Exchange Commission.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us.  We assume no obligation to update any forward-looking statements after the date of this Form 10-K as a result of new information, future events or developments, except as required by federal securities laws.  In addition, it is our policy generally not to make any specific projections as to future earnings, and we do not endorse any projections regarding future performance that may be made by third parties.


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Item 1.    Business.
 
Introduction
 
Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”) is the parent company of its 100% owned subsidiary holding company Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants”).  Wendy’s/Arby’s Restaurants is the parent company of Wendy’s International, Inc. (“Wendy’s”) and Arby’s Restaurant Group, Inc. (“Arby’s” or “ARG”) and is a wholly-owned subsidiary of Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”).  The terms “we,” “us,” “our,” “Wendy’s/Arby’s Restaurants,” and the “Company” refer collectively to Wendy’s/Arby’s Restaurants, LLC and its subsidiaries. Wendy’s and ARG, which are the owners and franchisors of the Wendy’s® and Arby’s® restaurant systems, respectively.  As used in this report, unless the context requires otherwise, the term “Companies” refers to Wendy’s/Arby’s and its direct and indirect subsidiaries, including Wendy’s/Arby 217;s Restaurants.

As of January 3, 2010,2, 2011, the Wendy’s restaurant s ystemsystem was comprised of 6,5416,576 restaurants, of which 1,3911,394 were owned and operated by the Company.Companies.  As of January 3, 2010,2, 2011, the Arby’s restaurant system was comprised of 3,7183,649 restaurants, of which 1,1691,144 were owned and operated by the Company.Companies.  References in this Form 10-K to restaurants that we “own” or that are “company-owned” include owned and leased restaurants.  We were formedWendy’s/Arby’s corporate predecessor was incorporated in Ohio in 1929 and was reincorporated in Delaware in OctoberJune 1994.  Effective September 29, 2008, underin conjunction with the merger with Wendy’s, Wendy’s/Arby’s corporate name Wendy’s International Holdings, LLC andwas changed our company namefrom Triarc Compan ies, Inc. (“Triarc”) to Wendy’s/Arby’s Restaurants, LLC on June 19, 2009 in connection with the offering of the Senior Notes described herein. OurGroup, Inc.  The Companies’ principal executive offices are located at 1155 Perimeter Center West, Atlanta, Georgia 30338, and ourtheir telephone number is (678) 514-4100.  We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, as well as ourthe Wendy’s/Arby’s annual proxy statement, available, free of charge, on the Wendy’s/Arby’sour website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.  The Wendy’s/Arby’sOur website address is www.wendysarbys.com.  Information contained on thethat website is not part of this annual reportAnnual Report on Form 10-K.

Business StrategyMerger with Wendy’s

Our business strategyOn September 29, 2008, Triarc and Wendy’s completed their previously announced merger (the “Wendy’s Merger”) in an all-stock transaction in which Wendy’s shareholders received 4.25 shares of Wendy’s/Arby’s Class A common stock for each Wendy’s common share owned.

In the Wendy’s Merger, approximately 377,000,000 shares of Wendy’s/Arby’s Class A common stock were issued to Wendy’s shareholders.  The merger value of approximately $2.5 billion for financial reporting purposes is focusedbased on growing same-store sales, restaurant marginsthe 4.25 conversion factor of the Wendy’s outstanding shares as well as previously issued restricted stock awards, both at a value of $6.57 per share which represented the average closing market price of Triarc Class A common stock two days before and operating income atafter the merger announcement date of April 24, 2008.  Wendy’s shareholders held approximately 80%, in the aggregate, of Wendy’s/Arby’s outstanding Class A common stock immediately following the Wendy’s Merger.  In addition, effective on the date of the Wendy’s Merger, WendyR 17;s/Arby’s Class B common stock was converted into Class A common stock.  In connection with the May 28, 2009 amendment and restatement of Wendy’s/Arby’s Certificate of Incorporation, Class A common stock was redesignated as “Common Stock.”

The Wendy’s and Arby’s brands with improved marketing, menu development, restaurant operations and customer service.  We are also focused on effectively managing the integration of our brands and building a shared services organization to achieve significant synergies and efficiencies.  Our goal is to produce consolidated revenue and operating income growth with attractive return on investment, resulting in increased shareholder value.  We will also continue to evaluate various acquisitionsoperate independently, with headquarters in Dublin, Ohio and business combinationsAtlanta, Georgia, respectively.  A consolidated support center is based in the restaurant industry, which may result in increases in expendituresAtlanta, Georgia and related financing activities.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Unless circumstances dictate otherwise, it is our policy to publicly announce an acquisition or business combination only after a definitive agreement with respect to such acquisition or business combination has been reached.oversees all public company responsibilities, as well as other shared service functions.

Fiscal Year

WeThe Companies use a 52/53 week fiscal year convention whereby ourtheir fiscal year ends each year on the Sunday that is closest to December 31 of that year.  Each fiscal year generally is comprised of four 13-week fiscal quarters, although in the years with 53 weeks, including 2009, the fourth quarter represents a 14-week period.

Business Segments

We operate in two business segments, Wendy’s and Arby’s. See Note 1927 of the Financial Statements and Supplementary Data included in Item 8 herein, for financial information attributable to our business segments.  segments and geographic areas.
 
The Wendy’s Restaurant System

Wendy’s is the 3rdthird largest restaurant franchising system in the United States specializing in the hamburger sandwich segment of the quick service restaurant industry.  According to Nation’s Restaurant News, Wendy’s is the 4thfourth largest quick service restaurant chain in the United States.

Wendy’s is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving high quality food.  At January 3, 2010,2, 2011, there were 6,5416,576 Wendy’s restaurants in operation in theNorth America and in 22 foreign countries (other than Canada) and United States and in 21 foreign countries and U. S. territories.  Of these restaurants, 1,3911,394 were operated by Wendy’s and 5,150 5,182 by a total of 487490 franchisees.   See “Item 2. Properties” for a listing of the number of Company-ownedcompany-owned and franchised locations in the United States and in foreign countries and U.S.United States territories.

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The revenues from our restaurant business are derived from fourthree principal sources: (1) sales at company-owned restaurants; (2) sales of bakery items and kid’skids’ meal promotional items to franchisees and others; and (3) franchise royalties received from all Wendy’s franchised restaurants; and (4) up-front franchise fees from restaurant operators for each new unit opened.restaurants.

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Wendy’s is also a 50% partner in a Canadian restaurant real estate joint venture with Tim Hortons Inc.   The joint venture owns Wendy’s/Tim Hortons combo units in Canada.  As of January 3, 2010,2, 2011, there were 105 Wendy’s restaurants in operation that were owned by the joint venture.  The Tim Hortons menu includes premium coffee, flavored cappuccinos, specialty teas, home-style soups, fresh sandwiches and fresh baked goods.

Wendy’s Restaurants

Wendy’s opened its first restaurant in Columbus, Ohio in 1969.  During 2009,2010, Wendy’s opened 109 new company-owned restaurants and closed 134 generally underperforming company-owned restaurants.  In addition, Wendy’s sold 12 Company-owned2 company-owned restaurants to its franchisees.  During 2009,2010, Wendy’s franchisees opened 5369 new restaurants and closed 6839 generally underperforming restaurants. In addition,2009, 71 franchised restaurants were closed in Japan at year-end upon the expiration of the related franchise agreement.

The following table sets forth the number of Wendy’s restaurants at the beginning and end of each year from 20072008 to 2009:2010:

2009 2008 2007 2010  2009  2008 
Restaurants open at beginning of period6,630 6,645 6,673  6,541   6,630   6,645 
Restaurants opened during period63 97 92  78   63   97 
Restaurants closed during period(152) (112) (120)  (43)  (152)  (112)
Restaurants open at end of period6,541 6,630 6,645  6,576   6,541   6,630 

During the period from January 1,December 31, 2007, through January 3, 2010, 2522, 2011, 238 Wendy’s restaurants were opened and 384307 generally underperforming Wendy’s restaurants were closed.

Operations

Each Wendy’s restaurant offers a relatively standard menu featuring hamburgers and filet of chicken breast sandwiches, which are prepared to order with the customer’s choice of condiments.  Wendy’s menu also includes chicken nuggets, chili, baked and frenchFrench fried potatoes, freshly prepared salads, soft drinks, milk, Frosty™ desserts, floats and kids’ meals. In addition, the restaurants sell a variety of promotional products on a limited basis.  Wendy’s has tested breakfast in certain markets and plans to expand its breakfast initiative in 2011.

Free-standing Wendy’s restaurants generally include a pick-up window in addition to a dining room.  The percentage of sales at company-owned Wendy’s restaurants through the pick-up window was 64.9%, 64.6%, and 63.8% in 2010, 2009, and 2008 respectively.

Wendy’s strives to maintain quality and uniformity throughout all restaurants by publishing detailed specifications for food products, preparation and service, continual in-service training of employees, restaurant reviewsoperational audits and field visits from Wendy’s supervisors.  In the case of franchisees, field visits are made by Wendy’s personnel who review operations, including quality, service and cleanliness and make recommendations to assist in compliance with Wendy’s specifications.

Generally, Wendy’s does not sell food or supplies, other than sandwich buns and kids’ meal toys, to its franchisees. However, prior to 2010, Wendy’s arranged for volume purchases of many food and supply products.  Commencing in 2010, the purchasing function was transferred to a new purchasing co-op as described below in “Raw Materials and Purchasing.”

The New Bakery Co. of Ohio, Inc. (“Bakery”(the “Bakery”), a wholly-owned100% owned subsidiary of Wendy’s, is a producer of buns for some Wendy’s restaurants, and to a lesser extent for other outside parties, including certain distributorsone distributor to the Arby’s system.  At January 3, 2010,2, 2011, the Bakery supplied 692709 restaurants operated by Wendy’s and 2,4762,551 restaurants operated by franchisees. As of that date, the Bakery also directly supplied 10 Arby’s restaurants on a test basis. The Bakery also manufactures and sells some products to customers in the grocery and other food service businesses.
 
See Note 19 of the Financial Statements and Supplementary Data included in Item 8 herein, for financial information attributable to certain geographical areas.
Raw Materials and Purchasing

As of January 3, 2010, 62, 2011, 5 independent processors (7(6 total production facilities) supplied all of Wendy’s hamburger in the United States.  In addition, 5 independent processors (9(7 total production facilities) supplied all of Wendy’s chicken in the United States.
 
Wendy’s and its franchisees have not experienced any material shortages of food, equipment, fixtures or other products that are necessary to maintain restaurant operations. Wendy’s anticipates no such shortages of products and believes that alternate suppliers are available.  Suppliers to the Wendy’s system must comply with United States Department of Agriculture (“USDA”) and United States Food and Drug Administration (“FDA”) regulations governing the manufacture, packaging, storage, distribution and sale of all food and packaging products.


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During the 2009 fourth quarter, Wendy’s and its franchisees entered into a purchasing co-op relationship agreement (the “Co-op Agreement”) to establish a new Wendy’s purchasing co-op, Quality Supply Chain Co-op, Inc. (“QSCC”).  QSCC now manages food and related product purchases and distribution services for the Wendy’s system in the United States and Canada.  Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.

QSCC’s supply chain management will facilitatefacilitates the continuity of supply and provideprovides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s North AmericanAmerica supply chain.  The system’s purchasing function for 2009 and prior was performed and paid for by Wendy’s.  In order to facilitate the orderly transition of the 2010 purchasing function for North AmericanAmerica operations, Wendy’s transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in the first quarter of 2010.  Pursuant to the terms of the Co-op Agreement, Wendy’s iswas required to pay $15.5 million to QSCC over an 18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and cashc ash reserves.  Future operationsIn addition to the initial funding by Wendy’s, since the third quarter of 2010 all QSCC members (including Wendy’s) began paying sourcing fees on products sourced through QSCC.  Such sourcing fees will be fundedthe primary means of funding QSCC’s operations after the initial funding by all membersWendy’s is completed.

During the 2010 second quarter, QSCC and ARCOP, Inc. (“ARCOP”), Arby’s independent purchasing cooperative, in consultation with Wendy’s/Arby’s Restaurants, established the Strategic Sourcing Group Co-op, LLC (“SSG”).  SSG was formed to manage and operate purchasing programs which combine the purchasing power of QSCC, includingboth Wendy’s and its franchisees. Arby’s company-owned and franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment and services.

In order to facilitate the orderly transition of this purchasing function for the Companies’ North America operations, Wendy’s/Arby’s Restaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants purchasing employees to SSG in the second quarter of 2010.  Wendy’s/Arby’s Restaurants had committed to pay approximately $5.2 million of SSG expenses, which was expensed in 2010 and was to be paid over a 24 month period through March 2012. We made payments of $2.0 million in 2010.

Should a sale of Arby’s occur as discussed in “The Arby’s Restaurant System” herein, under the change of control provisions in the agreement that established SSG, the activities of SSG would be wound up.  In the wind up process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and Wendy’s/Arby’s Restaurants agree.  In contemplation of a possible sale, the parties are in discussion regarding the dissolution of SSG and transferring SSG’s assets, personnel and functions to QSCC and ARCOP.  
 
TrademarksRaw Materials and Service MarksPurchasing

Wendy’s has registered certain trademarks and service marks in the United States Patent and Trademark Office and in international jurisdictions, some of which include Wendy’s®, Old Fashioned Hamburgers® and Quality Is Our Recipe®. Wendy’s believes that these and other related marks are of material importance to its business. Domestic trademarks and service marks expire at various times from 2010 to 2019, while international trademarks and service marks have various durations of 10 to 15 years. Wendy’s generally intends to renew trademarks and service marks that are scheduled to expire.

Wendy’s entered into an Assignment of Rights Agreement with the company’s founder, R. David Thomas, and his wife dated as of November 5, 2000 (the “Assignment”). Wendy’s had used Mr. Thomas, who was Senior Chairman of the Board until his death on January 8, 2002, as a spokesperson and focal point for its products and services for many years. With the efforts and attributes of Mr. Thomas, Wendy’s has, through its extensive investment in the advertising and promotional use of Mr. Thomas’ name, likeness, image, voice, caricature, endorsement rights and photographs (the “Thomas Persona”), made the Thomas Persona well known in the U.S. and throughout North America and a valuable asset for both Wendy’s and Mr.  Thomas’ estate. Under the terms of the Assignment, Wendy’s acquired the entire right, title, interest and ownership in and to the Thomas Persona, including the sole and exclusive right to commercially use the Thomas Persona.
Seasonality

Wendy’s restaurant operations are moderately seasonal. Wendy’s average restaurant sales are normally higher during the summer months than during the winter months. Because the business is moderately seasonal, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.
Competition

Each Wendy’s restaurant is in competition with other food service operations within the same geographical area.  The quick-service restaurant segment is highly competitive and includes well-established competitors such as McDonald’s®, Burger King®, Taco Bell®, Kentucky Fried Chicken® and Arby’s®.  Wendy’s competes with 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 by Wendy’s and its competitors are also important factors. The price charged for each menu item may va ry from market to market (and within markets) depending on competitive pricing and the local cost structure.  Wendy’s also competes within the food service industry and the quick service restaurant sector not only for customers, but also for personnel, suitable real estate sites and qualified franchisees.
Wendy’s competitive position is differentiated by a focus on quality, its use of fresh, never frozen ground beef in the United States and Canada and certain other countries, its unique and diverse menu, its promotional products, its choice of condiments and the atmosphere and decor of its restaurants.

Many of the leading restaurant chains have focused on new unit development as one strategy to increase market share through increased consumer awareness and convenience. This has led to increased competition for available development sites and higher development costs for those sites, although the recent decline in commercial real estate values has somewhat offset those costs.  Competitors also employ marketing strategies such as frequent use of price discounting, frequent promotions and heavy advertising expenditures.  Continued price discounting in the quick service restaurant industry and the emphasis on value menus has had and could continue to have an adverse impact on Wendy’s.  In addition, the growth of fast casual chains and other in-line competitors could cause some fast food customers to & #8220;trade up” to a more traditional dining out experience while keeping the benefits of quick service dining.

Other restaurant chains have also competed by offering high quality sandwiches made with fresh ingredients and artisan breads.  Several chains have also sought to compete by targeting certain consumer groups, such as capitalizing on trends toward certain types of diets (e.g., low carbohydrate or low trans fat) by offering menu items that are promoted as being consistent with such diets.

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Additional competitive pressures for prepared food purchases come from operators outside the restaurant industry.  A number of major grocery chains offer fresh deli sandwiches and fully prepared food and meals to go as part of their deli sections.  Some of these chains also have in-store cafes with service counters and tables where consumers can order and consume a full menu of items prepared especially for that portion of the operation.  Additionally, convenience stores and retail outlets at gas stations frequently offer sandwiches and other foods.

Quality Assurance

Wendy’s Quality Assurance program is designed to verify that the food products supplied to our restaurants are processed in a safe, sanitary environment and in compliance with our food safety and quality standards. Wendy’s Quality Assurance personnel conduct multiple on-site sanitation and production audits throughout the year at all of our core menu product processing facilities, which includes beef, poultry, pork, buns, french fries, Frosty™ dessert ingredients, and produce. Animal welfare audits are also conducted every year at all beef, poultry, and pork facilities to confirm compliance to our required animal welfare and handling policies and procedures. In addition to our facility audit program, weekly samples of beef, poultry, and other core menu products from our distribution centers are randomly sampled and analyzed by a third party laboratory to test conformance to our quality specifications. Each year, Wendy’s representatives conduct unannounced inspections of all company and franchise restaurants to test conformance to our sanitation, food safety, and operational requirements.  Wendy’s has the right to terminate franchise agreements if franchisees fail to comply with quality standards.
Acquisitions and Dispositions of Wendy’s Restaurants

Wendy’s has from time to time acquired the interests of and sold Wendy’s restaurants to franchisees, and it is anticipated that the company may have opportunities for such transactions in the future. Wendy’s generally retains a right of first refusal in connection with any proposed sale of a franchisee’s interest. Wendy’s will continue to sell and acquire restaurants in the future where prudent.
International Operations
As of January 3, 2010,2, 2011, 5 independent processors (6 total production facilities) supplied all of Wendy’s had 136 company owned and 235 franchised restaurants in Canada and 293 franchised restaurants in 20 other countries and U.S. territories. Wendy’s is evaluating further expansion into other international markets. Wendy’s has granted development rightshamburger in the certain countries and U. S. territories listed under Item 2 of this Form 10-K.United States.  In addition, Wendy's has granted development rights for dual-branded Wendy's and Arby's restaurants in 12 countries5 independent processors (7 total production facilities) supplied all of Wendy’s chicken in the Middle East and North Africa.United States.
 
Wendy’s Restaurantsand its franchisees have not experienced any material shortages of Canada Inc. (“WROC”), a wholly owned subsidiaryfood, equipment, fixtures or other products that are necessary to maintain restaurant operations. Wendy’s anticipates no such shortages of Wendy’s, holds master franchise rights for Canada.  The rightsproducts and obligations governing the majority of franchised restaurants operating in Canadabelieves that alternate suppliers are set forth in a Single Unit Sub-Franchise Agreement. This document provides the franchisee the rightavailable.  Suppliers to construct, own and operate a Wendy’s restaurant upon a site accepted by WROC and to use the Wendy’s system in connectionmust comply with the operation of the restaurant at that site. The Single Unit Sub-Franchise Agreement provides for a 20-year term and a 10-year renewal subject to certain conditions. The sub-franchisee pays to WROC a monthly royalty of 4% of sales, as defined in the agreement, from the operation of the restaurant or C$1,000, whichever is greater.  T he agreement also typically requires that the franchisee pay WROC a technical assistance fee. The standard technical assistance fee is currently C$35,000 for each restaurant.

Franchisees who wish to develop Wendy’s restaurants outside the United States Department of Agriculture (“USDA”) and Canada enter into agreements with Wendy’s that generally provide franchise rights for a restaurant for an initial termUnited States Food and Drug Administration (“FDA”) regulations governing the manufacture, packaging, storage, distribution and sale of 10 years or 20 years, depending on the country,all food and typically include a 10-year renewal provision, subject to certain conditions.  If the restaurant site is leased by the franchisee, the term will expire with expiration of the term of the lease, if shorter.  The agreements license the franchisee to use the Wendy’s trademarks and know-how in the operation of a Wendy’s restaurant at a specified location.  Generally, the franchisee is required to pay Wendy’s a technical assistance fee, which is typically US$30,000 for each restaurant, and monthly fees, which are typically equal to 4% of the monthly sales of each restaurant.  In certain foreign markets, Wendy’s and the franchisee may sign a development agreement under which the franchisee undertakes to develop a specified number of new Wendy’s restaurants in a stated territory based on a negotiated schedule.  In some of the agreements, the developer pays an upfront development fee that is credited against technical assistance fees incurred in the future.  In certain circumstances, Wendy’s and the franchisee may sign a master franchise agreement under which the franchisee has the right to sub-franchise in a stated territory, subject to certain conditions.

We also evaluate non-franchise opportunities in international markets and may elect to develop a market through a joint venture, licensing transaction or other arrangement or we may elect to open company-owned restaurants in a market.  

packaging products.  

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Franchised Restaurants

As of January 3, 2010,During the 2009 fourth quarter, Wendy’s franchisees operated 5,150entered into a purchasing co-op relationship agreement (the “Co-op Agreement”) to establish a new Wendy’s restaurants in 49 states, Canadapurchasing co-op, Quality Supply Chain Co-op, Inc. (“QSCC”).  QSCC manages food and 20 other countriesrelated product purchases and U. S. territories.

The rights and obligations governing the majority of franchised restaurants operating in the United States are set forth indistribution services for the Wendy’s Unit Franchise Agreement. This document provides the franchisee the right to construct, own and operate a Wendy’s restaurant upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at that site. The Unit Franchise Agreement provides for a 20-year term and a 10-year renewal subject to certain conditions. Wendy’s has in the past franchised under different agreements on a multi-unit basis; however, Wendy’s now generally grants new Wendy’s franchises on a unit-by-unit basis.

The Wendy’s Unit Franchise Agreement requires that the franchisee pay a royalty of 4% of sales, as defined in the agreement, from the operation of the restaurant. The agreement also typically requires that the franchisee pay Wendy’s a technical assistance fee. In the United States, the standard technical assistance fee required under a newly executed Unit Franchise Agreement is currently $25,000 for each restaurant.

The technical assistance fee is used to defray some of the costs to Wendy’s in providing technical assistance in the development of the Wendy’s restaurant, initial training of franchisees or their operator and in providing other assistance associated with the opening of the Wendy’s restaurant. In certain limited instances (like the regranting of franchise rights or the relocation of an existing restaurant), Wendy’s may charge a reduced technical assistance fee or may waive the technical assistance fee. Wendy’s does not select or employ personnel on behalf of franchisees.

Wendy’s currently does not offer any financing arrangements, or enter into guarantees of financing arrangements, to franchisees seeking to build new franchised units. However, Wendy’s had previously made such financing available to qualified franchisees and Wendy’s had guaranteed payment on a portion of the loans made by third-party lenders to those franchisees.

See “Management Discussion and Analysis – Liquidity and Capital Resources – Guarantees and Other Contingencies” in Item 7 herein, for further information regarding guarantee obligations.

See Note 3 and Note 15 of the Financial Statements and Supplementary Data included in Item 8 herein, and the information under “Management’s Discussion and Analysis” in Item 7 herein, for further information regarding reserves, commitments and contingencies involving franchisees.
Advertising and Marketing

Wendy’s participates in two national advertising funds established to collect and administer funds contributed for use in advertising through television, radio, newspapers, the Internet and a variety of promotional campaigns. Separate national advertising funds are administered for Wendy’s U.S and Canadian locations. Contributions to the national advertising funds are required to be made from both company-owned and franchised restaurants and are based on a percent of restaurant retail sales. In addition to the contributions to the national advertising funds, Wendy’s requires additional contributions to be made for both company-owned and franchised restaurants based on a percent of restaurant retail sales for the purpose of local and regional advertising programs. R equired franchisee contributions to the national advertising funds and for local and regional advertising programs are governed by the Wendy’s Unit Franchise Agreement. Required contributions by company-owned restaurants for advertising and promotional programs are at the same percent of retail sales as franchised restaurants within the Wendy’s system.  Currently the contribution rate for U.S. and Canadian restaurants is generally 3% of retail sales for national advertising and 1% of retail sales for local and regional advertising.  

See Note 18 of the Financial Statements and Supplementary Data included in Item 8 herein, for further information regarding advertising.
The Arby’s Restaurant System
Arby’s is the largest restaurant franchising system specializing in the roast beef sandwich segment of the quick service restaurant industry.  According to Nation’s Restaurant News, Arby’s is the 2nd largest sandwich chain restaurant in the United States.  

As the franchisor of the Arby’s restaurant system, ARG, through its subsidiaries, owns and licenses the right to use the Arby’s brand name and trademarks in the operation of Arby’s restaurants.  ARG provides Arby’s franchisees with services designed to increase both the revenue and profitability of their Arby’s restaurants.  The most important of these services are providing strategic leadership for the brand, product development, quality control, operational training and counseling regarding site selection.


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As of January 3, 2010, there were 1,169 company-owned Arby’s restaurants and 2,549 Arby’s restaurants owned by 470 franchisees.  Of the 2,549 franchisee-owned restaurants, 2,427 operated within the United States and 122 operated outside the United States, principally in Canada.  See “Item 2. Properties” for a listing of the number of Company-owned and franchised locations in the United States and in foreign countries.Canada.  Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.  

QSCC’s supply chain management facilitates the continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s North America supply chain.  The revenues fromsystem’s purchasing function for 2009 and prior was performed and paid for by Wendy’s.  In order to facilitate the Arby’s restaurant business are derived from three principal sources: (1) sales at company-owned restaurants; (2) franchise royalties received from all Arby’s franchised restaurants;orderly transition of the 2010 purchasing function for North America operations, Wendy’s transferred certain contracts, assets and (3) up-front franchise fees from restaurant operatorscertain Wendy’s purchasing employees to QSCC in the first quarter of 2010.  Pursuant to the terms of the Co-op Agreement, Wendy’s was required to pay $15.5 million to QSCC over an 18 month period through May 2011 in order to provide funding for each new unit opened.

ARG also owns the T.J. Cinnamons® concept, which consists of gourmet cinnamon rolls, gourmet coffeesstart-up costs, operating expenses and other related products.  As of January 3, 2010, there were a total of 108 T.J. Cinnamons outlets, 96 of which are multi-branded with domestic Arby’s restaurants.

Arby’s Restaurants

Arby’s opened its first restaurant in Boardman, Ohio in 1964. During 2009, ARG opened 5 new Arby’s restaurants and closed 23 generally underperforming Arby’s restaurants.  In addition, ARG acquired 12 existing Arby’s restaurants from its franchisees and sold 1 existing Arby’s restaurant to a franchisee.  During 2009, Arby’s franchisees opened 54 new Arby’s restaurants and closed 74 generally underperforming Arby’s restaurants.  In addition, during 2009, Arby’s franchisees closed 36 T.J. Cinnamons outlets located in Arby’s units.

The following table sets forth the number of Arby’s restaurants at the beginning and end of each year from 2007 to 2009:

 2009 2008 2007
Restaurants open at beginning of period3,756 3,688 3,585
Restaurants opened during period59 127 148
Restaurants closed during period(97) (59) (45)
Restaurants open at end of period3,718 3,756 3,688

During the period from January 1, 2007, through January 3, 2010, 334 Arby’s restaurants were opened and 201 generally underperforming Arby’s restaurants were closed.  
Operations
c ash reserves.  In addition to various slow-roasted roast beef sandwiches,the initial funding by Wendy’s, since the third quarter of 2010 all QSCC members (including Wendy’s) began paying sourcing fees on products sourced through QSCC.  Such sourcing fees will be the primary means of funding QSCC’s operations after the initial funding by Wendy’s is completed.

During the 2010 second quarter, QSCC and ARCOP, Inc. (“ARCOP”), Arby’s offers an extensive menuindependent purchasing cooperative, in consultation with Wendy’s/Arby’s Restaurants, established the Strategic Sourcing Group Co-op, LLC (“SSG”).  SSG was formed to manage and operate purchasing programs which combine the purchasing power of chicken, turkeyboth Wendy’s and ham sandwiches, snack itemsArby’s company-owned and salads.  franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment and services.

In 2001, order to facilitate the orderly transition of this purchasing function for the Companies’ North America operations, Wendy’s/Arby’s introduced its Market Fresh® lineRestaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants purchasing employees to SSG in the second quarter of premium sandwiches on a nationwide basis.  Since its introduction, the 2010.  Wendy’s/Arby’s Market Fresh line has grownRestaurants had committed to include fresh salads made with premium ingredients.  In 2007, Arby's added Toasted Subs to its sandwich selections,pay approximately $5.2 million of SSG expenses, which was Arby’s largest menu expansion since the 2001 introductionexpensed in 2010 and was to be paid over a 24 month period through March 2012. We made payments of its Market Fresh line.  In 2009, Arby’s launched its new line of Roastburger™ sandwiches which are Arby’s roast beef sandwiches dressed with traditional hamburger toppings.$2.0 million in 2010.

Free-standingShould a sale of Arby’s restaurants generally includeoccur as discussed in “The Arby’s Restaurant System” herein, under the change of control provisions in the agreement that established SSG, the activities of SSG would be wound up.  In the wind up process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and Wendy’s/Arby’s Restaurants agree.  In contemplation of a pick-up windowpossible sale, the parties are in additiondiscussion regarding the dissolution of SSG and transferring SSG’s assets, personnel and functions to a dining room.  The percentage of sales at company-owned Arby’s restaurants through the pick-up window was 57.2%QSCC and 57.7% in 2009 and 2008, respectively.

Generally, ARG does not sell food or supplies to Arby’s franchisees.

See Note 19 of the Financial Statements and Supplementary Data included in Item 8 herein, for financial information attributable to certain geographical areas.ARCOP.  
 
Raw Materials and Purchasing

As of January 2, 2011, 5 independent processors (6 total production facilities) supplied all of Wendy’s hamburger in the United States.  In addition, 5 independent processors (7 total production facilities) supplied all of Wendy’s chicken in the United States.
Wendy’s and its franchisees have not experienced any material shortages of food, equipment, fixtures or other products that are necessary to maintain restaurant operations. Wendy’s anticipates no such shortages of products and believes that alternate suppliers are available.  Suppliers to the Wendy’s system must comply with United States Department of Agriculture (“USDA”) and United States Food and Drug Administration (“FDA”) regulations governing the manufacture, packaging, storage, distribution and sale of all food and packaging products.  

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During the 2009 fourth quarter, Wendy’s entered into a purchasing co-op relationship agreement (the “Co-op Agreement”) to establish a new Wendy’s purchasing co-op, Quality Supply Chain Co-op, Inc. (“QSCC”).  QSCC manages food and related product purchases and distribution services for the Wendy’s system in the United States and Canada.  Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.  

QSCC’s supply chain management facilitates the continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s North America supply chain.  The system’s purchasing function for 2009 and prior was performed and paid for by Wendy’s.  In order to facilitate the orderly transition of the 2010 purchasing function for North America operations, Wendy’s transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in the first quarter of 2010.  Pursuant to the terms of the Co-op Agreement, Wendy’s was required to pay $15.5 million to QSCC over an 18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and c ash reserves.  In addition to the initial funding by Wendy’s, since the third quarter of 2010 all QSCC members (including Wendy’s) began paying sourcing fees on products sourced through QSCC.  Such sourcing fees will be the primary means of funding QSCC’s operations after the initial funding by Wendy’s is completed.

During the 2010 second quarter, QSCC and ARCOP, Inc. (“ARCOP”), Arby’s independent purchasing cooperative, in consultation with Wendy’s/Arby’s Restaurants, established the Strategic Sourcing Group Co-op, LLC (“SSG”).  SSG was formed to manage and operate purchasing programs which combine the purchasing power of both Wendy’s and Arby’s company-owned and franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment and services.

In order to facilitate the orderly transition of this purchasing function for the Companies’ North America operations, Wendy’s/Arby’s Restaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants purchasing employees to SSG in the second quarter of 2010.  Wendy’s/Arby’s Restaurants had committed to pay approximately $5.2 million of SSG expenses, which was expensed in 2010 and was to be paid over a 24 month period through March 2012. We made payments of $2.0 million in 2010.

Should a sale of Arby’s occur as discussed in “The Arby’s Restaurant System” herein, under the change of control provisions in the agreement that established SSG, the activities of SSG would be wound up.  In the wind up process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and Wendy’s/Arby’s Restaurants agree.  In contemplation of a possible sale, the parties are in discussion regarding the dissolution of SSG and transferring SSG’s assets, personnel and functions to QSCC and ARCOP.  
Trademarks and Service Marks

Wendy’s or its subsidiaries have registered certain trademarks and service marks in the United States Patent and Trademark Office and in international jurisdictions, some of which include Wendy’s®, Old Fashioned Hamburgers® and Quality Is Our Recipe®.  Wendy’s believes that these and other related marks are of material importance to its business.  Domestic trademarks and service marks expire at various times from 2011 to 2020, while international trademarks and service marks have various durations of 10 to 15 years.  Wendy’s generally intends to renew trademarks and ser vice marks that are scheduled to expire.

Wendy’s entered into an Assignment of Rights Agreement with the company’s founder, R. David Thomas, and his wife dated as of November 5, 2000 (the “Assignment”).  Wendy’s had used Mr. Thomas, who was Senior Chairman of the Board until his death on January 8, 2002, as a spokesperson and focal point for its products and services for many years. With the efforts and attributes of Mr. Thomas, Wendy’s has, through its extensive investment in the advertising and promotional use of Mr. Thomas’ name, likeness, image, voice, caricature, endorsement rights and photographs (the “Thomas Persona”), made the Thomas Persona well known in the United States and throughout North America and a valuable asset for both Wendy’s and Mr. Thomas’ estate. Under the terms of the Assignment, Wendy’s acquired the entire right, title, interest and ownership in and to the Thomas Persona, including the sole and exclusive right to commercially use the Thomas Persona.
Seasonality

Wendy’s restaurant operations are moderately seasonal. Wendy’s average restaurant sales are normally higher during the summer months than during the winter months. Because the business is moderately seasonal, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.
Competition

Each Wendy’s restaurant is in competition with other food service operations within the same geographical area.  The quick-service restaurant segment is highly competitive and includes well-established competitors such as McDonald’s®, Burger King®, Taco Bell®, Kentucky Fried Chicken® and Arby’s®.  Wendy’s competes with 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 by Wendy’s and its competitors are also important factors. The price charged for each menu item may vary from market to market (and within markets)

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depending on competitive pricing and the local cost structure.  Wendy’s also competes within the food service industry and the quick service restaurant sector not only for customers, but also for personnel, suitable real estate sites and qualified franchisees.
Wendy’s competitive position is differentiated by a focus on quality, its use of fresh, never frozen ground beef in the United States and Canada and certain other countries, its unique and diverse menu, its promotional products, its choice of condiments and the atmosphere and decor of its restaurants.

Many of the leading restaurant chains have focused on new unit development as one strategy to increase market share through increased consumer awareness and convenience. This has led to increased competition for available development sites and higher development costs for those sites, although the recent decline in commercial real estate values has somewhat offset those costs.  Competitors also employ marketing strategies such as frequent use of price discounting, frequent promotions and heavy advertising expenditures.  Continued price discounting in the quick service restaurant industry and the emphasis on value menus has had and could continue to have an adverse impact on Wendy’s.  In addition, the growth of fast casual chains and other in-line competitors could cause some fast food customers to & #8220;trade up” to a more traditional dining out experience while keeping the benefits of quick service dining.

Other restaurant chains have also competed by offering high quality sandwiches made with fresh ingredients and artisan breads and there are several emerging restaurant chains featuring high quality food served at in-line locations.  Several chains have also sought to compete by targeting certain consumer groups, such as capitalizing on trends toward certain types of diets (e.g., low carbohydrate or low trans fat) by offering menu items that are promoted as being consistent with such diets.

Additional competitive pressures for prepared food purchases come from operators outside the restaurant industry.  A number of major grocery chains offer fresh deli sandwiches and fully prepared food and meals to go as part of their deli sections.  Some of these chains also have in-store cafes with service counters and tables where consumers can order and consume a full menu of items prepared especially for that portion of the operation.  Additionally, convenience stores and retail outlets at gas stations frequently offer sandwiches and other foods.

Quality Assurance

Wendy’s quality assurance program is designed to verify that the food products supplied to our restaurants are processed in a safe, sanitary environment and in compliance with our food safety and quality standards. Wendy’s quality assurance personnel conduct multiple on-site sanitation and production audits throughout the year at all of our core menu product processing facilities, which include beef, poultry, pork, buns, French fries, Frosty™ dessert ingredients, and produce. Animal welfare audits are also conducted every year at all beef, poultry, and pork facilities to confirm compliance with our required animal welfare and handling policies and procedures.  In addition to our facility audit program, weekly samples of beef, poultry, and other core menu products from our distribution centers are randomly s ampled and analyzed by a third party laboratory to test conformance to our quality specifications.  Each year, Wendy’s representatives conduct unannounced inspections of all company and franchise restaurants to test conformance to our sanitation, food safety, and operational requirements.  Wendy’s has the right to terminate franchise agreements if franchisees fail to comply with quality standards.
Acquisitions and Dispositions of Wendy’s Restaurants

Wendy’s has from time to time acquired the interests of and sold Wendy’s restaurants to franchisees, and it is anticipated that the company may have opportunities for such transactions in the future. Wendy’s generally retains a right of first refusal in connection with any proposed sale of a franchisee’s interest. Wendy’s will continue to sell and acquire restaurants in the future where prudent.
Franchised Restaurants

As of January 2, 2011, Wendy’s franchisees operated 5,182 Wendy’s restaurants in 49 states, Canada and 22 other countries and United States territories.

The rights and obligations governing the majority of franchised restaurants operating in the United States are set forth in the Wendy’s Unit Franchise Agreement. This document provides the franchisee the right to construct, own and operate a Wendy’s restaurant upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at that site.  The Unit Franchise Agreement provides for a 20-year term and a 10-year renewal subject to certain conditions.  Wendy’s has in the past franchised under different agreements on a multi-unit basis; however, Wendy’s now generally grants new Wendy’s franchises on a unit-by-unit basis.

The Wendy’s Unit Franchise Agreement requires that the franchisee pay a royalty of 4% of sales, as defined in the agreement, from the operation of the restaurant.  The agreement also typically requires that the franchisee pay Wendy’s a technical assistance fee.  In the United States, the standard technical assistance fee required under a newly executed Unit Franchise Agreement is currently $25,000 for each restaurant.

The technical assistance fee is used to defray some of the costs to Wendy’s in providing technical assistance in the development of the Wendy’s restaurant, initial training of franchisees or their operator and in providing other assistance associated with the opening of the Wendy’s restaurant. In certain limited instances (like the regranting of franchise rights or the relocation of an existing restaurant),

6

Wendy’s may charge a reduced technical assistance fee or may waive the technical assistance fee. Wendy’s does not select or employ personnel on behalf of franchisees.

Wendy’s has announced a program to encourage the development of new restaurants in the United States.  Under the program, provided certain conditions are met, the technical assistance fee for franchised restaurants opened from April 2011 through December 2013 will be reduced to $15,000, and royalties paid on sales from those restaurants will be reduced to 2% for the first 12 months and to 3% for the second 12 months.  After 24 months, the monthly royalty rate reverts to the prevailing 4% rate for the remaining term of the franchise agreement. 

Wendy’s currently does not offer any financing arrangements, or enter into guarantees of financing arrangements, to franchisees seeking to build new franchised units. However, Wendy’s had previously made such financing available to qualified franchisees and Wendy’s had guaranteed payment on a portion of the loans made by third-party lenders to those franchisees.

Effective February 2011, certain lenders are offering financing to Wendy’s United States franchisees to purchase new equipment and smallwares and modify other equipment needed to implement Wendy’s new hamburger product roll out.  Wendy’s has agreed to subsidize a portion of the interest that would otherwise be payable by the franchisees participating in this financing program.  The financing program is expected to end in September 2011.

See “Management Discussion and Analysis – Liquidity and Capital Resources – Guarantees and Other Contingencies” in Item 7 herein, for further information regarding guarantee obligations.

Franchised restaurants are required to be operated under uniform operating standards and specifications relating to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and cleanliness of premises and customer service.  Wendy’s monitors franchisee operations and inspects restaurants periodically to ensure that required practices and procedures are being followed.

See Note 5 and Note 23 of the Financial Statements and Supplementary Data included in Item 8 herein, and the information under “Management’s Discussion and Analysis” in Item 7 herein, for further information regarding reserves, commitments and contingencies involving franchisees.
Advertising and Marketing

In the United States and Canada, Wendy’s advertises nationally on network and cable television programs, including nationally televised events.  Locally in the United States and Canada, Wendy’s primarily advertises through regional network and cable television, radio and newspapers. Wendy’s participates in two national advertising funds established to collect and administer funds contributed for use in advertising through television, radio, newspapers, the Internet and a variety of promotional campaigns.  Separate national advertising funds are administered for Wendy’s United States and Canadian locations.  Contributions to the national advertising funds are required to be made from both company-owned and franchised restaurants and are based on a percent of restaurant retail sales.   In addition to the contributions to the national advertising funds, Wendy’s requires additional contributions to be made for both company-owned and franchised restaurants based on a percent of restaurant retail sales for the purpose of local and regional advertising programs.  Required franchisee contributions to the national advertising funds and for local and regional advertising programs are governed by the Wendy’s Unit Franchise Agreement.  Required contributions by company-owned restaurants for advertising and promotional programs are at the same percent of retail sales as franchised restaurants within the Wendy’s system.  Currently the contribution rate for United States and Canadian restaurants is generally 3% of retail sales for national advertising and 1% of retail sales for local and regional advertising.

See Note 26 of the Financial Statements and Supplementary Data included in Item 8 herein, for further information regarding advertising.
International Operations and Franchising

As of January 2, 2011, Wendy’s had 136 company-owned and 232 franchised restaurants in Canada and 325 franchised restaurants in 22 other countries and U.S. territories.  Wendy’s is aggressively pursuing international development opportunities.  Since the second quarter of 2009, new development agreements have been announced for Wendy’s locations in Singapore, Trinidad and Tobago and 8 other eastern Caribbean countries, Argentina, and the Philippines and dual branded Wendy’s and Arby’s locations in the United Arab Emirates and 11 other countries in the Middle East and North Africa, and the Russian Federation.  In March 2011, Wendy’s also announced that it had entered into a joint venture to develop Wendy’s restaurants in Japan.  Wendy’s has gra nted development rights in the certain countries and U. S. territories listed under Item 2 of this Form 10-K.
Wendy’s Restaurants of Canada Inc. (“WROC”), a 100% owned subsidiary of Wendy’s, holds master franchise rights for Canada.  The rights and obligations governing the majority of franchised restaurants operating in Canada are set forth in a Single Unit Sub-Franchise Agreement. This document provides the franchisee the right to construct, own and operate a Wendy’s restaurant upon a site accepted by WROC and to use the Wendy’s system in connection with the operation of the restaurant at that site.  The Single Unit Sub-Franchise Agreement provides for a 20-year term and a 10-year renewal subject to certain conditions.  The sub-franchisee pays to WROC a monthly royalty of 4% of sales, as defined in the agreement, from the operation of the restaurant or C$1,000, whichever
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is greater.  The agreement also typically requires that the franchisee pay WROC a technical assistance fee.  The standard technical assistance fee is currently C$35,000 for each restaurant.

Franchisees who wish to operate Wendy’s restaurants outside the United States and Canada enter into agreements with Wendy’s that generally provide franchise rights for each restaurant for an initial term of 10 years or 20 years, depending on the country, and typically include a 10-year renewal provision, subject to certain conditions.  The agreements license the franchisee to use the Wendy’s trademarks and know-how in the operation of a Wendy’s restaurant at a specified location.  Generally, the franchisee pays Wendy’s a technical assistance fee or an other per restaurant fee and monthly fees based on a percentage of gross monthly sales of each restaurant.  In certain foreign markets, Wendy’s may grant the franchisee exclusivity to develop a territory in exchange for th e franchisee undertaking to develop a specified number of new Wendy’s restaurants in the territory based on a negotiated schedule.  In these instances, the franchisee generally pays Wendy’s an upfront development fee, annual development fees or a per restaurant fee.  In certain circumstances, Wendy’s may grant a franchisee the 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 international markets, including through joint ventures with third parties and opening company-owned restaurants.
The Arby’s Restaurant System
Arby’s is the largest restaurant franchising system specializing in the roast beef sandwich segment of the quick service restaurant industry.  According to Nation’s Restaurant News, Arby’s is the second largest sandwich chain restaurant in the United States.  In January 2011, Wendy’s/Arby’s announced that it is exploring strategic alternatives for the Arby’s brand, including a sale of the brand.

As the franchisor of the Arby’s restaurant system, Arby’s, through its subsidiaries, owns and licenses the right to use the Arby’s brand name and trademarks in the operation of Arby’s restaurants.  Arby’s provides Arby’s franchisees with services designed to increase both the revenue and profitability of their Arby’s restaurants.  The most important of these services are providing strategic leadership for the brand, product development, quality control, operational training and counseling regarding site selection.

At January 2, 2011, there were 3,649 Arby’s restaurants in operation in North America and in 3 foreign countries (other than Canada).  Of these restaurants, 1,144 were operated by Arby’s and 2,505 by a total of 460 franchisees. See “Item 2. Properties” for a listing of the number of company-owned and franchised locations in the United States and in foreign countries.

The revenues from the Arby’s restaurant business are derived from two principal sources: sales at company-owned restaurants and franchise royalties received from all Arby’s franchised restaurants.

Arby’s also owns the T.J. Cinnamons® concept, which consists of gourmet cinnamon rolls, gourmet coffees and other related products.  As of January 2, 2011, there were a total of 90 T.J. Cinnamons outlets, 82 of which are dual-branded with domestic Arby’s restaurants.

Arby’s Restaurants

Arby’s opened its first restaurant in Boardman, Ohio in 1964.  During 2010, Arby’s closed 17 generally underperforming company-owned restaurants.  In addition, Arby’s sold 8 company-owned restaurants to its franchisees.  During 2010, Arby’s franchisees opened 44 new Arby’s restaurants and closed 96 generally underperforming Arby’s restaurants.  In addition, during 2010, Arby’s franchisees closed 18 T.J. Cinnamons outlets 14 of which were located in Arby’s units and 4 others not dual-branded with Arby’s units.
The following table sets forth the number of Arby’s restaurants at the beginning and end of each year from 2008 to 2010:

  2010  2009  2008 
Restaurants open at beginning of period  3,718   3,756   3,688 
Restaurants opened during period  44   59   127 
Restaurants closed during period  (113)  (97)  (59)
Restaurants open at end of period  3,649   3,718   3,756 

During the period from December 31, 2007, through January 2, 2011, 230 Arby’s restaurants were opened and 269 generally underperforming Arby’s restaurants were closed.

Operations

In addition to various slow-roasted roast beef sandwiches, Arby’s offers an extensive menu of chicken, turkey and ham sandwiches, snack items and salads, including its Market Fresh® line of premium sandwiches and fresh salads made with premium ingredients, and Toasted Subs. In 2010, Arby’s implemented its everyday value menu.  In addition, the restaurants sell a variety of promotional products on a limited basis.

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Free-standing Arby’s restaurants generally include a pick-up window in addition to a dining room.  The percentage of sales at company-owned Arby’s restaurants through the pick-up window was 58.2%, 57.2%, and 57.7% in 2010, 2009, and 2008 respectively.

Generally, Arby’s does not sell food or supplies to Arby’s franchisees.
Raw Materials and Purchasing

As of January 2, 2011, 3 independent meat processors (5 total production facilities) supplied all of Arby’s beef for roasting in the United States.  Franchise operators are required to obtain beef for roasting from these approved suppliers.

Arby’s and its franchisees have not experienced any material shortages of food, equipment, fixtures or other products that are necessary to maintain restaurant operations.  Arby’s anticipates no such shortages of products and believes that alternate suppliers are available.


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ARCOP Inc., a not-for-profit purchasing cooperative, negotiates contracts with approved suppliers on behalf of ARGArby’s and Arby’s franchisees.  Suppliers to the Arby’s system must comply with USDA and FDA regulations governing the manufacture, packaging, storage, distribution and sale of all food and packaging products.  FranchiseesGenerally, franchisees may obtain other products, including food, ingredients, paper goods, equipment and signs, from any source that meets ARG’sArby’s specifications and approval.  Through ARCOP, ARGArby’s and Arby’s franchisees purchase food, beverage, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.

During the 2010 second quarter, ARCOP and QSCC, in consultation with Wendy’s/Arby’s Restaurants, established the SSG.  SSG was formed to manage and operate purchasing programs which combine the purchasing power of both Wendy’s and Arby’s company-owned and franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment and services.

In order to facilitate the orderly transition of this purchasing function for the Companies’ North America operations, Wendy’s/Arby’s Restaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants purchasing employees to SSG in the second quarter of 2010.  Wendy’s/Arby’s Restaurants had committed to pay approximately $5.2 million of SSG expenses, which was expensed in 2010 and was to be paid over a 24 month period through March 2012.  We paid payments of $2.0 million in 2010.

Should a sale of Arby’s occur as discussed in “The Arby’s Restaurant System” herein, under the change of control provisions in the agreement that established SSG, the activities of the SSG would be wound up.  In the wind up process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and Wendy’s/Arby’s Restaurants agree.  In contemplation of a possible sale, the parties are in discussion regarding the dissolution of SSG and transferring SSG’s assets, personnel and functions to QSCC and ARCOP.  

Trademarks and Service Marks

ARG,Arby’s, through its subsidiaries, owns several trademarks that it considers to be material to its restaurant business, including Arby’s®, Arby’s Market Fresh®, Market Fresh®, Horsey Sauce®, Sidekickers®Arby’s Sauce®, and Roastburger®Sidekickers®.  ARGArby’s believes that these and other related marks are of material importance to its business.  Domestic trademarks and service marks expire at various times from 20102011 to 2020, while international trademarks and service marks have various durations of 10 to 15 years. ARGArby’s generally intends to renew trademarks and service marks that are scheduled to expire.

Seasonality

Arby’s restaurant operations are not significantly impacted by seasonality.  However, Arby’s restaurant revenues are somewhat lower in the first quarter.

Competition

Arby’s faces direct and indirect competition from numerous well-established competitors, including national and regional non-burger sandwich chains, such as Panera Bread®, Subway® and Quiznos®, as well as hamburger chains, such as McDonald’s®, Burger King® and Wendy’s®, and other quick service restaurant chains, such as Taco Bell®, Chick-Fil-A® and Kentucky Fried Chicken®.  In addition, Arby’s competes with locally owned restaurants, drive-ins, diners and other similar establishments. Key competitive factors in the quick service restaurant industry are price, quality of products, convenience, quality and speed of service, advertising, brand awareness, restaurant location, and attractiveness of facilities.  Arby’s also competes within the foodfoo d service industry and the quick service restaurant sector not only for customers, but also for personnel, suitable real estate sites and qualified franchisees.

Many of the leading restaurant chains have focused on new unit development as one strategy to increase market share through increased consumer awareness and convenience.  This has led to increased competition for available development sites and higher development costs for those sites, although the recent decline in commercial real estate values has somewhat offset those costs.  Competitors also employ marketing strategies such as frequent use of price discounting, frequent promotions, and heavy advertising expenditures.  Continued price discounting in the quick service restaurant industry and the emphasis on value menus has had and could
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continue to have an adverse impact on Arby’s.  In addition, the growth of fast casual chains and other in-line competitors could cause some fast food customers to &# 8220;trade“trade up” to a more traditional dining out experience while keeping the benefits of quick service dining.

Other restaurant chains have also competed by offering high quality sandwiches made with fresh ingredients and artisan breads.breads, and there are several emerging restaurant chains featuring high quality food served at in-line locations.  Several chains have also sought to compete by targeting certain consumer groups, such as capitalizing on trends toward certain types of diets (e.g., low carbohydrate or low trans fat) by offering menu items that are promoted as being consistent with such diets.

Additional competitive pressures for prepared food purchases come from operators outside the restaurant industry.  A number of major grocery chains offer fresh deli sandwiches and fully prepared food and meals to go as part of their deli sections.  Some of these chains also have in-store cafes with service counters and tables where consumers can order and consume a full menu of items prepared especially for that portion of the operation.  Additionally, convenience stores and retail outlets at gas stations frequently offer sandwiches and other foods.

Quality Assurance

ARGArby’s has developed a quality assurance program designed to maintain standards and the uniformity of menu offerings at all Arby’s restaurants.  ARGArby’s assigns a quality assurance employee to each of the independent facilities that process beef for domestic Arby’s restaurants.  The quality assurance employee inspects the beef for quality, uniformity and to assure compliance with quality and safety requirements of the USDA and the FDA.  In addition, ARGArby’s periodically evaluates randomly selected samples of beef and other products from its supply chain.  Each year, ARGArby’s representatives conduct announced and unannounced inspections of operations of a number of franchisees to ensure that required policies, practices and procedures are being followed.   ARG;Arby’s field representatives also provide a variety of on-site consulting services to franchisees.  ARGArby’s has the right to terminate franchise agreements if franchisees fail to comply with quality standards.


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Acquisitions and Dispositions of Arby’s Restaurants

Arby’s has from time to time acquired the interests of and sold Arby’s restaurants to franchisees, and it is anticipated that the company may have opportunities for such transactions in the future.  Arby’s will continue to sell and acquire restaurants in the future where prudent.

International Operations

        As of January 3, 2010, Arby’s had 122 franchised restaurants in Canada and 3 other countries.  Arby’s is evaluating further expansion into other international markets.  Arby’s has granted development rights in Canada.  In addition, Arby's has granted development rights for dual-branded Wendy's and Arby's restaurants in 12 countries in the Middle East and North Africa.

Our market entry strategy and terms for the development and operation of Arby’s restaurants in markets outside of the United States and Canada vary depending upon market conditions.

Franchised Restaurants

As of January 3, 2010, ARG’s2, 2011, Arby’s franchisees operated 2,5492,505 Arby’s restaurants in 47 states, Canada and 3 other countries.

ARGArby’s offers franchises for the development of both single and multiple “traditional” and “non-traditional” restaurant locations.  The initial term of the typical “traditional” franchise agreement is 20 years.  As compared to traditional restaurants, non-traditional restaurants generally occupy a smaller retail space, offer no or very limited seating, may cater to a captive audience, have a limited menu, and possibly have reduced services, labor and storage and different hours of operation.  BothArby’s generally grants new and existing franchisees may enter intoArby’s franchises on a development agreement, which requires the franchisee to develop one or more Arby’s restaurants in a particular geographic area or at a specific site within a specific time period.unit-by-unit basis. All franchisees are required to execute standard fra nchisefranchise agreements.  ARG’sArby’s standard U.S.United States franchise agreement for new Arby’s traditional restaurant franchises currently requiresrequi res an initial $37,500 franchise fee for the first franchised unit, $25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of restaurant sales for the term of the franchise agreement.  ARG’sArby’s non-traditional restaurant franchise agreement requires an initial $12,500 franchise fee for the first and all subsequent units, and a monthly royalty payment ranging from 4.0% to 6.2%7.0%, depending upon the non-traditional restaurant category.  Franchisees of traditional restaurants typically pay a $10,000 commitment fee, and franchisees of non-traditional restaurants typically pay a $12,500 commitment fee, which is credited against the franchise fee during the development process for a new restaurant.

ARGArby’s currently does not offer any financing arrangements to franchisees seeking to build new franchised units.

In 2007 and 2008, ARG introduced several programs designed to accelerate the development of restaurants.  In 2007, in order to increase development of traditional Arby’s restaurants in selected markets, our Select Market Incentive (“SMI”) program was introduced.  ARG’sArby’s franchise agreement for participants in the SMI program currently requires an initial $27,500 franchise fee for the first franchised unit, $15,000 for each subsequent unit and a monthly royalty payment equal to 1.0% of restaurant sales for the first 36 months the unit is open.  After 36 months, the monthly royalty rate reverts to the prevailing 4% rate for the remaining term of the agreement.  The commitment fee is $5,000 per restaurant, which is credited against the franchise fee during the development process.

In 2008,  The SMI program remains in ordereffect an d does not have a stated expiration date.  However, Arby’s has the right to promote conversion of other quick service restaurants into Arby’s restaurants,discontinue offering the Arby’s U.S. Conversion Incentive (“CI”) program was introduced.  The CI program applies to freestanding properties, and calls for an initial $13,500 franchise fee for a new franchisee’s first franchised unit, $1,000 for each subsequent unit, $1,000 for each existing franchisee’s unit, and a graduated scale monthly royalty payment equal to 1% for the first twelve months the unit is open, 2% for the for the second twelve months the unit is open, 3% for the third twelve months the unit is open, and the prevailing 4% for the remaining term of the agreement.  The commitment fee is $1,000 per restaurant, which is credited against the franchise fee during the development process.  Another eligibility requirement is that CI units must be open and operating by November 30, 2010.at any time.

Because royalty rates of less than 4% are still in effect under certain older franchise agreements, the average royalty rate paid by U.S. ARGUnited States Arby’s franchisees was approximately 3.6% in each of 2010, 2009 2008 and 2007.2008.

Franchised restaurants are required to be operated under uniform operating standards and specifications relating to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and cleanliness of premises and customer service.  ARGArby’s monitors franchisee operations and inspects restaurants periodically to ensure that required practices and procedures are being followed.

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See Note 5 and Note 23 of the Financial Statements and Supplementary Data included in Item 8 herein, and the information under “Management’s Discussion and Analysis” in Item 7 herein, for further information regarding reserves, commitments and contingencies involving franchisees.
Advertising and Marketing

Arby’s advertises nationally on cable television networks.  In addition, from time to time, Arby’s will sponsor a nationally televised event or participate in a promotional tie-in for a movie.  Locally, Arby’s primarily advertises through regional network and cable television, radio and newspapers.  The AFA Service Corporation (the “AFA”(“AFA”), an independent membership corporation in which every domestic Arby’s franchisee is required to participate, was formed to create advertising and perform marketing for the Arby’s system.  ARG’sArby’s Chief Marketing Officer currently serves as president of the AFA.  The  AFA is managed by ARGArby’s pursuant to a management agreement,Management Agreement, as described below.  The  AFA is funded primarily through member dues.  As ofFrom January 4, 2010 anda nd through March 31, 2010, ARGArby’s and most domestic Arby’s franchisees must paypaid 1.2% of sales as dues to AFA. As ofBeginning in April 1, 2010 and for the remainder of 2010, the AFA Board has approved a dues increase based on a tiered rate structure for the payment of the advertising and marketing service fee ranging between 1.4% and 3.6% of sales. ARG’sAs a result, the average Arby’s advertising and marketing service fee percentage similarly calculated will befrom April 2010 to the end of the 2010 fiscal year was approximately 2.4% as of April 1, 2010.2.3%. In addition, ARG has agreed toArby’s partially subsidizesubsidized the top two rate tiers in 2010 thereby decreasing franchisees’ effective advertising and marketing service fee percentages.  ItThis subsidy required payments by Arby’s of approximately $2.6 million to AFA in 2010. Beginning in January 2011 and for the remainder of 2011, the AFA Board approved a modified tiered rate structure for the payment of the advertising and marketing service fee ranging between 1.25% and 3.5%.  Arby’s will partially subsidize the top two rate tiers in 2011 thereby decreasing franchisees’ effective advertising and marketing service fee percentages. This subsidy is estimated that this subsidy willexpected to require payments by ARGArby’s of approximately $4.2$2.9 million to AFA for 2010.2011.  Domestic franchisee participants in the SMI program pay an extra 1% premium on the advertising and marketing service fee (2.2% total through March 31, 2010 and based on the tiered rate structure, an extra 1.0%1% on the advertising and marketing service fee through December 31, 2010) of sales2011) up to a maximum of 3% as AFA dues for the first 36 months of operation; their AFA dues then revert to the standard advertising and marketing service fee rate without the 1% premium.

Effective October 2005, ARGArby’s and the AFA entered into a management agreement (the “Management Agreement”) that ARG believes has enabled a closer working relationship between ARG and the AFA, allowed for improved collaboration on strategic marketing decisions and created certain operational efficiencies, thus benefiting thepursuant to which Arby’s system as a whole.  Pursuant to the Management Agreement, ARG assumed general responsibility for the day-to-day operations of the AFA, including preparing annual operating budgets, developing the brand marketing strategy and plan, recommending advertising and media buying agencies, and implementing all marketing/media plans.  ARGArby’s performs these tasks subject to the approval of the AFA’s Board of Directors.  In addition to these responsibilities, ARGUnder the Management Agreement, Arby’s is obli gatedobligated to pay for the general and administrative costs of the AFA, other than the cost of an annual audit of the AFA and certain other expenses specifically retained by the AFA.  ARG provided AFA with general and administrative services in 2009, as required under the Management Agreement.  Under the Management Agreement, ARGArby’s is also required to provide the AFA with appropriateappropr iate office space at no cost to the AFA.  The Management Agreement with the AFA continues in effect until terminated by either partyArby’s upon one year’s prior written notice.  In addition, thenotice or by AFA may terminate the Management Agreement upon six months’ prior written notice if there is a change in the identity of any two of the individuals holding the titles of Chief Executive Officer, Chief Operating Officer or Chief Administrative Officer of ARG in any period of 36 months.notice.  See Note 1624 of the Financial Statements and Supplementary Data included in Item 8 herein, for further info rmationinformation on AFA.

In addition to their contributions to the AFA, ARGArby’s and Arby’sits domestic franchisees are also required to spend a reasonable amount, but not less than 3% of sales of their Arby’s restaurants, for local advertising; however, with the new AFA tiered rate structure discussed above, any AFA dues paid above 1.2% will be credited against the local advertising spend requirements.  Most existing franchise agreements now require, and new franchise agreements will require, domestic franchisees to spend a minimum aggregate advertising amount of 4.2% of sales for national and local advertising, which includes the advertising and marketing fee.  The amount of expenditures for local advertising is divided between (i) individual local market advertisingadvert ising expenses and (ii) expenses of a cooperative area advertising program.  Contributions to the cooperative area advertising program, in which both company-owned and franchisee-owned restaurants participate, are determined by the local cooperative participants and are generally in the range of 3% to 5% of sales.  Domestic f ranchiseefranchisee participants in our SMI program are not, however, required to make any expenditure for local advertising until their restaurants have been in operation for 36 months.

Canadian Arby’s franchisees contribute to the Arby’s Franchise Association of Canada (“AFAC”), an independent membership corporation in which every Canadian Arby’s franchisee is required to participate, which was formed to create advertising and perform marketing for the Arby’s system in Canada.  Effective May 2006, Arby’s and AFAC entered into a management agreement (the “Canadian Management Agreement”) pursuant to which Arby’s assumed general responsibility for the day-to-day operations of AFAC, including preparing annual operating budgets, developing the brand marketing strategy and plan, recommending advertising and media buying agencies, and implements all marketing/media plans. & #160;Arby’s performs these tasks subject to the approval of AFAC’s Board of Directors.  Under the Canadian Management Agreement, Arby’s is obligated to pay for the general and administrative costs of AFAC, other than the cost of an annual audit of AFAC and certain other expenses specifically retained by AFAC.  AFAC is funded primarily through member dues.  Through August 2010, most Canadian franchisees paid 3% of sales as dues to AFAC.  Beginning in September 2010, most Canadian franchisees pay 1.25% of sales as dues to AFAC.

In addition to their contributions to AFAC, Canadian Arby’s franchisees were required through August 2010 to contribute 2.25% of sales for local advertising.  Beginning in September 2010, Canadian Arby’s franchisees are now required to contribute 4% of sales for local advertising.  However, Canadian franchisees participating in the Canadian Incentive Program (“CIP”) are not required to contribute to local advertising for the first 36 months after a restaurant is opened.

See Note 26 of the Financial Statements and Supplementary Data included in Item 8 herein, for further information regarding advertising.

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International Operations and Franchising

As of January 2, 2011, Arby’s had 106 franchised restaurants in Canada and 20 franchised restaurants in 3 other countries.  In June 2010, Arby’s announced a new development agreement for Turkey. Arby’s has granted development rights in the countries listed under Item 2 of this Form 10-K.

Arby’s is also the franchisor for the Arby's brand in Canada.  The rights and obligations governing the franchised restaurants operating in Canada are set forth in a franchise agreement. This document provides the licensee the right to own and operate an Arby’s restaurant upon a site accepted by Arby’s and to use the Arby’s system in connection with the operation of the restaurant at that site.  The traditional franchise agreement provides for a 20-year term and offers a renewal term subject to certain conditions.  The franchisee pays to Arby’s a monthly royalty of 4% of sales, as defined in the agreement, from the operation of the restaurant.  The agreement also typically requires that the franchisee pay Arby’s a franchise fee.  The standard franchi se fee is currently C$42,500 for the first restaurant and C$27,500 for each subsequent restaurant.

In 2007, in order to increase development of traditional Arby’s restaurants in selected Canadian markets, the CIP was introduced.  Arby’s franchise agreement for participants in the CIP currently requires an initial C$27,500 franchise fee for the first franchised unit, C$12,500 for each subsequent unit, and a monthly royalty payment equal to 1.0% of restaurant sales for the first 36 months the unit is open.  After 36 months, the monthly royalty rate reverts to the prevailing 4% rate for the remaining term of the agreement.  The commitment fee is C$5,000 per restaurant, which is credited against the franchise fee during the development process.  The CIP remains in effect and does not have a stated expiration date.  However, Arby’s has the right to discontinue offering the CIP at any time.

Our market entry strategy and terms for the development and operation of Arby’s restaurants in markets outside of the United States and Canada vary depending upon market conditions.
 
General

Governmental Regulations

Various state laws and the Federal Trade Commission regulate Wendy’s and Arby’s franchising activities.  The Federal Trade Commission requires that franchisors make extensive disclosure to prospective franchisees before the execution of a franchise agreement. Several states require registration and disclosure in connection with franchise offers and sales and have “franchise relationship laws” that limit the ability of franchisors to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements.  In addition, Wendy’s and Arby’s and their respective franchisees must comply with the federal Fair Labor Standards Act and similar state and local laws, the Americans with Disabilities Act (the “ADA”), which requires that all public accommodationsaccom modations and commercial facil itiesfacilities meet federal requirements related to access and use by disabled persons, and various state and local laws governing matters that include, for example, the handling, preparation and sale of food and beverages, the provision of nutritional information on menu boards, minimum wages, overtime and other working and safety conditions.  Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S.United States government or an award of damages to private litigants.  As described more fully under “Item 3. Legal Proceedings,” one of ARG’sArby’s subsidiaries was a defendant in a lawsuit alleging failure to comply with Title III of the ADA at approximately 775 company-owned restaurants acquired as part of ARG’sArby’s July 2005 acquisition of the RTM Restaurant Group.  UnderGroup (“RTM”).   ;Under a court approved settlement of that lawsuit, we estimate that ARGArby’s will spend approximately $1.15 million per year of capital expenditures over a seven-year period (which commenced in 2008) to bring these restaurants into compliance with the ADA, in addition to paying certain legal fees and expenses.  We do not believe that the costs related to this matter or any other costs relating to compliance with the ADA will have a material adverse effect on the Company’sCompanies’ consolidated financial position or results of operations.  We cannot predict the effect on our operations, particularly on our relationship with franchisees, of any pending or future legislation.

Environmental Matters

OurWendy’s/Arby’s and Wendy’s/Arby’s Restaurants past and present operations are governed by federal, state and local environmental laws and regulations concerning the discharge, storage, handling and disposal of hazardous or toxic substances.  These laws and regulations provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances.  In addition, third parties may make claims against owners or operators of properties for personal injuries and property damage associated with releases of hazardous or toxic substances. We cannot predict what environmental legislationlegis lation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted.  We similarly cannot predict th ethe amount of future expenditures that may be required to comply with any environmental laws or regulations or to satisfy any claims relating to environmental laws or regulations. We believe that our operations comply substantially with all applicable environmental laws and regulations.  Accordingly, the environmental matters in which we are involved generally relate either to properties that our subsidiaries own, but on which they no longer have any operations, or properties that we or our subsidiaries have sold to third parties, but for which we or our subsidiaries remain liable or contingently liable for any related environmental costs.  Our company-owned Wendy’s and Arby’s restaurants have not been the subject of any material environmental matters.  Based on currently available information, includingi ncluding defenses available to us and/or our subsidiaries, and our current reserve levels, we do not believe that the ultimate outcome of

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the environmental matters in which we are involve dinvolved will have a material adverse effect on our consolidated financial position or results of operations.

WeWendy’s/Arby’s and Wendy’s/Arby’s Restaurants are involved in litigation and claims incidental to our current and prior businesses.  We and our subsidiaries have reservedAs of January 2, 2011, Wendy’s/Arby’s Restaurants had reserves for all of our legal and environmental matters aggregating $6.1$3.7 million, as of January 3, 2010.which are included in the $3.9 million reserved by Wendy’s/Arby’s for all legal and environmental matters.  Although the outcome of these matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to us, based on currently available information, including legal defenses available to us, and/or our subsidiaries, and given the aforementioned reserves and our insurance coverages,coverage, we do not believe that the outcome of these legal and environmental matters will have a material adverse effect on our consolidatedc onsolidated financial position or results of operations.

Employees

As of January 3, 2010, Wendy’s/Arby’s Restaurants2, 2011, the Companies and itstheir subsidiaries had approximately 67,50064,100 employees, including approximately 9,2006,300 salaried employees and approximately 58,30057,800 hourly employees.   We believe that our employee relations are satisfactory.


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Item 1A.  Risk Factors.

We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-K, we have included below the following importantmost significant factors among others, sometimesthat have affected, or in the future could affect, our actual results and could cause our actual consolidated results during 2010,2011, and beyond, to differ materially from those expressed in any forward-looking statements made by us or on our behalf.

Risks Related to the Wendy’sWendy’s/Arby’s and Wendy’s/Arby’s BusinessesRestaurants

We may not be able to successfully consolidate business operationsThe impact and realizeresults of our announcement that Wendy’s/Arby’s is exploring strategic alternatives for the anticipated benefitsArby’s brand, including a sale of the merger with Wendy’s International, Inc.

On September 29, 2008, our parent company (which already owned Arby’s) completed the merger with Wendy’s (the “Wendy’s Merger”)brand, are uncertain and changed its name to Wendy’s/Arby’s Group, Inc.  Realization of the anticipated benefits of the Wendy’s Merger, including anticipated synergies and overhead savings, will depend, in large part, on our ability to successfully eliminate redundant corporate functions and consolidate public company and shared service responsibilities. We willcannot be required to devote significant management attention and resources to the consolidation of business practices and support functions while maintaining the independence of the Arby’s and Wendy’s standalone brands. The challenges we may encounter include the following:

·consolidating redundant operations, including corporate functions;

·realizing targeted margin improvements at Company-owned Wendy’s restaurants; and

·addressing differences in business cultures between Arby’s and Wendy’s, preserving employee morale and retaining key employees, maintaining focus on providing consistent, high quality customer service, meeting the operational and financial goals of the Company and maintaining the operational goals of each of the standalone brands.
determined.

In particular, our ability to realizeJanuary 2011, Wendy’s/Arby’s announced that it is exploring strategic alternatives for the targeted margin improvements at company-owned Wendy’s restaurants is subject toArby’s brand, including a numbersale of risks, including general economic conditions, increases in food and supply costs, increased labor costs and other factors outside of our control.

The process of consolidating corporate level operations could cause an interruption of, or loss of momentum in, our business and financial performance. The diversion of management’s attention and any delays or difficulties encountered in connection with the Wendy’s Merger and the realization of corporate synergies and operational improvements could have an adverse effect on our business, financial results or financial condition. The consolidation and integration process may also result in additional and unforeseen expenses.brand.  There can be no assurance that the contemplated expense savings, improvementsreview of strategic alternatives will result in Wendy’s store-level margins and synergies anticipated from the Wendy’s Mergerany agreement or transaction, or that if an agreement is executed, that a transaction will be realized.

consummated. We are dependent on dividends and/do not intend to disclose developments with respect to this review (whether or loansnot material) unless and until the Board of Directors has approved a specific course of action or advances fromterminated the exploration of strategic alternatives. In connection with our subsidiariesexploration of strategic alternatives, we expect to meetincur expenses, including expenses in connection with the retention of key personnel and consultants.  The process of exploring strategic alternatives may be disruptive to our debt service obligations.  

business. The abilityinability to effectively manage the process and any resulting agreement or transaction could materially and adversely affect our business, financial condition or results of any of our subsidiaries to pay cash dividends and/or make loans or advances to us will be dependent upon their respective abilities to achieve sufficient cash flows after satisfying their respective cash requirements, including subsidiary-level debt service and revolving credit agreements, to enable the payment of such dividends or the making of such loans or advances. The ability of any of our subsidiaries to pay cash dividends or other payments to us will also be limited by restrictions in debt instruments currently existing or subsequently entered into by such subsidiaries, including our credit facilities and the indenture governing our Senior Notes, which are described below in this Item 1A.operations.

Our success depends in part upon the continued retention of certain key personnel.

We believe that over time our success has been dependent to a significant extent upon the efforts and abilities of our senior management team.  The failure by us to retain members of our senior management team could adversely affect our ability to build on the efforts we have undertaken to increase the efficiency and profitability of our businesses.  
Acquisitions have been an elementThe retention of members of our business strategy, but we cannot assure yousenior management team may be more difficult following Wendy’s/Arby’s announcement that we will be able to identify appropriate acquisition targets init is exploring strategic alternatives for the future and that we will be able to successfully integrate any future acquisitions into our existing operations.

Acquisitions involve numerous risks,Arby’s brand, including difficulties assimilating new operations and products.  In addition, acquisitions may require significant management time and capital resources.  We cannot assure you that we will have access to the capital required to finance potential acquisitions on satisfactory terms, that any acquisition would result in long-term benefits to stockholders or that management would be able to manage effectivelysale of the resulting business.  Future acquisitions, if any, may result in the incurrence of additional indebtedness, which could contain restrictive covenants, or the issuance of additional equity securities, which could dilute our existing stockholders. 

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brand.

Growth of our restaurant businesses is significantly dependent on new restaurant openings, which may be affected by factors beyond our control.

Our restaurant businesses derive 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 significantly dependent on new restaurant openings.  Numerous factors beyond our control may affect restaurant openings.  These factors include but are not limited to:

·our ability to attract new franchisees;
·the availability of site locations for new restaurants;
·the ability of potential restaurant owners to obtain financing, which has become more difficult due to current market conditions and operating results;financing;
·the ability of restaurant owners to hire, train and retain qualified operating personnel;
·construction and development costs of new restaurants, particularly in highly-competitive markets;
·the ability of restaurant owners to secure required governmental approvals and permits in a timely manner, or at all; and
·adverse weather conditions.


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Wendy’s and Arby’s franchisees could take actions that could harm our business.

Wendy’s and Arby’s franchisees are contractually obligated to operate their restaurants in accordance with the standards set forth in agreements with them.  Each brand also provides training and support to franchisees.  However, franchisees are independent third parties that we do not control, and the franchisees own, operate and oversee the daily operations of their restaurants.  As a result, the ultimate success and quality of any franchise restaurant rests with the franchisee.  If franchisees do not successfully operate restaurants in a manner consistent with required standards, royalty payments to us will be adversely affected and the brand’s image and reputation could be harmed, which in turn could hurt our business and operating results.


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Our success depends on franchisees’ participation in brand strategies.

Wendy’s and Arby’s franchisees are an integral part of our business.  Each brand may be unable to successfully implement  brand strategies that it believes are necessary for further growth if franchisees do not participate in that implementation.  The failureOur business and operating results could be adversely affected if a significant number of franchisees to focus on the fundamentals of restaurant operations such as quality, service, food safety and cleanliness would have a negative impact on our business.do not participate in brand strategies.

Our financial results are affected by the operating results of franchisees.

As of January 3, 2010,2, 2011, approximately 79% of the Wendy’s system and 69% of the Arby’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 from franchisees.  Accordingly, a substantial portion of our financial results is to a large extent dependent upon the operational and financial success of our franchisees.  If sales trends or economic conditions worsen for franchisees, their financial results may worsen and our royalty, rent and other fee revenues may decline.  In addition, accounts receivable and related allowance for doubtful accounts may increase.  When company-owned restaurants are sold, one of our subsidiaries is often required to remain responsibl e for lease payments for these restaurants to the extent that the purchasing franchisees default on their leases.  During periods of declining sales and profitability of franchisees, such as are currently beinghave been recently experienced by a significant number of Arby’s franchisees and somea minimal number of Wendy’s franchisees, the incidence of franchisee defaults for these lease payments increases and we are then required to make those payments and seek recourse against the franchisee or agree to repayment terms.  Additionally, if franchisees fail to renew their franchise agreements, or if we decide to restructure franchise agreements in order to induce franchisees to renew these agreements, then our royalty revenues may decrease.  Further, we may decide from time to time to acquire restaurants from franchisees that experience significant financial hardship, which may reduce our cash and equivalentsequivalents.

As of January 2, 2011, there were approximately 350 Arby’s franchised restaurants with amounts payable to Arby’s for royalties, rent and/or increaseother fees that were at least 60 days past due.  The financial condition of a number of Arby’s franchisees was one of the factors that resulted in a net decrease of 44 and 31 in the number of franchised restaurants for fiscal 2010 and 2009, respectively.  During those periods 96 and 74 franchised Arby’s restaurants were closed, respectively.  The trend of declining sales at franchised Arby’s restaurants has resulted in decreases in royalties and other franchise revenues. In addition, Arby’s franchisee accounts receivable and related allowance for doubtful accounts have increased significantly, and may continue to grow as a result of the deteriorating financial condition of some of our notes receivablefranchisees. Franchisees’ financial difficulties and the closure of franchised restaurants have also caused reductions in the contributions to and extent of advertising programs.  Continuation of these trends would affect our revenues and may have a material adverse effect on our results of operations and financial condition.

In December 2009, and as amended in February and August 2010, AFA entered into a revolving loan agreement with Arby’s.  The terms of this agreement allow AFA to have revolving loans of up to $14.0 million outstanding with an expiration date of March 2012 and bearing interest at 7.5% per annum.   In February 2011, the maximum principal amount was reduced to $11.0 million.  As of January 2, 2011, the outstanding balance under this agreement was $4.5 million and there were no amounts past due.  Due to declining sales and profitability of Arby’s franchisees, it is possible that our ability in the future to collect principal and interest payments from franchisees.AFA could be adversely affected.

Each brand may be unable to manage effectively the acquisition and disposition of restaurants, which could adversely affect our business and financial results.

Each brand acquires restaurants from franchisees and in some cases “re-franchises” these restaurants by selling them to new or existing franchisees.  The success of these transactions is dependent upon the availability of sellers and buyers, the availability of financing, and the brand’s ability to negotiate transactions on terms deemed acceptable.  In addition, the operations of restaurants that each brand acquires may not be integrated successfully, and the intended benefits of such transactions may not be realized.  Acquisitions of franchised restaurants pose various risks to brand operations, including:

 ·diversion of management attention to the integration of acquired restaurant operations;
 ·increased operating expenses and the inability to achieve expected cost savings and operating efficiencies;
 ·exposure to liabilities arising out of sellers’ prior operations of acquired restaurants; and
 ·incurrence or assumption of debt to finance acquisitions or improvements and/or the assumption of long-term, non-cancelable leases.
 
In addition, engaging in acquisitions and dispositions places increased demands on the brand’s operational and financial management resources and may require us to continue to expand these resources.  If either brand is unable to manage the acquisition and disposition of restaurants effectively, its business and financial results could be adversely affected.


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ARGArby’s does not exercise ultimate control over advertising for its restaurant system, which could harm sales and the brand.

Arby’s franchisees control the provision of national advertising and marketing services to the Arby’s  franchise system through the AFA, a company controlled by Arby’s franchisees.  Subject to ARG’sArby’s right to protect its trademarks, and except to the extent that ARG participates in the AFA  through its company-owned restaurants, the AFA has the right to approve all significant decisions regarding the national marketing and advertising strategies and the creative content of advertising for the Arby’s system.  Although ARGArby’s has entered into a management agreement pursuant to which ARG,Arby’s, on behalf of the AFA, manages the day-to-day operations of the AFA, many areas are still subject to ultimate approval by the AFA’s independentin dependent board of directors, and the

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management agreement may be terminated by either party for any reason by Arby’s upon one year’s prior notice or by AFA upon six months prior notice.  See “Item 1. Business—The Arby’s Restaurant System—Advertising and Marketing.”  In addition, local cooperatives run by operators of Arby’s restaurants in a particular local area (including ARG)Arby’s) make their own decisions regarding local advertising expenditures, subject to the requirement to spend at least the specified minimum amounts.  ARG’sArby’s lack of control over advertising could hurt sales and the Arby’s brand.

Neither Wendy’s nor ARGArby’s exercises ultimate control over purchasing for their respective restaurant system, which could harm sales or profitability and the brand.

Although Wendy’s and ARGArby’s ensure that all suppliers to their respective systems meet quality control standards, each brand’s franchisees control the purchasing of food, proprietary paper, equipment and other operating supplies from such suppliers through purchasing co-ops controlled by each brand’s franchisees.  The co-ops negotiate national contracts for such food, equipment and supplies.  Wendy’s is entitled to appoint two representatives on the board of directors of QSCC and participateparticipates in QSCC through its company-owned restaurants, but otherwise does not control the decisions and activities of QSCC except to ensure that all suppliers satisfy Wendy’s quality control standards.  ARGArby’s is entitled to appoint one representative on the board of directors of ARCOPARC OP and participates in ARCOP through its company-owned restaurants, but otherwise does not control the decisions and activities of ARCOP except to ensure that all suppliers satisfy Arby’s quality control standards.  During the 2010 second quarter, QSCC and ARCOP, in consultation with Wendy’s/Arby’s Restaurants, established SSG to manage and operate purchasing programs which combine the purchasing power of both Wendy’s and Arby’s company-owned and franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment and services.  If either co-opany of these co-ops does not properly estimate the product needs of its respective system, makes poor purchasing decisions, or decides to cease its operations, system sales and operating costs could be adversely affected and the financial condition of Wendy’s or ARGArby’s or the financial condition of each system’s franchisees could be hurt.

Should a sale of Arby’s occur as discussed in “Business - The Arby’s Restaurant System” in Item 1 herein, under the change of control provisions in the agreement that established SSG, the activities of SSG would be wound up.  In the wind up process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and Wendy’s/Arby’s Restaurants agree.  In contemplation of a possible sale, the parties are in discussion regarding the dissolution of SSG and transferring SSG’s assets, personnel and functions to QSCC and ARCOP.  The dissolution of SSG could be disruptive to our business and the operations of QSCC and ARCOP, result in the loss of experienced personnel and adversely affect the financial condition of Wendy’s or Arby&# 8217;s or the financial condition of each system’s franchisees.

Shortages or interruptions in the supply or delivery of perishable food products could damage the Wendy’s and/or Arby's brand reputation and adversely affect our operating results.
 
Each brand and its franchisees are dependent on frequent deliveries of perishable food products that meet brand specifications. Shortages or interruptions in the supply of perishable food products caused by unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, which could lower our revenues, increase operating costs, damage brand reputation and otherwise harm our business and the businesses of our franchisees.

InstancesFood safety events, including instances of mad cow diseasefood-borne illness (such as salmonella or otherE. Coli) involving Wendy’s or Arby’s or their respective supply chains, could create negative publicity and adversely affect sales at either or both brands.

Food safety is a top priority, and we dedicate substantial resources to ensure that our customers enjoy safe, quality food products. However, food safety events, including instances of food-borne illnesses, suchillness (such as bird flusalmonella or salmonella,E. Coli), have occurred in the food industry in the past, and could occur in the future.
Food safety events could adversely affect the price and availability of beef, poultry or other meats and create negative publicity, which could result in a decline in sales.

Instances of mad cow disease or other food-borne illnesses, such as bird flu, salmonella, e-coli or hepatitis A, could adversely affect the price and availability of beef, poultry or other meats.  Incidents may cause consumers to shift their preferences to other meats. As a result, Wendy’s and/or Arby’s restaurants could experience a significant increase in food costs if there are instancesfood safety events whether or not such events involve Wendy’s or Arby’s restaurants or restaurants of mad cow disease or other food-borne illnesses.  competitors.

In addition, to losses associated with higher prices and a lower supply of our food ingredients, instances of food-borne illnessessafety events, whether or not involving Wendy’s or Arby’s, could result in negative publicity for Wendy’s and/or Arby’s.Arby’s or for the industry or market segments in which we operate.  This negative publicity, as well as any other negative publicity concerning types of food products Wendy’s or Arby’s serves, may reduce demand for Wendy’s and/or Arby’s food and could result in a decrease in guest traffic to our restaurants.restaurants as consumers shift their preferences to other products or food types.  A decrease in guest traffic to our restaurants as a result of these health concerns or negative publicity could result in a decline in sales at company-owned restaurants or in royalties from sales at franchised restaurants.
Consumer concerns regarding the nutritional aspects of beef, poultry, French fries or other products we sell or concerns regarding the effects of disease outbreaks such as “mad cow disease” and avian influenza or “bird flu,” could affect demand for our products.

Consumer concerns regarding the nutritional aspects of beef, poultry, French fries or other products we sell or concerns regarding the effects of disease outbreaks such as “mad cow disease” and avian influenza or “bird flu,” could result in less demand for our products and a decline in sales at company-owned restaurants and in the royalties that we receive from franchisees.

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Changes in consumer tastes and preferences, and in discretionary consumer spending, could result in a decline in sales at company-owned restaurants and in the royalties that we receive from franchisees.

The quick service restaurant industry is often affected by changes in consumer tastes, national, regional and local economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location of competing restaurants. Our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income.  Accordingly, we may experience declines in sales during economic downturns.  Any material decline in the amount of discretionary spending or a decline in consumer food-away-from-home spending could hurt our revenues, results of operations, business and financial condition.


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In addition, ifIf 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 the resulting revenues from company-owned restaurants and the royalties that we receive from franchisees may decline.

The recent disruptions in the national and global economies and the financial markets may adversely impact our revenues, results of operations, business and financial condition.

The recent disruptions in the national and global economies and financial markets, and the related reductions in the availability of credit, have resulted in high unemployment rates and declines in consumer confidence and spending, and have made it more difficult for businesses to obtain financing.  If such conditions persist, then they may result in significant declines in consumer food-away-from-home spending and customer traffic in our restaurants and those of our franchisees.  Such conditions may also adversely impact the ability of franchisees to build or purchase restaurants, remodel existing restaurants, renew expiring franchise agreements and make timely royalty and other payments.  There can be no assurance that government responses to the disruptions in the financial markets will restore consumer confidence, s tabilizestabiliz e the markets or increase liquidity and the availability of credit.  If we or our franchisees are unable to obtain borrowed funds on acceptable terms, or if conditions in the economy and the financial markets do not improve, our revenues, results of operations, business and financial condition could be adversely affected as a result.affected.

Additionally, we have entered into interest rate swaps and other derivative contracts as described in Note 712 to the Consolidated Financial Statements and Supplementary Data included in Item 8 herein, and we may enter into additional swaps in the future.  We are exposed to potential losses in the event of nonperformance by counterparties on these instruments, which could adversely affect our results of operations, financial condition and liquidity.

Changes in foodcommodity costs (including beef and chicken), supply, fuel, utilities, distribution and other operating costs could harm results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in foodcommodity costs (including beef and chicken), supply, fuel, distribution and other operating costs.  Any increase in food prices,these costs, especially those of beef or chicken prices, could harm operating results.  In addition, each brand is susceptible to increases in foodthese costs as a result of other factors beyond its control, such as weather conditions, global demand, food safety concerns, product recalls and government regulations.  Additionally, prices for feed ingredients used to produce beef and chicken could be adversely affected by changes in global weather patterns, which are inherently unpredictable.  Increases in gasoline prices would result in the imposition of fuel surcharges by our distributors, which would increa se our costs.  Significant increases in gasoline prices could also result in a decrease in customer traffic at our restaurants, which could adversely affect our business.  We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our operating results.  In addition, we may not seek to or be able to pass along price increases to our customers.

Competition from other restaurant companies, or poor customer experience at Wendy’s or Arby’s restaurants, could hurt our brands.

The market segments in which company-owned and franchised Wendy’s and Arby’s restaurants compete are highly competitive with respect to, among other things, price, food quality and presentation, service, location, convenience, and the nature and condition of the restaurant facility. If customers have a poor experience at a Wendy’s or Arby’s restaurant, whether at a company-owned or franchised restaurant, we may experience a decrease in guest traffic. Further, Wendy’s and Arby’s restaurants compete with a variety of locally-owned restaurants, as well as competitive regional and national chains and franchises.  Several of these chains compete by offering high quality sandwiches and/or menu items that are targeted at certain consumer groups.groups or dietary trends.  Additionally, many of our competitors 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 example, additional competitive pressures for prepared food purchases have come from deli sections and in-store cafes of a number of major grocery store chains, as well as from convenience stores and casual dining outlets.  Such competitors may have, among other things, lower operating costs, lower debt service requirements, better locations, better facilities, better management, better products, more effective marketing and more efficient operations.  Many of our competitors have substantially greater financial, marketing, personnel and other resources than we do, which may allow them to react to changes in pricing and marketing strategies in the quick service restauran t
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restaurant industry better than we can.  Many of our competitors spend significantly more on advertising and marketing than we do, which may give them a competitive advantage through higher levels of brand awareness among consumers.  All such competition may adversely affect our revenues and profits by reducing revenues of company-owned restaurants and royalty payments from franchised restaurants.

Current restaurant locations may become unattractive, and attractive new locations may not be available for a reasonable price, if at all.
 
The success of any restaurant depends in substantial part on its location. There can be no assurance that our current restaurant locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where our restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. In addition, rising real estate prices in some areas may restrict our ability and the ability of franchisees to purchase or lease new desirable locations. If desirable locations cannot be obtained at reasonable prices, each brand’s ability to effectexecute its growth strategies will be adversely affected.
 

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Wendy’s and Arby’s business could be hurt by increased labor costs or labor shortages.

Labor is a primary component in the cost of operating our company-owned restaurants.  Each brand devotes significant resources to recruiting and training its managers and hourly employees.  Increased labor costs due to competition, increased minimum wage or employee benefits costs (including government-mandated health care benefits) or other factors would adversely impact our cost of sales and operating expenses.  In addition, each brand’s success depends on its ability to attract, motivate and retain qualified employees, including restaurant managers and staff.  If either brand is unable to do so, our results of operations could be adversely affected.

Each brand’s leasing and ownership of significant amounts of real estate exposes it to possible liabilities and losses, including liabilities associated with environmental matters.
 
As of January 3, 2010,2, 2011, Wendy’s leased or owned the land and/or the building for 1,3911,394 Wendy’s restaurants and ARGArby’s leased or owned the land and/or the building for 1,1691,144 Arby’s restaurants. Accordingly, each brand is subject to all of 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 from competition from similar restaurants in the area, and liability for environmental matters.

Each brand is subject to federal, state and local environmental, health and safety laws and regulations concerning the discharge, storage, handling, release and disposal of hazardous or toxic substances. These environmental laws provide for significant fines, penalties and liabilities, sometimes without regard to whether the owner, operator or occupant of the property knew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners, operators or occupants of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances.  A number of our restaurant sites were formerly gas stations or are adjacent to current or former gas stations, or were used for other commercial activities that can create environmental impacts. We may also acquire or lease these types of sites in the future. We have not conducted a comprehensive environmental review of all of our properties. We may not have identified all of the potential environmental liabilities at our leased and owned properties, and any such liabilities identified in the future could cause us to incur significant costs, including costs associated with litigation, fines or clean-up responsibilities.  In addition, we cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or interpreted.  We cannot predict the amount of future expenditures that may be required in order to comply with any environmental laws or regulations or to satisfy any such claims.  See “Item 1. Business--General--EnvironmentalBusiness-General-Environmental Matters.”
 
Each brand leases real property generally for initial terms of 20 years with two to four additional options to extend the term of the leases in consecutive five-year increments. Many leases provide that the landlord may increase the rent over the term of the lease and any renewals thereof. Most leases require us to pay all of the costs of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases. If an existing or future restaurant is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each lease expires, we may fail to negotiate additional renewals or renewal options, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations.

Complaints or litigation may hurt each brand.

Occasionally, Wendy’s and Arby’s customers file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered at or after a visit to a Wendy’s or Arby’s restaurant, or alleging that there was a problem with food quality or operations at a Wendy’s or Arby’s restaurant.  We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims, claims from franchisees (which tend to increase when franchisees experience declining sales and profitability) and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters, including class action lawsuits related to these matters.  Regardless of whether any claims againstaga inst us are valid or whether we are found to be liable, claims may be expensive to defend and may divert management’s attention away from operations and hurt our performance.  A judgment significantly in excess of our insurance coverage for any claims could materially adversely
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affect our financial condition or results of operations.  Further, adverse publicity resulting from these allegationsclaims may hurt us and our franchisees.

Additionally, the restaurant industry has been subject to a number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers.  Adverse publicity resulting from these allegations may harm the reputation of our restaurants, even if the allegations are not directed against our restaurants or are not valid, and even if we are not found liable or the concerns relate only to a single restaurant or a limited number of restaurants.  Moreover, complaints, litigation or adverse publicity experienced by one or more of Wendy’s or Arby’s franchisees could also hurt our business as a whole.


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Our current insurance may not provide adequate levels of coverage against claims that may be filed.

We currently maintain insurance we believe is customaryadequate for businesses of our size and type.  However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure, such as losses due to natural disasters or acts of terrorism.  In addition, we currently self-insure a significant portion of expected losses under workers compensation, general liability and property insurance programs.  Unanticipated changes in the actuarial assumptions and management estimates underlying our reserves for these losses could result in materially different amounts of expense under these programs, which could harm our business and adversely affect our results of operations and financial condition. & #160;

Changes in governmental regulationlegal or regulatory requirements, including franchising laws, accounting standards, payment card industry rules, overtime rules, minimum wage rates, government-mandated health care benefits, tax legislation and menu-board labeling requirements, may hurt our ability to open new restaurants or otherwise hurt our existing and future operations and results.

Each Wendy’s and Arby’s restaurant is subject to licensing and regulation by health, sanitation, safety and other agencies in the state and/or municipality in which the restaurant is located.located, as well as to Federal laws, rules and regulations and requirements of non-governmental entities such as payment card industry rules. State and local government authorities may enact laws, rules or regulations that impact restaurant operations and the cost of conducting those operations.  For example, recent efforts to require the listing of specified nutritional information on menus and menu boards could adversely affect consumer demand for our products, could make our menu boards less appealing and could increase our costs of doing business.  There can be no assurance that we and/or our franchisees will not experienceexperi ence material difficulties or failures in obtaining the necessary licenses or approvals for new restaurants, which could delay the opening of such restaurants in the future.  In addition, more stringent and varied requirements of local governmental bodies with respect to tax, zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations.

 Federal laws, rules and regulations address many aspects of our business, such as franchising, minimum wages and taxes. We and our franchisees are also subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime and other working conditions, along with the ADA, family leave mandates and a variety of other laws enacted by the states that govern these and other employment law matters.  As described more fully under “Item 3. Legal Proceedings,” one of our subsidiaries was a defendant in a lawsuit alleging failure to comply with Title III of the ADA at approximately 775 company-owned restaurants acquired as part of the RTM acquisition by Arby’s in July 2005.  Under a court approved settlement of that lawsuit, ARGArby’s estimates that it wil lwill spend approximatelyapproximat ely $1.15 million per year of capital expenditures over a seven-year period (which commenced in 2008) to bring these restaurants into compliance with the ADA, in addition to paying certain legal fees and expenses.  We cannot predict the amount of any other future expenditures that may be required in order to permit company-owned restaurants to comply with any changes in existing regulations or to comply with any future regulations that may become applicable to our businesses.
Recent Federal legislation regarding changes in government-mandated health care benefits are also anticipated to increase our costs and the costs of our franchisees and may result in significant modifications to our employment and hiring practices.  Because of the absence of implementing regulations, we currently cannot predict the timing or amount of those cost increases or modifications to our business practices.  However, the cost increases may be material and such modifications to our business practices may be disruptive to our operations and impact our ability to attract and retain personnel.

Our operations are influenced by adverse weather conditions.

Weather, which is unpredictable, can impact Wendy’s and Arby’s restaurant sales.  Harsh weather conditions that keep customers from dining out result in lost opportunities for our restaurants.  A heavy snowstorm in the Northeast or Midwest or a hurricane in the Southeast can shut down an entire metropolitan area, resulting in a reduction in sales in that area.  Our first quarter includes winter months and historically has a lower level of sales at company-owned restaurants.  Because a significant portion of our restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods hurts our operating margins, and can result in restaurant operating losses.  For these reasons, a quarter-to-quarter comparison may not be a good indication of either brand’s performance or how it may perform in the future.

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Due to the concentration of Wendy’s and Arby’s restaurants in particular geographic regions, our business results could be impacted by the adverse economic conditions prevailing in those regions regardless of the state of the national economy as a whole.

As of January 3, 2010,2, 2011, we and our franchisees operated Wendy’s or Arby’s restaurants in 50 states and 2124 foreign countries.  As of January 3, 20102, 2011 as detailed in “Item 2. Properties”,Properties,” the 78 leading states by number of operating units were: Ohio, Florida, Texas, Michigan, Georgia, Pennsylvania, California, and California.North Carolina.  This geographic concentration can cause economic conditions in particular areas of the country to have a disproportionate impact on our overall results of operations.  It is possible that adverse economic conditions in states or regions that contain a high concentration of Wendy’s and Arby’s restaurants could have a material adverse impact on our results of operations in the future.


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WeWendy’s/Arby’s Restaurants and ourits subsidiaries are subject to various restrictions, and substantially all of our and their non-real estate assets are pledged and subject to certain restrictions, under a Credit Agreement.

Under the amended and restated On May 24, 2010, Wendy’s/Arby’s Restaurants entered into a $650,000 Credit Agreement entered into as of March 11, 2009which includes a $500,000 senior secured term loan facility and a $150,000 senior secured revolving credit facility.  The obligations under the Credit Agreement are secured by Wendy’s and its subsidiaries and ARG and its subsidiaries (collectively, the “Borrowers”), as amended on June 10, 2009 (as so amended, the “Credit Agreement”), substantially all of the non-real estate assets of the BorrowersWendy’s/Arby’s Restaurants and its domestic subsidiaries (other than real property) are pledgedcertain unrestricted subsidiaries), the stock of its domestic subsidiaries (other than certain unrestricted subsidiaries), 65% of the stock of certain of its foreign subsidiaries, as collateral security.well as by mortgages on certain restaurant properties.  The affirmative and negative covenants in the Credit Agreement also containsinclude, among others, preservation of corporate existence; payment of taxes; and maintenance of insurance; and limitat ions on: indebtedness (including guarantee obligations 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 restricting subsidiary distributions; and material changes in lines of business.  The financial covenants that, among other things, requirecontained in the Borrowers to maintain certain aggregate leverage andCredit Agreement are (i) a consolidated interest coverage ratiosratio, (ii) a consolidated senior secured leverage ratio and (iii) a consolidated senior secured lease adjusted leverage ratio. The covenants generally do not restrict their ability to incur debt, pay dividendsWendy’s/Arby’s or make other distributions, make certain capital expenditures, enter into certain fundamental transactions (including salesany of assets and certain mergers and consolidatio ns) and create or permit liens.Wendy’s/Arby’s subsidiaries that are not subsidiaries of Wendy’s/Arby’s Restaurants.  If the Borrowers are unable to generate sufficient cash flow or otherwise obtain the funds necessary to make required payments of interest or principal under, or are unable to comply with covenants of, the Credit Agreement, then they would be in default under the terms of the agreement, which would preclude the payment of dividends to Wendy’s/Arby’s, restrict access to theirthe revolving lines of credit facility, and, under certain circumstances, permit the lenders to accelerate the maturity of the indebtedness.  See Note 611 of the Financial Statements and Supplementary Data included in Item 8 herein, for further information regarding the Credit Agreement.

As a result of our Senior Notes issued on June 23, 2009, weWendy’s/Arby’s Restaurants and ourits subsidiaries have a significant amount of debt outstanding. Such indebtedness, along with the other contractual commitments of our subsidiaries, could adversely affect our business, financial condition and results of operations, as well as the ability of certain of our subsidiaries to meet payment obligations under the Senior Notes and other debt.

As a resultCertain of our Senior Notes issued on June 23, 2009, certain of ourWendy’s/Arby’s subsidiaries have a significant amount of debt and debt service requirements. As of January 3, 2010,2, 2011, on a consolidated basis, there was approximately $1.5$1.6 billion of outstanding debt.

This level of debt could have significant consequences on our future operations, including:

 ·making it more difficult to meet payment and other obligations under the Senior Notes and other outstanding debt;
 ·resulting in an event of default if our subsidiaries fail to comply with the financial and other restrictive covenants contained in debt agreements, which event of default could result in all of our subsidiaries’ debt becoming immediately due and payable;
 ·reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
 ·subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under the Credit Agreement;
 ·limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy; and
 ·placing us at a competitive disadvantage compared to our competitors that are less leveraged.
 
In addition, certain of our subsidiaries also have significant contractual requirements for the purchase of soft drinks. Wendy’s has also provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility arrangements for new store development and equipment financing. Certain subsidiaries also guarantee or are contingently liable for certain leases of their respective franchisees for which they have been indemnified. In addition, certain subsidiaries also guarantee or are contingently liable for certain leases of their respective franchisees for which they have not been indemnified. These commitments could have an adverse effect on our liquidity and the ability of our subsidiaries to meet payment obligations under the Senior Notes and other debt.

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and the ability of our subsidiaries to meet their payment obligations under the Senior Notes and other debt.

The ability to meet payment and other obligations under the debt instruments of our subsidiaries depends on their ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under existing or any future credit facilities or otherwise, in an amount sufficient to enable our subsidiaries to meet their payment obligations under the Senior Notes and other debt and to fund other
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liquidity needs. If our subsidiaries are not able to generate sufficient cash flow to service their debt obligations, they may n eedneed to refinance or restructure debt, including the Senior Notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If our subsidiaries are unable to implement one or more of these alternatives, they may not be able to meet payment obligations under the Senior Notes and other debt and other obligations.


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Despite our current consolidated indebtedness levels, weWe and our subsidiaries may still be able to incur substantially more debt. This could exacerbate further the risks associated with our substantial leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the future. The terms of the Senior Notes indenture and the Credit Agreement restrict, but do not completely prohibit, us or our subsidiaries from doing so. In addition, the Senior Notes indenture allows usWendy’s/Arby’s Restaurants to issue additional Senior Notes under certain circumstances, which will also be guaranteed by the guarantors of the Senior Notes. The indenture also allows usWendy’s/Arby’s Restaurants to incur certain secured debt and allows our foreign subsidiaries to incur additional debt, which would be effectively senior to the Senior Notes. In addition, the indenture does not prevent usWendy’s/Arby’s Restaurants from incurring other liabilities that do not constitute indebtedness. If new debt or other liabilities a reare added to our current consolidated debt levels, the related risks that we now face could intensify.

The current decline in the global economy and credit crisis may significantly inhibit our ability to reduce and refinance our and our subsidiaries’ current indebtedness.

As of January 3, 2010, within 37 months our subsidiaries had approximately $251.5 million of indebtedness that is due under the Credit Agreement and $200.0 million of indebtedness due under the outstanding Wendy’s 6.25% senior notes due 2011. Depending on current and expected cash flows, our subsidiaries may need to refinance a significant portion of this indebtedness. During the third quarter of 2008, the global credit markets suffered a significant contraction, including the failure of some large financial institutions. This resulted in a significant decline in the credit markets and the overall availability of credit. Market disruptions, such as those experienced in 2008 and 2009, as well as our subsidiaries’ significant debt levels, may increase the cost of borrowing or a dversely affect the ability to refinance the obligations of our subsidiaries as they become due. If we are unable to refinance our subsidiaries’ indebtedness or access additional credit, or if short-term or long-term borrowing costs of our subsidiaries dramatically increase, their ability to finance current operations and meet their short-term and long-term obligations could be adversely affected.

To service debt and meet ourits other cash needs, weWendy’s/Arby’s Restaurants will require a significant amount of cash, which may not be generated or available to us.it.

OurThe ability of Wendy’s/Arby’s Restaurants to make payments on, or repay or refinance, ourits debt, including the Senior Notes and the Credit Agreement, and to fund planned capital expenditures, dividends and other cash needs will depend largely upon ourits future operating performance. Future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, ourthe ability of Wendy’s/Arby’s Restaurants to borrow funds in the future to make payments on ourits debt will depend on the satisfaction of the covenants in its credit facilities and other debt agreements, including the indenture governing the Senior Notes, the Credit Agreement and other agreements weit may enter into in the future. Specifically, weWendy’s/Arb y’s Restaurants will need to maintain specified financial ratios and satisfy financial cond itioncondition tests. There is no assurance that ourthe Wendy’s/Arby’s Restaurants business will generate sufficient cash flow from operations or that future borrowings will be available under ourits credit facilities or from other sources in an amount sufficient to enable usit to pay ourits debt, including the Senior Notes and Credit Agreement, or to fund ourits or Wendy’s/Arby’s dividend and other liquidity needs.

We may not be able to adequately protect our intellectual property, which could harm the value of our brands and hurt our business.

Our intellectual property is material to the conduct of our business.  We rely on a combination of trademarks, copyrights, service marks, trade secrets and similar intellectual property rights to protect our brands 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. If our efforts to protect our intellectual property are not adequate, or if any third party misappropriates or infringes on our intellectual property, either in print or on the Internet, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands to achieve and maintain market acceptance.  This could harm our image, brand or competitive position and, if we commence litigation to enforce our rights, cause us to incur significant legal fees.

We franchise our restaurant brands to various franchisees.  While we try to ensure that the quality of our brands is maintained by all of our franchisees, we cannot assure you that these franchisees will not take actions that hurt the value of our intellectual property or the reputation of the Wendy’s and/or Arby’s restaurant system.

We have registered certain trademarks and have other trademark registrations pending in the United States and certain foreign jurisdictions.  The trademarks that we currently use have not been registered in all of the countries outside of the United States in which we do business or may do business in the future and may never be registered in all of these countries.  We cannot assure you that all of the steps we have taken to protect our intellectual property in the United States and foreign countries will be adequate.  The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.

 In addition, we cannot assure you that third parties will not claim infringement by us in the future.  Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing new menu items, or investment productsrequire costly modifications to advertising and promotional materials or require us to enter into royalty or licensing agreements.  As a result, any such claim could harm our business and cause a decline in our results of operations and financial condition.

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Wendy's plans to expand its new breakfast initiative test in certain markets in 2010.2011.  The breakfast daypart remains competitive and markets may prove difficult to penetrate.
 
The roll out of breakfast at Wendy’s has been accompanied by challenging competitive conditions, varied consumer tastes and discretionary spending patterns that differ from lunch, snack, dinner and late night hours. In addition, breakfast sales can cannibalize sales during other parts of the day and may have negative implicationsimpacts on food and labor costs, advertising, and restaurant margins. Wendy's plans to expand its breakfast initiative test in four additional markets in 2010. Wendy’s will need to reinvest royalties earned and other amounts to build breakfast brand awareness with advertising and promotional activities.2011. Capital investments will also be required at company-owned restaurants.restaurants that are
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added to the breakfast initiative. In addition, franchisees will be required to make capital investments in their restaurants that participate in the breakfast initiative.  As a result break fastof all of these factors, breakfast sales and resulting profits may take longer than expected to reach targeted levels.levels or the planned rollout of breakfast may be delayed or may not occur.
 
Our international operations are subject to various factors of uncertainty and there is no assurance that international operations will be profitable.
 
EachIn addition to many of the risk factors described throughout this Item 1A, each brand’s business outside of the United States is subject to a number of additional factors, including international economic and political conditions, differing cultures and consumer preferences, the inability to adapt to international customer preferences, inadequate brand infrastructure within foreign countries to support our international activities, inability to obtain adequate supplies meeting our quality standards and product specifications or interruptions in obtaining such supplies, currency regulations and fluctuations, diverse government regulations and tax systems, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of royalties from international franchisees,franchi sees, the availability and cost of land, and construction costs, other legal, financial or regulatory impediments to the development and/or operation of new restaurants, and the availability of experienced management, appropriate franchisees, and joint venture partners. Although we believe we have developed the support structure required for international growth, there is no assurance that such growth will occur or that international operations will be profitable.
 
We rely on computer systems and information technology to run our business. Any material failure, interruption or security breach of our computer systems or information technology may adversely affect the operation of our business and results of operations.
 
We are significantly dependent upon our computer systems and information technology to properly conduct our business. A failure or interruption of computer systems or information technology could result in the loss of data, business interruptions or delays in business operations. Also, despite our considerable efforts and technological resources to secure our computer systems and information technology, security breaches, such as unauthorized access and computer viruses, may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information. Any security breach of our computer systems or information technology may result in adverse publicity, loss of sales and profits, penalties, competitive disadvantage, or loss resulting from misappropriation of information.

We may be required to recognize additional asset impairment and other asset-related charges.

We have significant amounts of long-lived assets, goodwill and intangible assets and have incurred impairment charges in the past with respect to those assets. In accordance with applicable accounting standards, we test for impairment generally annually, or more frequently, if there are indicators of impairment, such asas:
 
 ·significant adverse changes in the business climate;
 ·current period operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with long-lived assets;
 ·a current expectation that more-likely-than-not (e.g., a likelihood that is more than 50%) long-lived assets will be sold or otherwise disposed of significantly before the end of their previously estimated useful life; and
 ·a significant drop in the Wendy’s/Arby’sour 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.


Risks Related to our OwnershipWendy’s/Arby’s

There can be no assurance regarding whether or to what extent Wendy’s/Arby’s will pay dividends on its Common Stock in the future.

Holders of Wendy’s/Arby’s Common Stock will only be entitled to receive such dividends as its Board of Directors may declare out of funds legally available for such payments.  Any dividends will be made at the discretion of the Board of Directors and will depend on Wendy’s/Arby’s earnings, financial condition, cash requirements and such other factors as the Board of Directors may deem relevant from time to time.

Because Wendy’s/Arby’s 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 from its subsidiaries.  The ability of its subsidiaries to pay cash dividends and/or make loans or advances to the holding company will be dependent upon their respective abilities to achieve sufficient cash flows after satisfying their respective cash requirements, including subsidiary-level debt service and revolving credit agreements, to enable the payment of such dividends or the making of such loans or advances. The ability of any of its subsidiaries to pay cash dividends or other payments to Wendy’s/Arby’s will also be limited by Wendy’s/Arby’s Group, Inc.restrictions in debt instruments currently existing or subsequently entered into by such subs idiaries, including the Credit Agreement and the Senior Notes indenture, which are described earlier in this Item 1A.

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A substantial amount of our parent company’s common stockWendy’s/Arby’s Common Stock is concentrated in the hands of certain stockholders.

Our parent company, Wendy’s/Arby’s, owns our sole outstanding member’s interest.  Nelson Peltz, ourWendy’s/Arby’s Chairman and former Chief Executive Officer, and Peter May, ourWendy’s/Arby’s Vice Chairman and former President and Chief Operating Officer, beneficially own shares of Wendy’s/Arby’s outstanding common stockCommon Stock that collectively constitute approximately 23% of24% of its total voting power as of March 4, 2010..

Messrs. Peltz and May may, from time to time, acquire beneficial ownership of additional shares of Wendy’s/Arby’s common stock.Common Stock.  On November 5, 2008, in connection with the tender offer of Trian Fund Management, L.P. and certain affiliates thereof for up to 40 million shares of Wendy’s/Arby’sour Class A common stock, Wendy’s/Arby’s entered into an agreement (such agreement, as amended, the “Trian Agreement”) with Messrs. Peltz and May and several of their affiliates (the “Covered Persons”) which provides, among other
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things, that: (i) to the extent the Covered Persons acquire any rights in respect of Wendy’s/Arby’sour common stock so that the effect of such acquisition would increase their aggregate beneficial ownership in Wendy’s/Arby’s common stock to greater than 25%, the Covered Persons may not engage in a business combination (within the meaning of Section 203 of the Delaware General Corporation Law)Law ) for a period of three years following the date of such occurrence unless such transaction would be subject to one of the exceptions set forth in Section 203(b)(3) through (7) (assuming for these purposes that 15% in the definition of interested stockholder contained in Section 203 was deemed to be 25%); (ii) for so long as Wendy’s/Arby’s has a class of equity securities that is listed for trading on the New Yo rkYork Stock Exchange or any other national securities exchange, none of the Covered Persons shall solicit proxies or submit any proposal for the vote of Wendy’s/Arby’sits stockholders or recommend or request or induce any other person to take any such actions or seek to advise, encourage or influence any other person with respect to Wendy’s/Arby’s common stock, in each case, if the result of such action would be to cause the Wendy’s/Arby’s Board of Directors to be comprised of less than a majority of independent directors; and (iii) for so long as Wendy’s/Arby’s has a class of equity securities that is listed for trading on the New York Stock Exchange or any other national securities exchange, none of the Covered Persons shall engage in certain affiliate transactions with Wendy’s/Arby’s without the prior approval of a majority of itsthe Audit Committee or other committee of itsthe Board of Directors that is comprised of independent directors. The Trian Agreemen tAgreement will terminate upon the earliest to occur of (i) the Covered Persons beneficially owning less than 15% of Wendy’s/Arby’s common stock, (ii) November 5, 2011 (with respect to clauses (ii) and (iii) of the preceding sentence), and (iii) at such time as any person not affiliated with the Covered Persons makes an offer to purchase an amount of Wendy’s/Arby’s common stock which when added to Wendy’s/Arby’s common stock already beneficially owned by such person and its affiliates and associates equals or exceeds 50% or moremo re of outstanding Wendy’s/Arby’s common stock or all or substantially all of itsWendy’s/Arby’s assets or solicits proxies with respect to a majority slate of directors.

This concentration of ownership gives Messrs. Peltz and May significant influence over the outcome of actions requiring majority Wendy’s/Arby’s stockholder approval.  If in the future Messrs. Peltz and May were to acquire more than a majority of Wendy’s/Arby’s outstanding voting power, they would be able to determine the outcome of the election of members of the Wendy’s/Arby’s 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 assets of Wendy’s/Arby’s.Arby’s assets.  They would also be in a position to prevent or cause a change in control of us.Wendy’s/Arby’s.
Wendy’s/Arby’s certificate of incorporation contains certain anti-takeover provisions and permits our Board of Directors to issue preferred stock without stockholder approval and limits its ability to raise capital from affiliates.

Certain provisions in Wendy’s/Arby’s certificate of incorporation are intended to discourage or delay a hostile takeover of control of Wendy’s/Arby’s.  Wendy’s/Arby’s certificate of incorporation authorizes the issuance of shares of “blank check” preferred stock, which will have such designations, rights and preferences as may be determined from time to time by its Board of Directors.  Accordingly, its Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power and other rights of the holders of its common stock.  The preferred stock could be used to discourage, delay or prevent a change in control of Wendy’s/Arby̵ 7;s that is determined by its Board of Directors to be undesirable.  Although Wendy’s/Arby’s has no present intention to issue any shares of preferred stock, it cannot assure you that it will not do so in the future.

Wendy’s/Arby’s certificate of incorporation prohibits the issuance of preferred stock to affiliates, unless offered ratably to the holders of Wendy’s/Arby’s common stock, subject to an exception in the event that Wendy’s/Arby’s is in financial distress and the issuance is approved by its audit committee.  This prohibition limits the ability to raise capital from affiliates.

Risks Related to Wendy’s/Arby’s Restaurants

Wendy’s/Arby’s Restaurants is dependent on dividends and/or loans or advances from its subsidiaries to meet its debt service obligations.

The ability of Wendy’s/Arby’s Restaurants’ subsidiaries to pay cash dividends and/or make loans or advances to Wendy’s/Arby’s Restaurants will be dependent upon their respective abilities to achieve sufficient cash flows after satisfying their respective cash requirements, including subsidiary-level debt service and revolving credit agreements, to enable the payment of such dividends or the making of such loans or advances. The ability of any of its subsidiaries to pay cash dividends or other payments to  Wendy’s/Arby’s Restaurants will also be limited by restrictions in debt instruments currently existing or subsequently entered into by such subsidiaries, including the Credit Agreement and the Senior Notes indenture, which are described above in this Item 1A.

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Item 1B.  Unresolved Staff Comments.

None.


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Item 2.  Properties.

We believe that our properties, taken as a whole, are generally well maintained and are adequate for our current and foreseeable business needs.

The following table contains information about our principal office facilities as of January 3, 2010:2, 2011:

ACTIVE FACILITIES FACILITIES-LOCATION LAND TITLE APPROXIMATE SQ. FT. OF FLOOR SPACE
Corporate and Arby’s Headquarters Atlanta, GA Leased 184,251*
Former Corporate HeadquartersNew York, NYLeased31,237**
Wendy’s Corporate Headquarters Dublin, OH Owned 249,025***
Wendy’s Restaurants of Canada Inc. Oakville, Ontario Canada Leased 35,125
 
________________________________________
**ARCOP, the independent Arby’s purchasing cooperative, and the Arby’s Foundation, a not-for-profit charitable foundation in which ARGArby’s has non-controlling representation on the board of directors, sublease approximately 2,6804,500 and 3,800 square feet, respectively, of this space from ARG.Arby’s.  In addition, SSG, the purchasing cooperative formed by ARCOP and QSCC to manage and operate purchasing programs which combine the purchasing power of both Wendy’s and Arby’s company-owned and franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment and services, subleases approximately 2,300 square feet of this space from Arby’s.  As discussed above in “Item 1. Business,” in contemplation of a possible sale of Arby’s, QSCC and ARCOP are in discussion regarding the dissolution of SSG and transferring SSG̵ 7;s assets to them.  Should such dissolution be completed, the sublease would be cancelled.
**
A management company formed by Messrs. Nelson Peltz, our Chairman and former Chief Executive Officer, Peter W. May, our Vice Chairman and former President and Chief Operating Officer, and Edward P. Garden, our Former Vice Chairman and a member of our Board of Directors subleases approximately 26,600 square feet of this space from us.
***QSCC, the independent Wendy’s purchasing cooperative in which Wendy’s has non-controlling representation on the board of directors, leases approximately 9,300 square feet of this space from Wendy’s.  This lease was entered intoQSCC leased an additional approximately 5,000 square feet of this space from Wendy’s effective January 4, 2010.2011.

At January 3, 2010,2, 2011, Wendy’s and its franchisees operated 6,5416,576 Wendy’s restaurants.  Of the 1,3911,394 company-owned Wendy’s restaurants, Wendy’s owned the land and building for 634640 restaurants, owned the building and held long-term land leases for 471474 restaurants and held leases covering land and building for 286280 restaurants.  Wendy’s land and building leases are generally written for terms of 10 to 25 years with one or more five-year renewal options. In certain lease agreements Wendy’s has the option to purchase the real estate.  Certain leases require the payment of additional rent equal to a percentage, generally less than 6%, of annual sales in excess of specified amounts.  As of January 2, 2011, Wendy’s also owned land55 and buildings for, or leased 220 Wendy’s restauran t locations which212 properties that were either leased or subleased principally to franchisees. Surplus land and buildings are generally held for sale and are not material to our financial condition or results of operations.

The Bakery operates two facilities in Zanesville, Ohio that produce hamburger buns for Wendy’s restaurants.restaurants and other outside parties (including certain distributors to the Arby’s system). The hamburger buns are distributed to both company-owned and franchised restaurants using primarily the Bakery’s fleet of trucks. As of January 3, 20102, 2011, the Bakery employed approximately 360350 people at the two facilities that had a combined size of approximately 205,000 square feet.

As of January 3, 2010,2, 2011, Arby’s and its franchisees operated 3,7183,649 Arby’s restaurants.  Of the 1,1691,144 company-owned Arby’s restaurants, ARGArby’s owned the land and/or the buildings with respect to 131129 of these restaurants and leased or subleased the remainder.  As of January 3, 2010, ARG2, 2011, Arby’s also owned 1514 and leased 84 properties that were either leased or subletsubleased principally to franchisees.  Our other subsidiaries also owned or leased a few inactive facilities and undeveloped properties, none of which are material to our financial condition or results of operations.


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The location of company-owned and franchised restaurants as of January 3, 20102, 2011 is set forth below.

Wendy’sArby’s Wendy’s  Arby’s 
StateCompanyFranchiseCompanyFranchise Company  Franchise  Company  Franchise 
Alabama
—
           96           70           33  —   96   70   32 
Alaska
—
           7           —           9  —   7   —   9 
Arizona
46
           54           —           83  46   55   —   83 
Arkansas
—
           64           —           44  —   64   —   44 
California
57
           217           41           87  56   216   28   92 
Colorado
47
           80           —           63  47   80   —   62 
Connecticut
5
           45           12           2  5   45   12   2 
Delaware
—
           15           —           19  —   15   —   17 
Florida
187
           299           92           86  186   299   90   80 
Georgia
55
           239           89           59  55   241   92   55 
Hawaii
7
           __           —           8  7  __   —   9 
Idaho
—
           30           —           22  —   30   —   21 
Illinois
97
           92           5
139
  98   94   5   125 
Indiana
5
           172           99
83
  5   173   99   80 
Iowa
—
           45           —
54
  —   45   —   54 
Kansas
11
           64           —
51
  11   63   —   52 
Kentucky
3
           140           48
85
  3   140   48   84 
Louisiana
55
           73           —
30
  56   73   —   27 
Maine
5
           15           —
8
  5   15   —   8 
Maryland
—
           114           17
31
  —   115   17   32 
Massachusetts
71
           22           —           5  71   22   —   5 
Michigan
21
           250           109           80  21   249   107   78 
Minnesota
—
           68           84           3  —   67   83   3 
Mississippi
8
           87           3           22  8   88   3   21 
Missouri
29
           56           4           78  35   56   4   81 
Montana
—
           17           —           18  —   17   —   19 
Nebraska
—
           34           —           50  —   34   —   50 
Nevada
—
           46           —           31  —   46   —   30 
New Hampshire
4
           21           —           —  4   21   —   — 
New Jersey
21
           118           17           10  22   118   17   10 
New Mexico
—
           38           —           30  —   38   —   30 
New York
65
           155           —           89  63   156   —   86 
North Carolina
40
           215           60           79  40   217   60   78 
North Dakota
—
           9           —           14  —   9   —   14 
Ohio
77
           350           104           182  76   349   102   178 
Oklahoma
—
           38           —           95  —   38   —   95 
Oregon
19
           33           21           16  19   33   21   16 
Pennsylvania
79
           179           91           60  78   178   88   57 
Rhode Island
9
           11           —           —  9   11   —   — 
South Carolina
—
           131           13           61  —   131   13   64 
South Dakota
—
           9           —           15  —   9   —   15 
Tennessee
—
           180           53           60  —   180   52   58 
Texas
73
           322           72           109  73   321   68   104 
Utah
57
           28           33           40  57   30   33   35 
Vermont
—
           5           —           —  —   5   —   — 
Virginia
53
           162           2           107  53   160   2   107 
Washington
27
           45           24           41  27   45   24   40 
West Virginia
22
           51           1           35  22   51   1   35 
Wisconsin
—
           63           4           86  —   62   4   87 
Wyoming
—
           14           1           15  —   14   1   15 
District of Columbia
—
4
           —           —  —   4   —   — 
  
Domestic Subtotal
1,255
           4,622           1,169           2,427 1,258   4,625   1,144   2,379 
Canada  136   232   —   106 
North America Subtotal  1,394   4,857   1,144   2,485 
 


26
 

 

 
Wendy’sArby’sWendy’sArby’s
Country/TerritoryCompanyFranchiseCompanyFranchiseCompanyFranchiseCompanyFranchise
Aruba           —           3           —      —      3      —
Bahamas           —           8           —      —      9      —
Canada           136           235           —           112
Cayman Islands           —           3           —      —      3      —
Costa Rica           —           5           —      —      7      —
Curacao—1—
Dominican Republic           —           4           —      —      5      —
El Salvador           —           14           —      —      14      —
Guam           —           2           —      —      3      —
Guatemala           —           7           —      —      9      —
Honduras           —           29           —      —      29      —
Indonesia           —           25           —      —      27      —
Jamaica           —           2           —      —      3      —
Malaysia           —           8           —      —      8      —
Mexico           —           24           —      —      25      —
New Zealand           —           15           —      —      16      —
Panama           —           5           —      —      6      —
Philippines           —           30           —      —      31      —
Puerto Rico           —           66           —      —      72      —
Singapore           —           1           —      —      8      —
Qatar           —           —           —           1      —      —      —      1
Turkey           —
—
           —           8      —      —      —      14
United Arab Emirates           —
—
           —           1      —      5      —      5
Venezuela           —           40           —      —      39      —
U. S. Virgin Islands           —           2           —      —      2      —
International Subtotal           136           528           —           122      —325      —      20
Grand Total           1,391           5,150           1,169           2,5491,3945,1821,1442,505


Item 3. Legal Proceedings.

In November 2002, Access Now, Inc. and Edward Resnick, later replaced by Christ Soter Tavantzis, on their own behalf and on the behalf of all those similarly situated, brought an action in the United States District Court for the Southern District of Florida against RTM Operating Company (“RTM”), which became a subsidiary of Arby’s following ourArby’s acquisition of the RTM Restaurant Group in July 2005.  The complaint alleged that the approximately 775 Arby’s restaurants owned by RTM and its affiliates failed to comply with Title III of the ADA.  The plaintiffs requested class certification and injunctive relief requiring RTM and such affiliates to comply with the ADA in all of their restaurants.  The complaint did not seek monetary damages, but did seek attorneys’ fees.  0;& #160; Without admitting liability, RTM entered into a settlement agreement with the plaintiffs on a class-wide basis, which was approved by the court on August 10, 2006.  The settlement agreement calls for the restaurants owned by RTM and certain of its affiliates to be brought into ADA compliance over an eight year period at a rate of approximately 100 restaurants per year.  The settlement agreement also applies to restaurants subsequently acquired by RTM and such affiliates.  ARGArby’s estimates that it will spend approximately $1.15 million per year of capital expenditures over a seven-year period (which commenced in 2008) to bring the restaurants into compliance under the settlement agreement, in addition to paying certain legal fees and expenses.

In addition to the legal matter described above, we are involved in other litigation and claims incidental to our current and prior businesses.  We and our subsidiaries haveAs of January 2, 2011, Wendy’s/Arby’s Restaurants had reserves for all of our legal and environmental matters aggregating $6.1$3.7 million, as of January 3, 2010.which are included in the $3.9 million reserved by Wendy’s/Arby’s for all legal and environmental matters.  Although the outcome of these matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to us, based on our currently available information, including legal defenses available to us, and/or our subsidiaries, and given the aforementioned reserves and our insurance coverages, we do not believe that the outcome of these legal and environmental matters will have a material adverse effect on our consolidated financial position or results of operations.

Item 4.  (Removed and Reserved).



27
 

PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(Wendy’s/Arby’s)

The principal market for Wendy’s/Arby’s Common Stock is the New York Stock Exchange (symbol: WEN). The high and low market prices for Wendy’s/Arby’s Common Stock, as reported in the consolidated transaction reporting system, are set forth below:

  Market Price 
Fiscal Quarters Common Stock 
  High  Low 
2010      
First Quarter ended April 4 $5.22  $4.26 
Second Quarter ended July 4  5.55   3.95 
Third Quarter ended October 3  4.73   3.83 
Fourth Quarter ended January 2  5.09   4.28 
         
2009        
First Quarter ended March 29 $5.80  $3.86 
Second Quarter ended June 28  5.78   3.55 
Third Quarter ended September 27  5.54   3.80 
Fourth Quarter ended January 3  5.04   3.95 

Wendy’s/Arby’s Common Stock is entitled to one vote per share on all matters on which stockholders are entitled to vote. Wendy’s/Arby’s has no class of equity securities currently issued and outstanding except for its Common Stock.  However, it is currently authorized to issue up to 100 million shares of preferred stock.

During its 2010 fiscal year, Wendy’s/Arby’s paid quarterly cash dividends of $0.015 per share on its Common Stock on March 15, 2010, June 15, 2010 and September 15, 2010.  The quarterly cash dividend paid on December 15, 2010 was $0.02 per share of Common Stock.

During its 2009 fiscal year, Wendy’s/Arby’s paid regular quarterly cash dividends of $0.015 per share of Common Stock.

During the 2011 first quarter, Wendy’s/Arby’s declared dividends of $0.02 per share to be paid on March 15, 2011 to shareholders of record as of March 1, 2011.  Although Wendy’s/Arby’s currently intends to continue to declare and pay quarterly cash dividends, there can be no assurance that any additional quarterly cash dividends will be declared or paid or the amount or timing of such dividends, if any.  Any future dividends will be made at the discretion of their Board of Directors and will be based on such factors as Wendy’s/Arby’s earnings, financial condition, cash requirements and other factors.

As of February 25, 2011, there were approximately 46,206 holders of record of Wendy’s/Arby’s Common Stock.

28
The following table provides information with respect to repurchases of shares of Wendy’s/Arby’s Common Stock by us and our “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) during the fourth fiscal quarter of 2010:

Issuer Repurchases of Equity Securities
Period Total Number of Shares Purchased (1)  Average Price Paid per Share  Total Number of Shares Purchased as Part of Publicly Announced Plan (2)  Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (2) 
October 4, 2010
through
November 7, 2010
  5,176  $4.44   -  $79,517,373 
November 8, 2010
through
December 5, 2010
  -   -   -  $249,517,373 
December 6, 2010
through
January 2, 2011
  802  $4.63   -  $249,517,373 
Total  5,978  $4.46   -  $249,517,373 

(1)Includes 5,978 shares reacquired by Wendy’s/Arby’s from holders of restricted stock awards to satisfy tax withholding requirements.  The shares were valued at the average of the high and low trading prices of Wendy’s/Arby’s Common Stock on the vesting date of such awards.

(2)On January 27, 2010, March 22, 2010 and May 27, 2010, Wendy’s/Arby’s Board of Directors authorized our management, when and if market conditions warrant and to the extent legally permissible, to repurchase through January 2, 2011 up to an additional $75.0 million, $50.0 million and $75.0 million, respectively, of Wendy’s/Arby’s Common Stock.  On November 11, 2010, Wendy’s/Arby’s Board of Directors authorized the extension of the current stock repurchase program through January 1, 2012 and authorized the repurchase of up to an additional $170.0 million of Wendy’s/Arby’s Common Stock, bringing the total amount currently authorized to approximately $250.0 million.  The stock repurchase program will allow Wendy’s/Arby’s to make repurchases as market conditions warrant and to the extent legally permissible.


(Wendy’s/Arby’s Restaurants)

As a limited liability company, the CompanyWendy’s/Arby’s Restaurants does not issue common stock.  The registrant’s sole member is Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”).Arby’s. There is no market for the Company’sWendy’s/Arby’s Restaurants member’s interest.  The CompanyIt has no securities authorized for issuance under equity compensation plans.

A total of $443.7 million and $115.0 million of intercompany cash dividends were paid to Wendy’s/Arby’s in 2009.  A total of $155.0 million was advanced to 2010 and 2009, respectively.

(Wendy’s/Arby’s in 2008.  The funds were used principally to fund $150.2 million of capital contributions from Wendy’s/Arby’s to Arby’s.  These advances by the Company do not bear interest and Wendy’s/Arby’s does not currently have intent to repay such advances.  Accordingly, the $155.0 million of advances were reflected as a reduction of “Invested Equity.”Restaurants)

OurThe Companies’ ability to meet ourtheir cash requirements is primarily dependent upon ourtheir cash and cash equivalents on hand and cash flows from Wendy’s and ARG,Arby’s, including loans and cash dividends.  OurAdditionally, Wendy’s/Arby’s ability to meet its cash requirements is also dependent upon payments by Wendy’s and Arby’s under a tax sharing agreement.  The Companies’ cash requirements include, but are not limited to, interest and principal payments on ourtheir indebtedness.  Under the terms of the Credit Agreement (see “Item 1A. Risk Factors—Risks Related to Wendy’s and Arby’s Businesses – Wendy’s/Arby’s Restaurants and its subsidiaries, are subject to various restrictions, and substantially all of their non-real estate a ssets are pledged subject to certain restrictions, under a Credit Agreement”), there are restrictions on the ability of Wendy’s/Arby’s Restaurants and its subsidiaries to pay any dividends or make any loans or advances to Wendy’s/Arby’s.  The ability of Wendy’s and ARGArby’s to pay cash dividends to usthe Companies or make any loans or advances, as well as to make payments under the tax sharing agreement to Wendy’s/Arby’s is also dependent upon their ability to achieve sufficient cash flows after satisfying their cash requirements, including debt service.  As of January 3, 2010,2, 2011, under the terms of the Credit Agreement, there was $306.5$25.6 million immediately available for the payment of dividends directly to Wendy’s/Arby’s under the covenants of the Credit Agreement, which includes the net proceeds, as defined, from Senior Notes less any dividends paid since their issuance.  ; We have paid $112.0 million in dividends to Wendy’s/Arby’s in 2010.Restaurants, Wendy’s, or Arby’s.  See Note 611 of the Financial Statements and Supplementary Data included in Item 8 herein, and “Management’s Discussion anda nd Analysis – Results of Operations and Liquidity and Capital Resources” in Item 7 herein, for further information on the Credit Agreement.



29

Item 6.  Selected Financial Data.

(Wendy’s/Arby’s)

  Year Ended (1) 
  
January 2,
2011
  
January 3, 
2010
  
December 28, 
2008(2)
  
December 30,
2007(2)
  
December 31,
2006(2)
 
                                                                                                                                 (In Millions, except per share amounts) 
                
Sales $3,045.3  $3,198.3  $1,662.3  $1,113.4  $1,073.3 
Franchise revenues  371.1   382.5   160.5   87.0   82.0 
Asset management and related fees  -   -   -   63.3   88.0 
Revenues  3,416.4   3,580.8   1,822.8   1,263.7   1,243.3 
Operating profit (loss)  132.4  (5)  112.0(6)  (413.6) (7)  19.9(8)  44.6 
(Loss) income from continuing operations  (4.3) (5)  3.5(6)  (482.0) (7)  15.1(8)  0.7  (9)
Income from discontinued operations  -   1.6   2.2   1.0   - 
Net (loss) income  (4.3) (5)  5.1(6)  (479.8) (7)  16.1(8)  (10.9) (9)
Basic and diluted income (loss) per share (3):                    
    Continuing operations:                    
Common stock  (.01)  .01   (3.06)  .15   (.13)
Class B common stock  N/A   N/A   (1.26)  .17   (.13)
Discontinued operations:                    
Common stock  N/A   -   .01   .01   N/A 
Class B common stock  N/A   N/A   .02   .01   N/A 
    Net (loss) income                    
Common stock  (.01)  .01   (3.05)  .16   (.13)
Class B common stock  N/A   N/A   (1.24)  .18   (.13)
Cash dividends per share:                    
    Common stock  .07   .06   .26   .32   .77 
    Class B common stock  N/A   N/A   .26   .36   .81 
Weighted average shares outstanding (4):                    
Common stock  426.3   466.2   137.7   28.8   27.3 
Class B common stock  N/A   N/A   48.0   63.5   59.3 
                     
  
January 2,
2011
  
January 3, 
2010
  
December 28, 
2008(2)
  December 30, 2007(2)  December 31, 2006(2) 
  (In Millions) 
    Working capital
       (deficiency)
 $333.3  $403.8  $(121.7) $(36.9) $161.2 
    Properties  1,551.3   1,619.2   1,770.4   504.9   488.5 
    Total assets  4,732.7   4,975.4   4,645.6   1,454.6   1,560.4 
    Long-term debt, including
       current portion
  1,572.4   1,522.9   1,111.6   739.3   720.0 
    Stockholders’ equity  2,163.2   2,336.3   2,383.4   449.8   492.0 
                     

(1)Wendy’s/Arby’s reports on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31.  Except for the 2009 fiscal year, which contained 53 weeks, each of Wendy’s/Arby’s fiscal years presented above contained 52 weeks.  All references to years relate to fiscal years rather than calendar years. The financial position and results of operations of Wendy’s are included commencing with the date of the Wendy’s Merger, September 29, 2008.  Immediately prior to the Wendy’s Merger, each share of our Class B common stock was converted into Class A common stock on a one for one basis.  In connection with the May 28, 2009 amendment and restatement of Wendy’s/Arby’s Certificate of Incorporation, Wendy’s/Arby’s former Class A common stock is now referred to as “Common Stock.” Deerfie ld & Company LLC (“Deerfield”), in which Wendy’s/Arby’s held a 63.6% capital interest from July 22, 2004 through its sale on December 21, 2007, Deerfield Opportunities Fund, LLC, which commenced on October 4, 2004 and in which our investment was effectively redeemed on September 29, 2006, and DM Fund LLC, which commenced on March 1, 2005 and in which Wendy’s/Arby’s investment was effectively redeemed on December 31, 2006, reported on a calendar year ending on December 31 through their respective sale or redemption dates.

30



(2)Selected financial data reflects the changes related to the adoption of the following accounting standards:

(a) As of December 29, 2008, Wendy’s/Arby’s adopted new accounting guidance related to non-controlling interests (formerly referred to as minority interests).  This adoption resulted in the retrospective reclassification of minority interests from its former presentation as a liability to “Stockholders’ equity.” The reclassifications were $0.l million, $0.9 million, and $14.2 million for 2008, 2007 and 2006 respectively. Additionally, in accordance with the new guidance, the loss from continuing operations in 2006 excludes the effect of income attributable to non-controlling interests of $11.5 million. Income attributable to non-controlling interests in 2008 and 2007 was not material.

(b) As of January 1, 2007, Wendy’s/Arby’s utilized a recognition threshold and measurement attribute for financial statement recognition and measurement of potential tax benefits associated with tax positions taken or expected to be taken in income tax returns.  Wendy’s/Arby’s utilized a two-step process of evaluating a tax position, whereby an entity first determines if it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is then measured for purposes of financial statement recognition as the largest amount of benefit that is greater than 50 percent likely of being realized upon bein g effectively settled. There was no effect on the 2007 or prior period statements of operations.  However, there was a net reduction of $2.3 million in stockholders’ equity as of January 1, 2007.

(3)For the purposes of calculating income per share amounts for 2007, net income was allocated between the shares of Wendy’s/Arby’s Class A common stock and Wendy’s/Arby’s Class B common stock based on the actual dividend payment ratio. For the purposes of calculating loss per share, the net loss for all years through 2008 was allocated equally between Class A common stock and Class B common stock.
(4)The number of shares used in the calculation of diluted income per share in 2009 and 2007 consist of the weighted average common shares outstanding for each class of common stock and potential shares of common stock reflecting the effect of 483 dilutive stock options and nonvested restricted shares for 2009 and 129 for Wendy’s/Arby’s Class A common stock and 759 for Wendy’s/Arby’s Class B common stock for 2007. The number of shares used in the calculation of diluted income (loss) per share is the same as basic income (loss) per share for 2010, 2008 and 2006 since all potentially dilutive securities would have had an antidilutive effect based on the loss from continuing operations for these years.

(5)Reflects certain significant charges recorded during 2010 as follows: $69.4 million charged to operating profit for impairment of long-lived assets other than goodwill; $43.0 million charged to loss from continuing operations and net loss related to these charges; and $16.2 million charged to loss from continuing operations and net loss related to costs incurred for the early extinguishment of debt, which was comprised of a premium payment required to redeem the Wendy’s 6.25% senior notes, the write-off of the unaccreted discount of the Wendy’s 6.25% senior notes, and the write-off of deferred costs associated with the repayment of the Wendy’s/Arby’s Restaurants prior senior secured term loan.

(6)Reflects significant charges recorded in 2009 of $82.1 million charged to operating profit for impairment of long-lived assets other than goodwill and $50.9 million charged to income from continuing operations and net income related to these charges.

(7)Reflects certain significant charges and credits recorded during 2008 as follows: $460.1 million charged to operating loss consisting of a goodwill impairment for the Arby’s company-owned restaurant reporting unit; $484.0 million charged to loss from continuing operations and net loss representing the aforementioned $460.1 million charged to operating loss and other than temporary losses on investments of $112.7 million partially offset by $88.8 million of income tax benefit related to the above charges.

(8)Reflects certain significant charges and credits recorded during 2007 as follows: $45.2 million charged to operating profit, consisting of facilities relocation and restructuring costs of $85.4 million less $40.2 million from the gain on sale of Wendy’s/Arby’s interest in Deerfield; $16.6 million charged to income from continuing operations and net income representing the aforementioned $45.2 million charged to operating profit offset by $15.8 million of income tax benefit related to the above charge, and a $12.8 million previously unrecognized prior year contingent tax benefit related to certain severance obligations to certain of Wendy’s/Arby’s former executives.

(9)Reflects a significant charge recorded during 2006 as follows: $9.0 million charged to loss from continuing operations and net loss representing a $14.1 million loss on early extinguishments of debt related to conversions or effective conversions of Wendy’s/Arby’s 5% convertible notes due 2023 and prepayments of term loans under Wendy’s/Arby’s senior secured term loan facility, partially offset by an income tax benefit of $5.1 million related to the above charge.
(Wendy’s/Arby’s Restaurants)

Omitted pursuant to General Instruction I of Form 10-K
10-K.

2831
 
 
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”) and Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants” and, together with its subsidiaries, the “Company” or “we” or “our”) should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere within this report.  Certain statements we make under this Item 7 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  See “Special Note Regarding Forward-Looking Statements and Projections” in “Part 1” preceding “Item 1 - Business.”  You should consider our forward-looking statements in light of the risksri sks discussed under the heading “Risk Factors” in Item 1A above, as well as our consolidated financial statements, related notes, and other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission.

The wholly-owned subsidiaries ofExcept where otherwise indicated, this discussion relates to the consolidated financial statements for both Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants as(the “Companies”). References herein to Wendy’s/Arby’s corporate (“Corporate”) represents Wendy’s/Arby’s parent company functions only and their effect on the consolidated results of January 3, 2010 areoperations and financial condition.

Wendy’s/Arby’s is the parent company of its 100% owned subsidiary holding company Wendy’s/Arby’s Restaurants. Wendy’s/Arby’s Restaurants is the parent company of Wendy’s International, Inc. (“Wendy’s”) and Arby’s Restaurant Group, Inc. (“ARG” or “Arby’s”Arby’s”) and their subsidiaries. Wendy’s and Arby’s, which are the owners and franchisors of the Wendy’s® and Arby’s® restaurant systems. Wendy’s/Arby’s Restaurants was formed by Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”) as a wholly-owned subsidiary holding company in October 2008.  systems, respectively. On September 29, 2008, (the “Closing Date”), Wendy’s/Arby’s (formerly Triarc Companies, Inc. or “Triarc”) completed the merger (the “Wendy’s Merger”) with Wendy’s. Wendy&# 8217;s/Wendy’s described below under “Introduction and Executive Overview – Merger with Wendy’s International, Inc.”     

Wendy’s/Arby’s Restaurants’Restaurants sole asset at formation consisted of the contribution by Wendy’s/Arby’s of its investment in Wendy’s.  In March 2009, Wendy’s/Arby’s contributed its longstanding investment in ARGArby’s to Wendy’s/Arby’s Restaurants. Wendy’s/Arby’s Restaurants has no operations other than those of Wendy’s and Arby’s and their respective subsidiaries.

The consolidated financial statements present the historical results of Arby’s and Wendy’s as if Wendy’s/Arby’s Restaurants had existed as a separate legal entity by the beginning of the earliest period presented.  Accordingly, the consolidated financial statements include the results of Arby’s and Wendy’s beginning from their time of ownership by Wendy’s/Arby’s. Therefore, the consolidated financial statements include the accounts of Wendy’s subsequent to the Closing Date.  Because the Closing Date did not occur untilMerger was completed on the first day of our 2008 fourth quarter onlyand the fourth quarter results of operations of Wendy’s are included in our 2008 results.results beginning in the fourth quarter of 2008.  The results of operations disc usseddiscussed below for 2008 and 2007 willare not be indicative of future results due to the consummation of the merger with Wendy’s.Wendy’s Merger.
 
Introduction and Executive Overview

Our Business

We currently manage and internally report our operations as two business segments: the operation and franchising of Wendy’s restaurants, including its wholesale bakery operations, and the operation and franchising of Arby’s restaurants.  As of January 3, 2010,2, 2011, the Wendy’s restaurant system was comprised of 6,5416,576 restaurants, of which 1,3911,394 were owned and operated by the Company.Companies.  As of January 3, 2010,2, 2011, the Arby’s restaurant system was comprised of 3,7183,649 restaurants, of which 1,1691,144 were owned and operated by the Company. All 2,560Companies.  The 2,538 Wendy’s and Arby’s Company-ownedcompany-owned restaurants are located principally in the United States and to a lesser extent in Canada (the “North America Restaurants”).In January 2011, we announced that we are exploring strategic alternatives for Arby’s, including a sale of the brand.

Wendy’s and Arby’s revenues and operating results have been impacted by a number of factors, including generally negative sales and traffic trends in the restaurant industry, high unemployment, negative general economic trends and intense price competition.

We continue to believe there are long-term growth opportunities for our brands. Wendy’s opportunities include (1) product innovation, (2) a continued emphasis on our everyday value menu, (3) expanding dayparts, (4) modernizing our facilities, (5) new unit development, and (6) expanding internationally.  Our Arby’s opportunities include (1) our value strategy, which includes our everyday affordability proposition, (2) our remodeling program, (3) a new brand positioning to be introduced in 2011, and (4) product innovation.    

As of January 2, 2011, there were approximately 350 Arby’s franchised restaurants with amounts payable to Arby’s for royalties, rent and/or other fees that were at least 60 days past due. The financial condition of a number of Arby’s franchisees was one of the factors that resulted in a net decrease of 44 and 31 in the number of franchised restaurants for fiscal 2010 and 2009, respectively. During those periods 96 and 74 franchised Arby’s restaurants were closed, respectively. The trend of declining sales at franchised Arby’s restaurants has resulted in decreases in royalties and other franchise revenues. In addition, Arby’s franchisee accounts receivable and related allowance for doubtful accounts have increased significantly, and may continue to grow, as a result of the continued deteriorating fin ancial condition of some of our franchisees. Franchisees’ financial difficulties and the closure of franchised restaurants have also caused reductions in the contributions to and extent of advertising programs. Continuation of these trends would affect our revenues and may have a material adverse effect on our results of operations and financial condition.

Restaurant business revenues for 20092010 include: (1) $3,086.5$2,946.8 million of sales from Company-ownedcompany-owned restaurants, (2) $111.8$98.5 million from the sale of bakery items and kid’skids’ meal promotion items to our franchisees, and others, (3) $353.1$345.0 million from royalty income from franchisees, and (4) $29.4$26.1 million of other franchise related revenue. Our revenues increased significantly in 2009revenue and 2008 due to the Wendy’s Merger.  Allother revenues.  Most of our Wendy’s and substantially all of our Arby’s royalty agreements provideprovided for royalties of 4.0% of franchise revenues for the year ended January 3, 2010.

Our restaurant businesses have recently experienced trends in the following areas:

Revenues
·Industry-wide declines in same-store sales of all segments of the restaurant industry, including quick service restaurants (“QSR”);
·Continued lack of general consumer confidence in the economy and the effect of decreases in many consumers’ discretionary income caused by factors such as (1) volatility in the financial markets and recessionary economic conditions, including high unemployment levels and (2) a significant decline in the real estate market, although that market has shown some improvement in recent months;
·Continued and increasingly aggressive price competition in the QSR industry, as evidenced by (1) value menus, which offer lower prices on some menu items, (2) the use of coupons and other price discounting and (3) combination meal concepts, which offer a complete meal at an aggregate price lower than the price of individual food and beverage items;
·Competitive pressures due to extended hours of operation by many QSR competitors, including breakfast and late night hours;
2, 2011.

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·Competitive pressures from operators outside the QSR industry, such as the deli sections and in-store cafes of major grocery and other retail store chains, convenience stores and casual dining outlets offering take-out food;
·Increased availability to consumers of product choices, including (1) healthy products driven by a greater consumer awareness of nutritional issues, (2) beverage programs which offer a wider selection of premium non-carbonated beverages, including coffee and tea products and (3) sandwiches with perceived higher levels of freshness, quality and customization; and
·Competitive pressures from an increasing number of franchise opportunities seeking to attract qualified franchisees.

Cost of Sales
·Decreasing commodity prices which have reduced our food costs in the second half of 2009;
·Federal, state and local legislative activity, such as minimum wage increases and mandated health and welfare benefits which is expected to continue to increase wages and related fringe benefits, including health care and other insurance costs; and
·Legal or regulatory activity related to nutritional content or menu labeling which results in increased operating costs.

Other
·A significant portion of both our Wendy’s and Arby’s restaurants are franchised and, as a result, we receive revenue in the form of royalties (which are generally based on a percentage of sales at franchised restaurants), rent and other fees from franchisees. Arby’s franchisee related accounts receivable and estimated reserves for uncollectibility have increased significantly, and may continue to increase, as a result of the deteriorating financial condition of some of our franchisees. The financial condition of a number of Arby’s franchisees resulted in a net decrease in the number of franchised restaurants in 2009 and also affects franchisees’ ability to make required contributions to national and local advertising programs;
·Weakness in the overall credit markets, including availability in the lending markets typically used to finance new unit development and remodels. Tightened credit conditions and economic pressures have negatively impacted franchisees, including the ability of some franchisees to meet their commitments under development, rental and franchise license agreements.
We experience these trends directly to the extent they affect the operations of our Company-owned restaurants and indirectly to the extent they affect sales by our franchisees and, accordingly, the royalties and franchise fees we receive from them.

Business Highlights

We believe there are significant opportunities to grow our business, strengthen our competitive position and enhance our profitability through the execution of the following strategies:
·Grow same-store sales at Wendy’s and Arby’s by introducing innovative new menu items, enhancing the customer experience with operational excellence and improving affordability with everyday value menu items;
·Continue to improve Wendy’s Company-owned restaurant margins;
·Expand our restaurant base in North America and accelerate our program to remodel restaurants;
·Invest in our international business to grow substantially in key markets outside of North America; and
·Possibly acquire other restaurant companies.

Key Business Measures

We track our results of operations and manage our business using the following key business measures:
 
 ·Same-Store Sales

We report Arby’sWendy’s North America Restaurants same-store sales commencing after a store has been open for fifteenat least 15 continuous months. Wendy’smonths as of the beginning of the fiscal year. Arby’s North America Restaurants same-store sales are reported after a store has been open for at least fifteen15 continuous months as of the beginning of the fiscal year.months.  These methodologies are consistent with the metrics used by our management for internal reporting and analysis.  Same-store sales exclude the impact of currency translation.

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 ·Restaurant Margin

We define restaurant margin as sales from Company-ownedcompany-owned restaurants (excluding sales of bakery items and kid’s meal promotion items to franchisees) less cost of sales (excluding costsdivided by sales from company-owned restaurants.  Cost of sales includes food and paper, restaurant labor, and occupancy, advertising and other operating costs.  Sales and cost of sales exclude amounts related to bakery items and kid’skids’ meal promotion items sold to franchisees), divided by sales from Company-owned restaurants (excluding sales of bakery items and kid’s meal promotion items sold to franchisees).franchisees. 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 level of our fixed and semi-variable costs, and fluctuations in food and labor costs.

Merger with Wendy’s International, Inc.

On September 29, 2008, a subsidiary of Triarc merged with and intoWendy’s/Arby’s completed the Wendy’s and Wendy’s became a wholly-owned subsidiary of TriarcMerger in an all-stock transaction in which Wendy’s shareholders received a fixed ratio of  4.25 shares of Wendy’s/Arby’s Class A common stock for each share of Wendy’s common stock owned. Immediately prior to the Wendy’s Merger, each share of Wendy’s/Arby’s Class B common stock was converted into Class A common stock on a one for one basis (the “Conversion”).  As a result of the May 28, 2009 amendment and restatement of Wendy’s/Arby’s Certificate of Incorporation, Wendy’s/Arby’s Class A common stock is now referred to as “Common Stock.”

Credit Agreement

As further described in “Liquidity and Capital Resources – Long-term Debt – Credit Agreement” below, on May 24, 2010, Wendy’s/Arby’s Restaurants, entered into a $650.0 million Credit Agreement (the “Credit Agreement”), which includes a $500.0 million senior secured term loan facility (the “Term Loan”) and a $150.0 million senior secured revolving credit facility (the “Credit Facility”).

The Companies recognized a loss on early extinguishment of debt of $26.2 million in the second quarter of 2010 primarily related to the repayment of the Wendy’s 6.25% senior notes from the proceeds of the Term Loan. This loss consisted of (1) a $15.0 million premium payment required to redeem the Wendy’s 6.25% senior notes, (2) $5.5 million for the write-off of the unaccreted discount of the Wendy’s 6.25% senior notes (recorded in connection with the Wendy’s Merger), and (3) $5.7 million for the write-off of deferred costs associated with the repayment of the prior senior secured term loan.

Senior Notes

On June 23, 2009, weWendy’s/Arby’s Restaurants issued $565.0 million principal amount of Senior Notes (the “Senior Notes”). The Senior Notes will mature on July 15, 2016 and accrue interest at 10.00% per annum, payable semi-annually on January 15 and July 15, the first payment of which was made on January 15, 2010. The Senior Notes were issued at 97.533% of the principal amount, representing a yield to maturity of 10.50% and resulting in net proceeds paid to us of $551.1 million. This originalThe $13.9 million discount is being accreted and the related charge included in “Interest expense” until the Senior Notes mature. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by certain direct and indirect domestic subsidiaries of Wendy’s/Arby’s Restaurants (collectively,(collecti vely, the ̶ 0;Guarantors”“Guarantors”).

Deerfield

(Wendy’s/Arby’s)

On December 21, 2007, Wendy’s/Arby’s sold its 63.6% capital interest in Deerfield & Company, LLC (“Deerfield”), an asset management business and a subsidiary of Wendy’s/Arby’s until its sale, to Deerfield Capital Corp (“DFR”) (the “Deerfield Sale”).  The Deerfield Sale resulted in non-cash proceeds to Wendy’s/Arby’s aggregating $134.6 million, consisting of (1) 9.6 million convertible preferred shares (the “Preferred Stock”) of a subsidiary of DFR with an estimated fair value of $88.4 million at the date of the Deerfield Sale and (2) $48.0 million principal amount of series A senior secured notes of DFR due in December 2012 (the “DFR Notes”) with an estimated fair value of $46.2 million at the date of the Deerfield Sale.
On March 11, 2008, DFR stockholders approved the one-for-one conversion of all its outstanding convertible preferred stock into DFR common stock, which converted the Preferred Stock held by Wendy’s/Arby’s into a like number of shares of DFR common stock.  On March 11, 2008, Wendy’s/Arby’s Board of Directors approved the distribution of the shares of DFR common stock then held by
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Wendy’s/Arby’s to Wendy’s/Arby’s stockholders.  The distribution in the form of a dividend, which was valued at $14.5 million, was paid in 2008 to holders of record of Wendy’s/Arby’s then outstanding Class A common stock and Class B common stock.

In March 2008, in response to unanticipated credit and liquidity events in the first quarter of 2008, DFR announced that it was repositioning its investment portfolio to focus on agency-only residential mortgage-backed securities and away from its principal investing segment to its asset management segment with its fee-based revenue streams.  In addition, it stated that during the first quarter of 2008, its portfolio was adversely impacted by deterioration of the global credit markets and, as a result, it sold $2.8 billion of its agency and $1.3 billion of its AAA-rated non-agency mortgage backed securities and reduced the net notional amount of interest rate swaps used to hedge a portion of its mortgage-backed securities by $4.2 billion, all at a net after-tax loss of $294.3 million to DFR.

Based on these events described above and their negative effect on the market price of DFR common stock, Wendy’s/Arby’s concluded that the fair value and, therefore, the carrying value of its investment in the DFR common shares was impaired. As a result, as of March 11, 2008 Wendy’s/Arby’s recorded an other than temporary loss, which is included in “Other than temporary losses on investments,” for the year ended December 28, 2008 of $68.1 million.  As a result of the subsequent distribution of the DFR common stock, the income tax loss that resulted from the decline in value of $68.1 million was not deductible for income tax purposes and no income tax benefit was recorded related to this loss.

During the fourth quarter of 2008, Wendy’s/Arby’s recognized an allowance for collectability of $21.2 million to reduce the then carrying amount of the DFR Notes to $25.0 million. On June 9, 2010, pursuant to a March 2010 agreement between Wendy’s/Arby’s and DFR, Wendy’s/Arby’s received cash proceeds of $31.3 million, including interest, in consideration for the repayment and cancellation of the DFR Notes. The proceeds represented 64.1% of the $48.0 million aggregate principal amount of the DFR Notes.  Wendy’s/Arby’s recognized income of $4.9 million during the year ended January 2, 2011 as the repayment proceeds exceeded the car rying value of the DFR Notes.  This gain is included in “Investment income (expense), net.”
Related Party Transactions

Supply Chain Relationship Agreement

During the 2009 fourth quarter, Wendy’s and its franchisees entered into a purchasing co-op relationship agreement (the “Co-op Agreement”) to establish a new Wendy’s purchasing co-op, Quality Supply Chain Co-op, Inc. (“QSCC”).  QSCC now manages food and related product purchases and distribution services for the Wendy’s system in the United States and Canada.  Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.

QSCC’s supply chain management will facilitatefacilitates the continuity of supply and provideprovides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s North AmericanAmerica supply chain. The system’s purchasing function for 2009 and prior was performed and paid for by Wendy’s. In order to facilitate the orderly transition of the 2010 purchasing function for North AmericanAmerica operations, Wendy’s transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in the first quarter of 2010.  Pursuant to the terms of the Co-op Agreement, Wendy’s iswas required to pay $15.5 million to QSCC over an 18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and cash reserves. Future operations will be funded by all members of QSCC, including Wendy’s and its franchisees. The required payments by Wendy’s under the Co-op Agreement were expensed in the fourth quarter of 2009 and included in “General and administrative.”  Wendy’s made payments of $15.2 million in 2010.  In addition to the initial funding by Wendy’s, since the third quarter of 2010, all QSCC members (including Wendy’s) began paying sourcing fees on products sourced through QSCC.  Such sourcing fees will be the primary means of funding QSCC’s operations after the initial funding by Wendy’s is completed. In connection with the ongoing operations of QSCC during 2010, QSCC reimbursed Wendy’s $0.9 million for amounts Wendy’s had paid pr imarily for payroll-related expenses for certain Canadian QSCC purchasing employees.  Effective January 4, 2010, the QSCC will be leasingleased 9,333 square feet of office space from Wendy’s for a two year period for an average annual rental of $0.1 million with five one-year renewal options.

ARCOP, Inc. (“ARCOP”), a not-for-profit purchasing cooperative, negotiates contracts with approved suppliers on behalf of ARGArby’s and Arby’s franchisees and operates under a previously established agreement similar to the Wendy’s Co-op Agreement.

Revolving Credit Facilitiescredit facilities

OnIn December 31, 2009, and as amended in February and August 2010, AFA Service Corporation (“AFA”), an independently controlled advertising cooperative for the Arby’s restaurant system in which we have voting interests of substantially less than 50%, entered into a revolving loan agreement with ARG.  ThisArby’s.  The terms of this agreement which provided for ARGallow AFA to makehave revolving loans of up to $5.5$14.0 million to AFA, was amended onoutstanding with an expiration date of March 2012 and bearing interest at 7.5% per annum.  In February 25, 2010 to provide for2011, the maximum principal amount of revolving loans upwas reduced to $14.5$11.0 million. Under the terms of this agreement, outstanding amounts are due through April 4, 2011 and bear interest at 7.5%. As of January 3, 2010,2, 2011, the outstanding revolving loan balance under this agreement was $5.1$4.5 million.

Strategic Sourcing Group Agreement

On April 5, 2010, QSCC and ARCOP, in consultation with Wendy’s/Arby’s Restaurants, established Strategic Sourcing Group Co-op, LLC (“SSG”).  SSG was formed to manage and operate purchasing programs which combine the purchasing power of both Wendy’s and Arby’s company-owned and franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment and services.

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In order to facilitate the orderly transition of this purchasing function for the Companies’ North America operations, Wendy’s/Arby’s Restaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants purchasing employees to SSG in the second quarter of 2010. Wendy’s/Arby’s Restaurants had committed to pay approximately $5.2 million of SSG expenses, which were expensed in 2010 and included in “General and administrative,” and was to be paid over a 24 month period through March 2012. We made payments of $2.0 million in 2010.  Effective April 5, 2010, the SSG leased 2,300 square feet of office space from Arby’s until December 31, 2016, unless terminated earlier, for an annual base rental of $51 thousand.

Should a sale of Arby’s occur as discussed in “Introduction and Executive Overview – Our Business” herein, under the change of control provisions in the agreement that established SSG, the activities of SSG would be wound up.  In the wind up process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and Wendy’s/Arby’s Restaurants agree.  In contemplation of a possible sale, the parties are in discussion regarding the dissolution of SSG and transferring SSG’s assets, personnel and functions to QSCC and ARCOP.  

(Wendy’s/Arby’s)

Equities Account

In 2005, Wendy’s/Arby’s invested $75.0 million in brokerage accounts (the “Equities Account”), which were managed by a management company (the “Management Company”) formed by the Chairman and then Chief Executive Officer and the Vice Chairman and then President and Chief Operating Officer of Wendy’s/Arby’s (the “Former Executives”) and a director, who is Wendy’s/Arby’s former Vice Chairman (collectively with the Former Executives, the “Principals”).  The Equities Account was invested principally in equity securities, cash equivalents and equity derivatives of a limited number of publicly-traded companies. In addition, the Equities Account sold securities short and invested in market put options in order to lessen the impact of significant mar ket downturns.

On June 10, 2009, Wendy’s/Arby’s and the Management Company entered into a withdrawal agreement (the “Withdrawal Agreement”) which provided that Wendy’s/Arby’s would be permitted to withdraw all amounts in the Equities Account on an accelerated basis (the “Early Withdrawal”) effective no later than June 26, 2009.  Prior to the Withdrawal Agreement and as a result of an investment management agreement with the Management Company, which was terminated on June 26, 2009, Wendy’s/Arby’s had not been permitted to withdraw any amounts from the Equities Account until December 31, 2010, although $47.0 million was released from the Equities Account in 2008 subject to an obligation to return that amount to the Equities Account by a specified date.  In consideration f or obtaining such Early Withdrawal right, Wendy’s/Arby’s agreed to pay the Management Company $5.5 million (the “Withdrawal Fee”), was not required to return the $47.0 million referred to above and was no longer obligated to pay investment management and incentive fees to the Management Company. The Equities Account investments were liquidated in June 2009 for $37.4 million (the “Equities Sale”), of which $31.9 million was received by Wendy’s/Arby’s, net of the Withdrawal Fee, and for which Wendy’s/Arby’s realized a gain of $2.3 million in 2009, which are both included in “Investment income (expense), net.”

Sublease of New York Office Space

In July 2008 and July 2007, Wendy’s/Arby’s entered into agreements under which the Management Company is subleasing office space on two of the floors of Wendy’s/Arby’s former New York headquarters.  During the second quarter of 2010, Wendy’s/Arby’s and the Management Company entered into an amendment to the sublease, effective April 1, 2010, pursuant to which the Management Company’s early termination right was cancelled in exchange for a reduction in rent.  Under the terms of the amended sublease, the sublease is not cancelable prior to the expiration of the prime lease and the Management Company pays rent to Wendy’s/Arby’s in an amount that covers substantially all of Wendy’s/Arby’s rent obligations under the prime lease for the subleased space.
Services Agreements

Wendy’s/Arby’s and the Management Company entered into a new services agreement (the “New Services Agreement”), which commenced on July 1, 2009 and will continue until June 30, 2011, unless sooner terminated. Under the New Services Agreement, the Management Company assists Wendy’s/Arby’s with strategic merger and acquisition consultation, corporate finance and investment banking services and related legal matters.  Pursuant to the terms of this agreement, Wendy’s/Arby’s is paying the Management Company a service fee of $0.25 million per quarter, payable in advance commencing July 1, 2009.  In addition, in the event the Management Company provides substantial assistance to Wendy’s/Arby’s in connection with a merger or acquisition, corporate finance and/or s imilar transaction that is consummated at any time during the period commencing on the date the New Services Agreement was executed and ending six months following the expiration of its term, Wendy’s/Arby’s will negotiate a success fee to be paid to the Management Company which is reasonable and customary for such transactions.

Under a prior services agreement which commenced on June 30, 2007 and expired on June 30, 2009, (the “Services Agreement”) the Management Company provided a broader range of professional and strategic services to Wendy’s/Arby’s in connection with its 2007 restructuring and the related transition of executive management responsibilities.

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The Companies paid approximately $2.5 million and $5.4 million in 2010 and 2009, respectively, in fees for corporate finance advisory services under the New Services Agreement in connection with the negotiation and execution of the Credit Agreement in 2010 and the issuance of the Senior Notes in 2009.

Liquidation Services Agreement

On June 10, 2009, Wendy’s/Arby’s and the Management Company entered into a liquidation services agreement (the “Liquidation Services Agreement”) pursuant to which the Management Company assists Wendy’s/Arby’s in the sale, liquidation or other disposition of its cost investments and DFR Notes (the “Legacy Assets”), which are not related to the Equities Account.  As of the date of the Liquidation Services Agreement, the Legacy Assets were valued at $36.6 million (the “Target Amount”), of which $5.1 million was owned by Wendy’s/Arby’s Restaurants.  The Liquidation Services Agreement, which expires June 30, 2011, required Wendy’s/Arby’s to pay the Manageme nt Company a fee of $0.9 million in two installments in June 2009 and 2010, which is being amortized over the term of the agreement and included in “General and administrative.”  In addition, in the event that any or all of the Legacy Assets are sold, liquidated or otherwise disposed of and the aggregate net proceeds to us are in excess of the Target Amount, Wendy’s/Arby’s would be required to pay the Management Company a success fee equal to 10% of the aggregate net proceeds in excess of the Target Amount.  Assuming a current liquidation of all remaining Legacy Assets, the aggregate proceeds ($32.2 million as of January 2, 2011 primarily related to the cancellation and repayment of the DFR Notes) would not be expected to be in excess of the Target Amount.

Aircraft Agreement

In August 2007, Wendy’s/Arby’s entered into time share agreements under which the Former Executives and the Management Company used two Wendy’s/Arby’s corporate aircraft in exchange for payment of certain incremental flight and related costs of such aircraft.  Those time share agreements expired during the second quarter of 2009 and, in the third quarter of 2009, one of the aircraft was sold to an unrelated third party.

In June 2009, Wendy’s/Arby’s and TASCO, LLC (an affiliate of the Management Company) (“TASCO”) entered into an aircraft lease agreement (the “Aircraft Lease Agreement”) for the other aircraft that was previously under a time share agreement.  The Aircraft Lease Agreement originally provided that Wendy’s/Arby’s would lease such corporate aircraft to TASCO from July 1, 2009 until June 30, 2010. On June 24, 2010, Wendy’s/Arby’s and TASCO renewed the Aircraft Lease Agreement for an additional one year period (expiring June 30, 2011).  Under the Aircraft Lease Agreement, TASCO pays $10 thousand per month for such aircraft plus substantially all operating costs of the aircraft including all costs of fuel, inspection, servicing and storage, as well as operational and flight crew costs relating to the operation of the aircraft, and all transit maintenance costs and other maintenance costs required as a result of TASCO’s usage of the aircraft. Wendy’s/Arby’s continues to be responsible for calendar-based maintenance and any extraordinary and unscheduled repairs and/or maintenance for the aircraft, as well as insurance and other costs. The Aircraft Lease Agreement may be terminated by Wendy’s/Arby’s without penalty in the event it sells the aircraft to a third party, subject to a right of first refusal in favor of the Management Company with respect to such a sale.
Presentation of Financial Information

OurThe Companies’ fiscal reporting periods consist of 5352 or 5253 weeks ending on the Sunday closest to December 31 and are referred to herein as (1) “the year ended January 2, 2011” or “2010”, which consisted of 52 weeks, (2) “the year ended January 3, 2010” or “2009”, which consisted of 53 weeks and (2)(3) “the year ended December 28, 2008” or “2008” and “the year ended December 31, 2007” or “2007,” both of which consisted of 52 weeks.  All references to years and quarters relate to fiscal periods rather than calendar periods.  Certain percentage changes between these years are considered not measurable or non meaningful (“n/m”).

 
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Results of Operations
 
For each of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, the following tables included throughout Item 7 set forth the consolidated results of operations for the years ended January 2, 2011, January 3, 2010, and December 28, 2008 (dollars in millions, except company-owned average unit volumes which are in thousands):
(Wendy’s/Arby’s)

 2009  2008  2007 
 Amount  Change  Amount  Change  Amount  2010  2009  2008 
 (in millions)  Amount  Change  Amount  Change  Amount 
Revenues:                              
Sales $3,198.3  $1,536.0  $1,662.3  $548.9  $1,113.4  $3,045.3  $(153.0) $3,198.3  $1,536.0  $1,662.3 
Franchise revenues  382.5   222.0   160.5   73.5   87.0   371.1   (11.4)  382.5   222.0   160.5 
  3,580.8   1,758.0   1,822.8   622.4   1,200.4   3,416.4   (164.4)  3,580.8   1,758.0   1,822.8 
Costs and expenses:                                        
Cost of sales  2,728.4   1,312.9   1,415.5   521.0   894.5   2,610.8   (117.6)  2,728.4   1,312.9   1,415.5 
General and administrative  442.7   229.5   213.2   76.4   136.8   416.6   (36.1)  452.7   204.0   248.7 
Depreciation and amortization  188.5   103.5   85.0   28.1   56.9   182.2   (8.1)  190.3   102.0   88.3 
Goodwill impairment  -   (460.1)  460.1   460.1   -   -   -   -   (460.1)  460.1 
Impairment of other long-lived assets  80.0   70.4   9.6   7.0   2.6 
Impairment of long-lived assets  69.4   (12.7)  82.1   62.9   19.2 
Facilities relocation and restructuring  8.0   4.8   3.2   2.5   0.7   -   (11.0)  11.0   7.1   3.9 
Other operating expense, net  3.2   2.5   0.7   0.5   0.2   5.0   0.7   4.3   3.6   0.7 
  3,450.8   1,263.5   2,187.3   1,095.6   1,091.7   3,284.0   (184.8)  3,468.8   1,232.4   2,236.4 
Operating profit (loss)  130.0   494.5   (364.5)  (473.2)  108.7   132.4   20.4   112.0   525.6   (413.6)
Interest expense  (125.4)  (58.5)  (66.9)  (7.7)  (59.2)  (137.2)  (10.5)  (126.7)  (59.7)  (67.0)
Other (expense) income, net  (3.0)  (6.2)  3.2   (0.1)  3.3 
Income (loss) from continuing operations before income taxes  1.6   429.8   (428.2)  (481.0)  52.8 
Benefit from (provision for) income taxes  8.0   (55.1)  63.1   83.1   (20.0)
Income (loss) from continuing operations  9.6   374.7   (365.1)  (397.9)  32.8 
Loss on early extinguishment of debt  (26.2)  (26.2)  -   -   - 
Investment income (expense), net  5.2   8.2   (3.0)  (12.4)  9.4 
Other than temporary losses on investments  -   3.9   (3.9)  108.8   (112.7)
Other income, net  3.8   2.3   1.5   (1.2)  2.7 
Loss from continuing
operations before income taxes
  (22.0)  (1.9)  (20.1)  561.1   (581.2)
Benefit from income taxes  17.7   (5.9)  23.6   (75.7)  99.3 
(Loss) income from continuing
operations
  (4.3)  (7.8)  3.5   485.4   (481.9)
Income from discontinued operations, net of income taxes  -   -   -   0.1   (0.1)  -   (1.6)  1.6   (0.6)  2.2 
Net income (loss) $9.6  $374.7  $(365.1) $(397.8) $32.7 
Net (loss) income $(4.3) $(9.4) $5.1  $484.8  $(479.7)

3237

(Wendy’s/Arby’s Restaurants)

  2010  2009  2008 
  Amount  Change  Amount  Change  Amount 
Revenues:               
Sales $3,045.3  $(153.0) $3,198.3  $1,536.0  $1,662.3 
Franchise revenues  371.1   (11.4)  382.5   222.0   160.5 
   3,416.4   (164.4)  3,580.8   1,758.0   1,822.8 
Costs and expenses:                    
Cost of sales  2,610.8   (117.6)  2,728.4   1,312.9   1,415.5 
General and administrative  408.4   (34.3)  442.7   229.5   213.2 
Depreciation and amortization  180.3   (8.2)  188.5   103.5   85.0 
Goodwill impairment  -   -   -   (460.1)  460.1 
Impairment of long-lived assets  69.4   (10.6)  80.0   70.4   9.6 
Facilities relocation and restructuring  -   (8.0)  8.0   4.8   3.2 
Other operating expense, net  5.2   2.0   3.2   2.5   0.7 
   3,274.1   (176.7)  3,450.8   1,263.5   2,187.3 
     Operating profit (loss)  142.3   12.3   130.0   494.5   (364.5)
Interest expense  (136.2)  (10.8)  (125.4)  (58.5)  (66.9)
Loss on early extinguishment of debt  (26.2)  (26.2)  -   -   - 
Other income (expense), net  2.7   5.7   (3.0)  (6.2)  3.2 
 (Loss) income before income taxes  (17.4)  (19.0)  1.6   429.8   (428.2)
Benefit from income taxes  14.8   6.8   8.0   (55.1)  63.1 
     Net (loss) income $(2.6) $(12.2) $9.6  $374.7  $(365.1)


  2010     2009     2008    
Sales:                  
Wendy’s (a) $1,980.6     $2,035.2     $504.7    
Arby’s  966.2      1,064.1      1,131.4    
Bakery and kids’ meal promotion items
   sold to franchisees
  98.5      99.0      26.2    
Total sales $3,045.3     $3,198.3     $1,662.3    
                      
                      
Cost of sales:     
% of Sales
      
% of Sales
      
% of Sales
 
Wendy’s (a)                     
Food and paper $638.8   32.2%  $654.1   32.2%  $175.6   34.8% 
Restaurant labor  590.0   29.8%   615.2   30.2%   152.7   30.2% 
Occupancy, advertising, and other operating
    costs
   458.6   23.2%   462.2   22.7%   117.4   23.3% 
Total Wendy’s cost of sales  1,687.4   85.2%   1,731.5   85.1%   445.7   88.3% 
                         
Arby’s                        
Food and paper  265.1   27.4%   290.6   27.3%   322.8   28.5% 
Restaurant labor  317.7   32.9%   332.8   31.3%   339.6   30.0% 
Occupancy, advertising, and other operating
     costs
   271.0   28.1%   293.0   27.5%   287.3   25.4% 
Total Arby’s cost of sales  853.8   88.4%   916.4   86.1%   949.7   83.9% 
                         
Bakery and kids’ meal promotion items sold to
     franchisees
   69.6   n/m   80.5   n/m   20.1   n/m 
Total cost of sales $2,610.8   85.7%  $2,728.4   85.3%  $1,415.5   85.2% 
                         

38
  2010  2009  2008 
Margin $:         
Wendy’s (a)$ 293.2 $303.7 $ 59.0 
Arby’s 112.4  147.7  181.7 
Bakery and kids’ meal promotion items sold to franchisees 28.9  18.5  6.1 
Total margin$ 434.5 $469.9 $ 246.8 
          
Restaurant margin %:         
Wendy’s (a) 14.8%  14.9%  11.7% 
Arby’s 11.6%  13.9%  16.1% 
Total restaurant margin % 13.8%  14.6%  14.7% 
          
Franchise revenues:         
Wendy’s (a)$296.4 $302.8 $ 74.6 
Arby’s 74.7  79.7  85.9 
Total franchise revenues$371.1 $382.5 $ 160.5 
          
Depreciation and amortization:         
Wendy’s (a)$ 113.1 $128.0 $ 23.8 
Arby’s 55.3  56.2  61.2 
Shared services center 11.9       4.3         - 
Total depreciation and amortization Wendy’s/Arby’s Restaurants 180.3         188.5           85.0 
Corporate 1.9  1.8          3.3 
Total depreciation and amortization Wendy’s/Arby’s$ 182.2 $190.3 $ 88.3 
          
Impairment of long-lived assets:         
Wendy’s (a)$ 26.3 $23.5 $ 1.6 
Arby’s 43.1  56.5     8.0 
Total impairment of long-lived assets Wendy’s/Arby’s Restaurants 69.4  80.0           9.6 
Corporate -            2.1       9.6 
Total impairment of long-lived assets Wendy’s/Arby’s$ 69.4 $82.1 $ 19.2 
          
Other operating expense, net:         
Wendy’s (a)$ 3.5 $2.4 $ 0.7 
Arby’s 1.7      0.8         - 
Total other operating expense, net Wendy’s/Arby’s Restaurants 5.2      3.2      0.7 
Corporate (0.2)  1.1         - 
Total other operating expense, net Wendy’s/Arby’s$ 5.0 $4.3 $ 0.7 
Operating profit (loss), net:         
Wendy’s (a), (b)$ 204.9 $167.8 $ 30.8 
Arby’s (50.7) (29.2)  (395.3) 
Shared services center (11.9)  (8.6)            - 
Total operating profit (loss), net Wendy’s/Arby’s Restaurants 142.3       130.0       (364.5) 
Corporate (9.9)  (18.0)      (49.1) 
Total operating profit (loss), net Wendy’s/Arby’s$ 132.4 $112.0 $ (413.6) 


39
 


Restaurant Statistics: 
Wendy’s same-store sales (a):2009 Fourth Quarter 2008  
North America Company-owned restaurants(1.7)% 3.6%  
North America franchise restaurants(0.3)% 3.8%  
North America systemwide(0.7)% 3.7%  
        
    
Arby’s same-store sales:2009 2008 2007  
North America Company-owned restaurants(8.2)% (5.8)% (1.3)%  
North America franchised restaurants(9.0)% (3.6)% 1.1%  
North America systemwide(8.8)% (4.3)% 0.3%  
  
Restaurant Margin:   
 2009 Fourth Quarter 2008  
Wendy’s (a)            14.9% 11.7%  
      
             2009 2008           2007 
Arby’s             13.9% 16.1%          19.7% 
Restaurant count:
 
Company-owned
 
 
Franchised
 
 
Systemwide
Wendy’s restaurant count (a):     
Restaurant count at September 29, 20081,404  5,221 6,625
Opened since September 29, 20086 32 38
Closed since September 29, 2008(5)  (28) (33)
Net purchased from (sold by) franchisees since September 29, 20081 (1) -
Restaurant count at December 28, 20081,406 5,224 6,630
Opened10 53 63
Closed(13)    (139) (152)
Net (sold to) purchased by franchisees(12)    12 -
Restaurant count at January 3, 20101,391 5,150 6,541
      
Arby’s restaurant count:     
Restaurant count at December 30, 20071,106 2,582 3,688
Opened40 87 127
Closed (15)    (44) (59)
Net purchased from (sold by) franchisees45 (45) -
Restaurant count at December 28, 20081,176    2,580 3,756
Opened5 54 59
Closed (23)    (74) (97)
Net purchased from (sold by) franchisees11 (11) -
Restaurant count at January 3, 20101,169    2,549 3,718
Total Wendy’s/Arby’s restaurant count at
January 3, 2010
2,560 7,699 10,259
(Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants)

 2009 2008 2007
 (52 weeks)    
Company-owned average unit volumes:(in thousands)
Wendy’s – North America$      1,421.9 $       1,452.9 $    1,436.7
Arby’s – North America$         896.7 $          966.9 $    1,016.0
Restaurant statistics:    Fourth Quarter 
    Wendy’s same-store sales:2010 2009 2008 
North America company-owned restaurants(1.7)% (1.7)% 3.6% 
North America franchised restaurants(0.3)% (0.3)% 3.8% 
North America system wide(0.6)% (0.7)% 3.7% 
       
    Arby’s same-store sales:2010 2009 2008 
North America company-owned restaurants(7.1)% (8.2)% (5.8)% 
North America franchised restaurants(5.2)% (9.0)% (3.6)% 
North America system wide(5.8)% (8.8)% (4.3)% 


Restaurant count:Company-owned Franchised Systemwide 
Wendy’s restaurant count:      
Restaurant count at December 28, 20081,406 5,224 6,630 
Opened10 53 63 
Closed(13)(139)(152)
Net (sold to) purchased by franchisees(12)12 - 
Restaurant count at January 3, 20101,391 5,150 6,541 
Opened9 69 78 
Closed(4)(39)(43)
Net (sold to) purchased by franchisees(2)2 - 
Restaurant count at January 2, 20111,394 5,182 6,576 
       
Arby’s restaurant count:      
Restaurant count at December 28, 20081,176 2,580 3,756 
Opened5 54 59 
Closed(23)(74)(97)
Net purchased from (sold by) franchisees11 (11)- 
Restaurant count at January 3, 20101,169 2,549 3,718 
Opened- 44 44 
Closed(17)(96)(113)
Net (sold to) purchased by franchisees(8)8 - 
Restaurant count at January 2, 20111,144 2,505 3,649 
                   Total restaurant count at January 2, 20112,538 7,687 10,225 

 2010 2009 2008 
   (52 weeks)   
Company-owned average unit volumes:  
Wendy’s – North America (a)$1,417.8 $1,421.9 $1,452.9 
Arby’s – North America$838.4 $896.7 $966.9 
________________
 (a)Wendy’s data for 2008, other than average unit volumes, is only for the period commencing with the September 29, 2008 merger date through the end of the fiscal year.
(b)Wendy’s “Operating profit (loss), net” includes the margin dollars for the bakery and kids’ meal promotion items sold to franchisees.


3340
 

Sales
 Change 
Sales   
 2009  2008  Change 
 (in millions)  2010  2009 
      
Wendy’s $1,603.3  $530.8  $(54.6) $1,530.5 
Arby’s  (67.3)  18.1   (97.9)  (67.3)
Bakery and kids’ meal promotion items sold to franchisees  (0.5)  72.8 
 $1,536.0  $548.9  $(153.0) $1,536.0 

The increasedecrease in sales in both 2009 and 20082010 was primarily duedriven by one less week of sales when compared to the Wendy’s Merger. In addition, sales2009.  Sales for the 53rd week in 2009 for Wendy’s and Arby’s were $35.3 million and $15.9 million, respectively.  In addition, sales in 2010 were negatively impacted by the decline in Wendy’s and Arby’s North America company-owned same-store sales of 1.7% and 7.1%, respectively.  Wendy’s and Arby’s North America company-owned same-store sales for both 2010 and 2009 were impacted by the generally negative economic trends and competitive pressures described in “Introduction and Executive Overview – Our Business.”

Wendy’s North America Company-ownedcompany-owned same-store sales for 2010 decreased primarily due to a 1.9% decline in the number of customer transactions in 2010 as compared to 2009. Wendy’s Canada company-owned same-store sales decreased $5.9 million primarily due to an increase in value added sales tax in certain Canadian provinces in the third quarter of 2010.  The negative factors impacting Wendy’s sales were partially offset by (1) a $22.4 million positive impact from foreign currency translation for the year ended January 2, 2011 as compared to the prior year, and (2) an approximate 1% blended price increase taken primarily in late 2009.  Wendy’s locations sold or closed during or subsequent to the year ended January 3, 2010 resulted in a reduction in sales of $16.7 million for 2010, which was pa rtially offset by incremental sales of $11.0 million in the year ended January 2, 2011 from new stores opened during fiscal 2009 and 2010.

The increase in sales in 2009 was primarily due to the Wendy’s Merger.  Wendy’s North America company-owned same-store sales for 2009, excluding the impact of fewer restaurants serving breakfast in 2009 as compared to 2008 and the effect of the 53rd week in 2009, would have decreased approximately 0.3%. In 2009, Arby’s sales decrease was primarily attributable to the 8.2% decrease in

Arby’s North America Company-ownedcompany-owned same-store sales.  In 2008,sales for 2010 were impacted by the effects of (1) a decrease of 8.3% in our average per customer check amount primarily as a result of the expansion in 2010 of Arby’s saleseveryday value strategy, (2) a decrease of approximately 1.2% due to certain in-store promotional discounts that increased customer traffic during 2009, which did not recur in 2010, and (3) a reduction in advertising expenditures during 2010.  These negative factors were somewhat mitigated by a 1.2% increase was attributablein the number of customer transactions in 2010 as compared to 2009 primarily driven by expansion of our everyday value strategy.  Transaction trends have improved since the end of 2009, with the most significant increase in the fourth quarter of 2010 as compared to the $80.0 m illion increasesame period in sales from2009.   Arby’s locations sold or closed during or subsequent to the 70 net Arby’s North America Company-owned restaurants added in 2008 as substantially offset by a $61.9 million decrease in sales due to a 5.8% decrease in Arby’s North America Company-owned same-store sales.  Of the 45 net restaurants acquired from franchisees in 2008, 41 are in the California market (the “California Restaurants”) and were purchased from a franchisee on12 months ended January 14, 2008 (the “California Restaurant Acquisition”).  The California Restaurants3, 2010 generated approximately $36.0$10.4 million of sales in 2008.that period, which was partially offset by sales of $8.0 million in the year ended January 2, 2011 from stores acquired from a franchisee during the first quarter of 2010.

In 2009, and 2008 Arby’s North America Company-ownedcompany-owned same-store sales were impacted bydecreased 8.2% primarily due to (1) a 7.0% decline in the restaurant industry trends, negative general economic trendsnumber of customer transactions in 2009 as compared to 2008, (2) a decrease of 1.2% in our average per customer check amount, and competitive pressures described in “Introduction and Executive Overview – Our Business.”  In addition, the 2009 Arby’s same-store sales were negatively impacted by(3) a decreasereduction in the number of national advertising campaigns; however,campaigns, which was somewhat mitigated by certain aggressive Arby’s value promotionsin-store promotional discounts.  These negative factors were partially mitigated this negative impact.offset by sales for the 53rd week in 2009 of $15.9 million.

Franchise Revenues
 Change 
Franchise Revenues   
 2009  2008  Change 
 (in millions)  2010  2009 
      
Wendy’s $228.2  $74.6  $(6.4) $228.2 
Arby’s  (6.2)  (1.1)  (5.0)  (6.2)
 $222.0  $73.5  $(11.4) $222.0 

The decrease in franchise revenues for 2010 was primarily due to the decline in Wendy’s and Arby’s North America franchised restaurant same-store sales of 0.3% and 5.2%, respectively.  The increase in franchise revenues in both 2009 and 2008 was primarily due to the Wendy’s Merger.  Franchise revenues for the 53rd week in 2009 for Wendy’s and Arby’s were approximately $4.8 million and $1.3 million, respectively.

Wendy’s North America franchised restaurant same-store sales for 2010 were impacted by the same factors described above for Wendy’s company-owned restaurants, although we believe price increases taken by certain franchised restaurants, which were not significantly impactedtaken by changesWendy’s company-owned restaurants, mitigated some of the decline in the number of restaurants serving breakfast in 2009.same-store sales.  Wendy’s franchised restaurant closings include 71 restaurants in Japan which closed at the expiration of the franchise agreement on December 31, 2009. Franchise revenues
Arby’s North America franchised restaurant same-store sales for 2010 were impacted by the 53rd weeksame factors discussed above for Arby’s company-owned restaurants, although Arby’s North America franchised restaurants in 2010 (1) were comparing to weaker
41


2009 for Wendy’ssales levels than at company-owned restaurants as a result of fewer in-store promotional discounts offered by franchisees during 2009, and Arby’s were approximately $4.8 million(2) had a higher check average as a result of pricing and $1.3 million, respectively. menu mix as compared to company-owned restaurants.

The decrease in Arby’s franchise revenues in 2009 was primarily attributable to the 9.0% decrease in same-store sales for North America franchised restaurants.  The 2008 decrease was primarily attributable to the effect of the January 2008 acquisition of the California Restaurants whereby previously franchised restaurants became Company-owned and the 3.6% decrease in same-store sales for Arby’s franchised restaurants.

In 2009 and 2008, same-store sales of our Arby’s franchised restaurants were negatively impacted by the same industry and economic factors mentioned above.  In addition, in 2009, the franchised restaurants were disproportionately negatively affected by less national media advertising as certain underpenetrated franchise markets did not have sufficient local media advertising to offset the decrease in national advertising.  In 2008, however,


Cost of Sales 
 Change
 2010 2009
    
Wendy’s0.1% points (3.2)% points
Arby’s2.3% points  2.2 % points
Consolidated0.4% points 0.1 % points

Wendy’s North America company-owned restaurant cost of sales remained relatively flat as a percentage of sales in 2010 as compared to 2009.  The increase in occupancy, advertising, and other operating expenses of 0.5% points in 2010 as compared to 2009, was mostly offset by a decrease in restaurant labor costs of 0.4% points for the use of incremental national mediasame comparable periods.  The increase in occupancy, advertising, had a positive effect onand other operating expenses was due to increases in utilities, credit and debit card fees, and insurance expenses, combined with an increase in advertising expenses associated with the Arby’s franchised restaurants which slightly offset the negative impactlaunch of the industrybrand’s breakfast daypart in certain test markets.  The decrease in Wendy’s restaurant labor costs in 2010 as compared to 2009 was primarily due to a 0.5% point decrease in incentive compensation e xpense and economica 0.3% point decrease in salaries and wages which was the result of the approximate 1% blended price increase taken primarily in late 2009, partially offset by a 0.4% point increase due to the deleverage effect of the decline in Wendy’s same-store sales without similar reductions in fixed and semi-variable costs.  Food and paper costs were unchanged as a percent of sales in 2010 as compared to 2009.   These costs were impacted by a 0.6% point increase in commodity costs primarily in the second half of 2010, which was offset by a 0.3% point decline in food costs from the approximate 1% blended price increase taken primarily late in 2009 and by 0.3% points from other individually insignificant factors discussed above.

Restaurant Margin
 2009 2008 2007
 AmountChange AmountChange Amount
        
Wendy’s14.9%N/A      11.7% (a)N/A N/A
Arby’s13.9%(2.2) ppt 16.1%(3.6) ppt 19.7%
Consolidated14.6%(0.2) ppt 14.7%(5.0) ppt 19.7%
        
________
(a) The 2008 Wendy’s restaurant margin includes only the 2008 fourth quarter.
which comprised the remainder of the offset.


34

The percentage increasedecrease in the Wendy’s North America company-owned restaurant margincost of sales in 2009 as compared to the fourth quarter of 2008 was primarily attributable to improvements in restaurant labor costs and certain controllable costs,occupancy, advertising, and other operating expenses, partially due to ongoing operational improvements and the effect of price increases in 2009.  As a percent of sales, the impact of the 53rd week in 2009 on cost of sales was not material.

As a percentage of sales, Arby’s North America company-owned restaurant cost of sales increased in 2010 as compared to 2009 primarily due to higher restaurant labor costs and occupancy, advertising, and other operating expenses, and to a lesser extent an increase in food and paper costs.  Restaurant labor costs and occupancy, advertising, and other operating expenses were mainly affected by increases of 1.3% points and 1.0% points, respectively, due to the deleverage effect of the decline in Arby’s same-store sales without similar reductions in fixed and semi-variable costs excluding advertising.  These increases were offset, in part, by a 0.5% point decrease in advertising expenditures.  The increase in food and paper costs was comprised principally of a 0.7% point increase in commodity costs primarily in the second half of 2010, partially offset by a 0.6% point decrease related to certain in-store promotional discounts offered during 2009, which did not recur during 2010.

The percentage decreaseincrease in the Arby’s North America company-owned restaurant margincost of sales in 2009 as compared to 2008 was primarily attributable to higher restaurant labor and occupancy, advertising, and other operating costs due to the effect of the decrease in Arby’s same-store sales without comparable reductions in fixed and semi-variable costs, and higher food and paper costs related to the targeted product discounting of a number of Arby’s menu items which was partially offset by decreases in commodity costs.  TheAs a percent of sales, the impact of the 53rd week in 2009 on restaurant margincost of sales was not material for either br and.material.

42



General and Administrative   
  2010 Change 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Wendy’s/Arby’s support services costs $(34.1) $34.1  $- 
Purchasing co-op start-up costs  (10.4)  -   (10.4)
Integration costs related to the Wendy’s Merger  (7.5)  (3.6)  (11.1)
Legal fees  (6.1)  (1.0)  (7.1)
Incentive compensation  (4.7)  (2.4)  (7.1)
Compensation  9.8   (15.4)  (5.6)
Franchise incentives  4.7   -   4.7 
Professional services  5.0   (2.5)  2.5 
Severance  2.3   (0.1)  2.2 
401(k) expense  2.5   (0.7)  1.8 
Services agreements  -   (2.8)  (2.8)
Other, net  4.2   (7.4)  (3.2)
  $(34.3) $(1.8) $(36.1)


  2009 Change 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Wendy’s Merger $145.5  $16.2  $161.7 
Wendy’s/Arby’s support services costs  34.1   (34.1)  - 
Wendy’s Co-op Agreement  15.5   -   15.5 
Integration costs related to the Wendy’s Merger  11.1   3.2   14.3 
Incentive compensation  8.9   0.8   9.7 
Provision for doubtful accounts  6.5   -   6.5 
Management services agreement  6.5   (6.5)  - 
Salaries and wages  (1.9)  5.9   4.0 
Services agreements  -   (5.3)  (5.3)
Aircraft expenses  -   (2.1)  (2.1)
Other, net  3.3   (3.6)  (0.3)
  $229.5  $(25.5) $204.0 


(Wendy’s/Arby’s)

The percentage decrease in general and administrative expenses in 2010 was primarily related to (1) the Arby’s restaurant marginnon-recurrence in 20082010 of the amounts recorded in the 2009 fourth quarter as a result of the Wendy’s Co-op Agreement, (2) declines in Wendy’s-related integration costs resulting from the completion of integration efforts in early 2010, (3) reductions in legal reserves for matters accrued in prior years, (4) decreases in incentive compensation accruals due to lower operating performance as compared to 2007plan in 2010 versus 2009, (5) reductions in staffing at our shared services center in Atlanta, Georgia, and the formation of the Wendy’s Co-Op in 2009, and (6) declines in fees under our related party services agreement that was due torenegotiated in June 2009.  The decreases were partially offset by (1) the effect of the decreasecosts incurred in Arby’s same-store sales without comparable reductions in fixed and semi-variable costs, (2) higher utilities, (3) fuel costs under new distribution contracts that became effective in the third quarter of 2007, (4) increased advertising which was anticipated to generate additional customer traffic but did not, (5) an increase in labor costs primarily due2010 related to the effectformation of Federal and state minimum wageSSG, (2) increases in 2008franchise incentives offered in conjunction with the Wendy’s remodeling program, (3) increases in professional services fees associated primarily with information technology projects, (4) increases in severance costs related to the termination of certain senior Arby’s executives, and (6) higher cost of beef and other commodities.

General and Administrative
  Change 
  2009  2008 
  (in millions) 
       
Wendy’s Merger $145.5  $79.5 
Wendy’s/Arby’s support services costs  34.1   - 
Wendy’s Co-op Agreement  15.5   - 
Integration costs related to the Wendy’s Merger  11.1   1.9 
Incentive compensation  8.9   (7.3)
Provision for doubtful accounts  6.5   0.5 
Management services agreement  6.5   (6.2)
Salaries and wages  (1.9)  4.5 
Other  3.3   3.5 
  $229.5  $76.4 
(5) increased 401(k) expense associated with certain legacy Wendy’s plans that have since been merged into the Wendy’s/Arby’s plan.

The increases for 2009 were primarily due to the effects of the Wendy’s Merger, as well as increases in (1) integration costs related to the Wendy’s Merger and (2) salaries and wages due to staffing and other expenses associated with the establishment of the shared services center in Atlanta, Georgia.  Our 2009 general and administrative expenses were also significantly impacted by (1) required future payments expensed in the 2009 fourth quarter as a result of the Wendy’s Co-op Agreement, (2) increases in incentive compensation accruals due to stronger operating performance versus plan in 2009 than in 2008, and (3) an increase in the provision for doubtful accounts primarily associated with the collectability of Arby’s franchise receivables.  The 2009 increases in general and administrative expenses were partially offset by (1) a decrease in fees under the services agreement with the Management Company and (2) a decrease in costs associated with our corporate aircraft agreements with the Principals and the Management Company and the sale of one of the aircraft in 2009.

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(Wendy’s/Arby’s Restaurants)

The decrease in general and administrative expenses in 2010 was primarily related to (1) Wendy’s/Arby’s support services costs charged to Wendy’s/Arby’s Restaurants during the first quarter of 2009, which were incurred directly by Wendy’s/Arby’s Restaurants after the 2009 first quarter, (2) the non-recurrence in 2010 of the amounts recorded in the 2009 fourth quarter as a result of the Wendy’s Co-op Agreement, (3) declines in Wendy’s-related integration costs resulting from the completion of integration efforts in early 2010, (4) reductions in legal reserves for legal matters accrued in prior years, and (5) decreases in incentive compensation accruals due to lower operating performance as compared to plan in 2010 versus 2009.  The decreases were partially offset by (1) the cost s incurred in 2010 related to the formation of SSG, (2) increases in compensation costs as 2009 first quarter compensation costs were included in the Wendy’s/Arby’s support services charge, (3) increases in franchise incentives offered in conjunction with the Wendy’s remodeling program, (4) increases in professional services fees associated primarily with information technology projects, (5) increases in severance costs related to the termination of certain senior Arby’s executives, and (6) increased 401(k) expense associated with certain legacy Wendy’s plans that have since been merged into the Wendy’s/Arby’s plan.

The increases for 2009 were primarily due to the Wendy’s Merger.  Our 2009 general and administrative expenses were also significantly impacted by (1) Wendy’s/Arby’s support services costs charged to usWendy’s/Arby’s Restaurants during the first quarter of 2009, which were incurred directly by Wendy’s/Arby’s Restaurants after the 2009 first quarter, (2) required future payments expensed in the 2009 fourth quarter as a result of the Wendy’s Co-op Agreement, (3) integration costs related to the Wendy’s Merger, which were approximately $13.0 million in 2009, (4) increases in certain incentive compensation accruals due to stronger consolidated operating performance versus plan in 2009 as compared to weaker consolidated operating performance versus planthan in 2008, (5) an increase in the provision for doubtful accounts primarily associated with the collectability of Arby’s franchiseefranchise receivables, and (6) a 2009 increase in fees related to the 2005 ARGArby’s management services agreement with Wendy’s/Arby’s as compared to a 2008 net credit in fees in the prior year due to the reimbursement of certain costs from Wendy’s/Arby’s to Wendy’s/Arby’s Restaurants.


Depreciation and Amortization   
  Change 
  2010  2009 
       
Wendy’s restaurants, primarily properties $(14.9) $104.2 
Arby’s restaurants, primarily properties  (0.9)  (5.0)
Shared services center assets  7.6   4.3 
Total Wendy’s/Arby’s Restaurants  (8.2)  103.5 
Corporate  0.1   (1.5)
Total Wendy’s/Arby’s $(8.1) $102.0 

The 2010 decrease in depreciation and amortization was primarily related to (1) an adjustment of $6.5 million in the Company in 2008.  Our 2008 general and administrative expenses were also impacted by anprior year related to a one-time increase in salaries and wagesdepreciation as a result of refinements to the increaseWendy’s purchase price allocation (including long-lived assets) and (2) a reduction in employees at our corporatedepreciation related to Wendy’s and regional offices as well as increases in existing employee salaries.  The 2008 increases in general and administrative expensesArby’s previously impaired long-lived assets. These decreases were partially offset by (1) a decreaseincreases in incentive compensation accruals due to weaker consolidated operating performance versus planthe amortization of software and related costs capitalized in 2008 as compared to our operating performance versus plan in 2007 and (2) a 2008 decrease in managementconnection with the establishment of the shared services fees due to reimbursement of certain costs by Wendy’s/Arby’s to the Company, as such reimbursements did not o ccur in 2007.


Depreciation and Amortization
  Change 
  2009  2008 
  (in millions) 
       
Wendy’s restaurants, primarily properties $104.2  $23.8 
Arby’s restaurants, primarily properties  (5.0)  4.3 
Shared services center assets  4.3   - 
  $103.5  $28.1 
center.

The 2009 and 2008 increases wereincrease was primarily related to the increase in long-lived assets as a result of the Wendy’s Merger. The 2009 increase was also affected by a $6.5 million one-time increase in depreciation as a result of refinements to the Wendy’s purchase price allocation (including long-lived assets) which was recorded in the 2009 first quarter and by an increase in the amortization of capitalized software related to the Wendy’s Merger integration and the establishment of the shared services center, in Atlanta, Georgia.both as discussed above.  These 2009 increases were partially offset by the reduction in depreciation of Arby’s long-lived assets for which we have recordedrelated to impairment charges. The 2008 increase was also affected by the increase in long-lived assets as a result of the California Restaurant Acquisition and other new and remodeled units.charges previously recorded.

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Goodwill Impairment

We operate in two business segments consisting of two restaurant brands: (1) Wendy’s restaurants and (2) Arby’s restaurants. Each segment includes reporting units for Company-ownedcompany-owned restaurants and franchise operations for purposes of measuring goodwill impairment.

We performed our annual goodwill impairment test in the fourth quarters of each of the fiscal years presented. As a result of our testing, we concluded that the fair value of the Wendy’s reporting units in 2009 and 2008 and the Arby’s franchise reporting unit in all three years exceeded their respective carrying amounts. In 2008, as a result of the acceleration of the general economic and market downturn, as well as continued decreases in Arby’s same storesame-store sales, we concluded that the carrying amount of the Arby’s Company-ownedcompany-owned restaurant reporting unit exceeded its fair value.  Accordingly, we recorded impairment charges of $460.1 million in 2008.  As of the end of 2009 and 2008, we did not have any goodwill recorded for our Arby’s Company-owned restaurants reporting units.  There was n o impairment of the Arby’s Company-owned restaurants reporting unit in 2007.
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Impairment of Other Long-Lived Assets
Impairment of Long-Lived Assets   
 Change  Change 
 2009  2008  2010  2009 
 (in millions)    
      
Wendy’s restaurants, primarily properties at underperforming locations $2.8  $21.9 
Arby’s restaurants, primarily properties at underperforming locations $48.5  $5.4   (13.4)  48.5 
Wendy’s restaurants, primarily properties at underperforming locations  21.9   1.6 
 $70.4  $7.0 
Total Wendy’s/Arby’s Restaurants  (10.6)  70.4 
Corporate, aircraft  (2.1)  (7.5)
Total Wendy’s/Arby’s $(12.7) $62.9 

The increasesincrease in charges for impairment of Wendy’s long-lived assets in 2010 was primarily the result of the deterioration in operating performance of certain Wendy’s company-owned restaurants.  The decline in Arby’s company-owned restaurants impairment was primarily due to the level of impairment charges taken in prior periods.  On a consolidated basis, the decline in Arby’s-related impairment charges more than offset the increase in Wendy’s-related impairment charges.  Wendy’s/Arby’s impairment charges were further impacted by impairment recorded in 2009 related to one of our corporate aircraft which did not recur in 2010.  The aircraft was classified as held for sale in the 2009 second quarter and sold in July 2009.

The 2009 increase in charges for the impairment of other long-lived assets was primarily the result of the deterioration in operating performance of certain Wendy’s (in 2009 only) and Arby’s restaurants (for all years presented).

Facilities Relocation and Restructuring

Facilities relocation and restructuring costs forrestaurants.  As discussed above, Wendy’s/Arby’s also recorded impairment on one of their corporate aircraft during 2009, and 2008 primarily represent Wendy’s severance costs.
but to a lesser extent as compared to impairment charges recorded in 2008.

Interest Expense
Interest Expense   
  Change 
  2010  2009 
    
Senior Notes $28.9  $32.0 
Term Loan  2.6   (11.2)
Wendy’s debt  (10.5)  31.6 
Amortization of deferred financing costs  (6.5)  6.1 
Wendy’s interest rate swaps  (5.0)  - 
Arby’s debt  (0.6)  1.1 
Other  1.9   (1.1)
Total Wendy’s/Arby’s Restaurants  10.8   58.5 
Corporate debt  (0.5)  0.8 
Other  0.2   0.4 
Total Wendy’s/Arby’s $10.5  $59.7 
  Change 
  2009  2008 
  (in millions) 
       
Senior Notes $32.0  $- 
Wendy’s debt  31.6   10.7 
Financing cost  6.1   1.8 
Arby’s debt  1.1   3.3 
Senior secured term loan  (11.2)                (9.2)
Other  (1.1)  1.1 
  $58.5  $7.7 

The increase in interest expense in 2010 was principally affected by (1) the full year impact in 2010 of interest on the Senior Notes issued in June 2009, and (2) higher principal amounts outstanding during 2010 under the Term Loan than were outstanding during 2009 under the prior Arby’s credit agreement as partially offset by the lower effective interest rate of the Term Loan as compared to the prior Arby’s credit agreement.  These increases in interest expense were partially offset by (1) the redemption of the Wendy’s 6.25% senior notes in the second quarter of 2010 as further described in “Liquidity and Capital Resources – Long-term Debt – Credit Agreement” below, (2) the effect of the 2009 first half write-off of deferred debt costs relating to prepayments on the term loan under the prior Arby’s credit agreement, and (3) a favorable impact of interest rate swaps on the Wendy’s 6.20% and 6.25% senior notes entered into during 2009 and 2010.  This favorable impact included a $1.9 million gain on the cancellation of the swaps related to the Wendy’s 6.25% senior notes in connection with the redemption of those notes in the second quarter of 2010.

The 2009 increase in interest expense was principally affected by interest on the Senior Notes issued in June 2009, as discussed below under “Liquidity and Capital Resources – Senior Notes” as well as the full year impact in both 2009 and 2008,of interest expense on debt assumed as a result ofin the Wendy’s Merger.  Excluding the effect of the Senior Notes issuance and the effect of the Wendy’s debt assumed, the decrease in 2009 interest expense was primarily due to a net decrease in the senior secured term loan interest expense as a result of significant voluntary prepayments, partially offset by the write-off of financing costs related to these prepayments as discussed above and an increase in the interest rate on such loan.  See

Loss on Early Extinguishment of Debt

The loss on early extinguishment of debt in 2010 of $26.2 million consisted of (1) a $15.0 million premium payment required to redeem the Wendy’s 6.25% senior notes as discussed below in “Liquidity and Capital Resources – Senior Secured Term Loan” belowLong-term Debt – Credit Agreement,” (2) $5.5 million for further discussion.  Excluding the effectwrite-off of the unaccreted discount of the Wendy’s Merger on6.25% senior notes (recorded in connection with the 2008 fourth quarter,Wendy’s Merger), and (3) $5.7 million for the decrease inwrite-off of deferred costs associated with the 2008 expense was primarily due to a decrease in interest expense due to voluntary prepaymentsrepayment of theWendy’s/Arby’s Restaurants prior senior secured term loan as welldiscussed below in “Liquidity and Capital Resources – Long-term Debt – Credit Agreement.”

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Investment Income (Expense), Net   
    
(Wendy’s/Arby’s)   
  Change 
  2010  2009 
       
DFR Notes $4.9  $- 
Withdrawal Fee  5.5   (5.5)
Recognized net gains  (1.7)  (4.5)
Interest income  (0.2)  (1.0)
Other  (0.3)  (1.4)
  $8.2  $(12.4)

The increase in investment income primarily related to (1) the recognition of income on the DFR Notes as discussed above in “Introduction and Executive Overview – Deerfield,” and (2) an early withdrawal fee incurred in 2009 that did not recur in 2010.  These increases were partially offset by net investment gains recognized in the prior year that did not recur in 2010.  As of January 2, 2011, our remaining investments include a joint venture investment and certain cost investments.

Our 2009 net gains included realized gains on available-for-sale securities and cost method investments and unrealized and realized gains on derivative instruments.  The change in our recognized net gains in 2009 was primarily due to: (1) $2.8 million of net unrealized and realized losses on swap derivatives held in 2008, (2) $2.3 million of net gains that were realized upon the Equities Sale, and (3) a $2.2 million decrease in net realized losses on available for sale securities held in 2008, as offset by (1) a $9.0 million decrease in net unrealized and realized gains on securities sold short which were held in 2008, (2) $1.2 million of realized losses on securities sold short in 2009, (3) $0.8 million decrease in unrealized gains on put and call option derivatives that were sold in 2009, and (4) $0.8 million decrease in g ains from the variable interest ratessale of cost method investments.  The Withdrawal Fee relates to the fee paid to the Management Company for the Equities Sale as discussed in “Introduction and Executive Overview – Related Party Transactions - Equities Account.”


Other Than Temporary Losses on Investments   
    
(Wendy’s/Arby’s)   
  Change 
  2010  2009 
       
  Cost method investments $(3.1) $(7.2)
  Available-for-sale securities, including CDOs  (0.8)  (12.3)
  DFR common stock  -   (68.1)
  DFR Notes  -   (21.2)
  $(3.9) $(108.8)

We did not recognize any other than temporary losses on our remaining investments during 2010.  As such the 2010 change reflects 2009 other than temporary losses on investments which did not recur in 2010.  Due to market conditions and other factors present during 2009 and 2008, we recorded other than temporary losses of $3.9 million and $112.7 million, respectively.  The following discussion highlights the activity related to changes in other than temporary losses on investments in 2009 as compared to 2007.2008.
·   Losses due to the reduction in value of our investments

Based on a review of our unrealized investment losses, we determined that the decreases in the fair value of certain of our investments in 2009 and 2008 were other than temporary due to the severity of the decline, the financial condition of the investee and the prospect for future recovery in the market value of the investment. Accordingly, we recorded other than temporary losses on certain common stock, certain available-for-sale securities, and certain cost method investments.

The 2009 decrease in losses due to the reduction in value of our investments was principally impacted by the non-recurring 2008 loss on our DFR common stock discussed in “Introduction and Executive Overview – Deerfield.”  In addition, 2009 losses on certain available-for-sale securities were not as significant due primarily to the Equities Sale in June 2009.  Losses in 2009 related to cost method investments were not as significant due to improved market conditions as compared to 2008.
·   Losses due to investment collectability

The 2009 decrease in losses due to investment collectability was impacted by the non-recurring allowance for doubtful collectability on the DFR Notes recorded in 2008, discussed above in “Introduction and Executive Overview – Deerfield.”
3646
 

·  Losses due to illiquidity
The 2009 decrease in losses due to illiquidity was due to the 2008 write-down of $8.5 million on our then entire cost method investment in Jurlique International Pty Ltd, a privately-held Australian upscale skin care company (“Jurlique”) that did not recur in 2009.
Benefit from Income Taxes
Benefit from Income Taxes            
 Change  Change 
 2009  2008  Wendy’s/Arby’s  Wendy’s/Arby’s Restaurants 
 (in millions)  2010  2009  2010  2009 
                  
Federal and state benefit (provision) on variance in (loss) income from continuing operations before tax $(156.7) $172.6  $(3.3) $(200.8) $7.3  $(156.7)
Foreign tax credits net of tax on distribution of foreign earnings  (9.2)  9.2   6.6   (9.2)  6.6   (9.2)
Recognition of tax benefit of state net operating losses as a result of dissolution of our captive insurance company  9.6   -   (9.6)  9.6   (9.6)  9.6 
Goodwill impairment  99.7   (99.7)  -   99.7   -   99.7 
Canadian tax rate changes  2.0   - 
DFR common stock  -   20.3   -   - 
Other  (0.5)  1.0   0.4   4.7   2.5   1.5 
 $(55.1) $83.1  $(5.9) $(75.7) $6.8  $(55.1)

Our income taxes in 2010, 2009 2008 and 20072008 were impacted by variations in (loss) income from continuing operations before tax adjusted for recurring items, such as non-deductible expenses, and state income taxes and adjustments related to prior year tax matters, as well as non-recurring, discrete items.  Discrete items may occur in any given year, but are not consistent from year to year.  Taxes changed as a result of discrete items of (1) the 2010 and 2008 tax benefit of foreign tax credits net of related taxes on the distribution of foreign earnings, (2) the 2009 tax benefit on recognizing previously unrecognized state net operating losses, net of valuation allowances, in connection with the dissolution of our captive insurance company, (2)(3) the 2008 tax provision on the impairment of goodwill as described above in “Goodwill̶ 0;Goodwill Impairment” as a result of non-deductible financial reporting goodwill in excess of tax goodwill and (3)(4) the 2008 tax benefitprovision on foreigna loss which is not deductible for tax cred its netpurposes in connection with the decline in value of our investment in the common stock of DFR and related taxes on the distribution of foreign earnings.declared dividend as described in “Introduction and Executive Overview – Deerfield”.


Income from Discontinued Operations, Net of Income Taxes   
    
(Wendy’s/Arby’s)   
  Change 
  2010  2009 
       
Income from discontinued operations before income taxes $(0.7) $0.5 
Income tax changes due to settlements of income tax matters  (1.1)  (0.6)
(Provision for) benefit from income taxes  0.2   (0.5)
  $(1.6) $(0.6)

The changes in the income from discontinued operations for 2010 and 2009 represent transactions in 2009 and 2008, respectively, related to the settlement of income tax and other matters from our former premium beverage and soft drink concentrate business and our former utility and municipal services and refrigeration business segments.


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Outlook for 20102011

Sales

We anticipate that certain of the negative factors described above which affected our 2009 Company-owned2010 company-owned same-store sales, including current restaurant industry-wide sales trends, the uncertain economic environment, high unemployment and competitive discounting, will continue to negativelyhave an impact on sales for 2010.2011. We expect that Wendy’s increasing emphasis on everyday value products, as well as anticipated menu mixsales will be favorably impacted by (1) product innovation, (2) expanding dayparts, and (3) modernizing our facilities.  We anticipate that Arby’s sales in 2010, which includes2011 will be favorably impacted by (1) our new brand positioning highlighted by a new marketing campaign, (2) the introduction of new premium products, will have a favorable impact on sales. In addition, we anticipate that Arby’s increasing emphasisand (3) continued focus on everyday value menu items will have a favorable impact on sales.value.  For 2010,2011, the net impact of new store openings and closings is not expected to have a significant impact on consolidated sales.

Franchise Revenues

We expect that the sales trends for franchised restaurants at Wendy’s and Arby’s will continue to be generally impacted by many of the same factors described above under “Sales.”  Due toArby’s franchise revenues may also be impacted by certain franchisees’ financial difficulties and the economic environment and potential franchise closures, contributions to Arby’s local advertising cooperatives may decrease. The decrease in local marketing activity should be offset by the increase in national media.closure of franchised restaurants.

Restaurant MarginCost of Sales

Except for the cost of commodities which is not expected to significantly impact the restaurant margins for Wendy’s and Arby’s in 2010, weWe expect that the other factors described above which affected restaurant margincost of sales for Company-ownedcompany-owned restaurants in 20092010 for the Wendy’s and Arby’s brandsbrand will continue to impact restaurant margincost of sales in 2010.  The2011.  In addition, we expect both Wendy’s restaurant margin is expectedand Arby’s cost of sales to be favorablynegatively impacted by a continuation of the cost controls implemented throughout 2009. We expect that the effect on Arby’s restaurant margins of the emphasis on everyday value menu items will be significantly offset by a reductiondue to an overall increase in other discounted product promotional activity.commodity costs.

General and Administrative

We expect that our general and administrative expenses will decrease in 2010 primarily as a result of the 2009 accrual for the formation of the Wendy’s Co-op as discussed in “Introduction and Executive Overview – Supply Chain Relationship Agreement,” which will not recur, a decrease in integration costs related to the Wendy’s Merger and continued merger-related synergies and other cost savings initiatives.


37
 

Depreciation and Amortization

We expect that our depreciation and amortization expenses will decreaseincrease in 20102011 primarily due to the additional depreciation that resulted from valuation adjustmentseffect on long-lived assets from the Wendy’s Merger, which was recorded in the 2009 first quarter and will not recur, and a reduction in depreciation of (1) capital expenditures at Wendy’s related to our continued remodeling of company-owned restaurants and Arby’s long-lived assets for which we have recorded impairment charges in 2009.

Facilities Relocationthe opening of new company-owned restaurants and Restructuring

We do not expect to incur additional facilities relocation and restructuring charges with respect to the Wendy’s Merger in 2010.(2) various capital projects.

Interest Expense

We expect that our interest expense for 20102011 will increasedecrease slightly compared to 20092010 primarily as a result of the full year effect of the redemption of the Wendy’s 6.25% senior notes and cancellation of related interest expense on the Senior Notes discussedrate swaps in “Liquidity and Capital Resources – Long-term Debt” and the effect of increased interest rates under our amended senior secured term loan.  These increases are expected to beMay 2010, partially offset by the effect onan increase in interest expense due to higher principal amounts outstanding during 2011 under the Term Loan than were outstanding during 2010 under the Term Loan issued in May 2010 and the prior Arby’s credit agreement prior to May 2010, and by the lower effective interest rate of the 2009 prepaymentTerm Loan as compared to the prior Arby’s credit agreement.  

Arby’s Strategic Alternatives

In January 2011, Wendy’s/Arby’s announced that it is exploring strategic alternatives for Arby’s, including a sale of the senior secured term loanbrand.  This process is in its early phases and there is no assurance as to any particular outcome.  To address uncertainties for our employees created by this process, Wendy’s/Arby’s has implemented a retention program; the full year effectpayment of a portion of which is conditioned on the interest rate swaps discussed in “Liquidity and Capital Resources – Derivatives.”sale of Arby’s.  While the process is pending, Arby’s will continue to execute its growth initiatives.



48

Liquidity and Capital Resources

SourcesFor each of Wendy's/Arby's and Uses ofWendy's/Arby's Restaurants, the following tables included throughout Liquidity and Capital Resources present dollars in millions.
Net Cash forProvided by Operating Activities

2010 Compared with 2009

Cash andNet cash equivalents (“cash”) totaled $538.9provided by operating activities for Wendy’s/Arby’s was $226.3 million atfor the year ended January 2, 2011 as compared to $298.8 million for the year ended January 3, 20102010.  Net cash provided by operating activities for Wendy’s/Arby’s Restaurants was $231.3 million for the year ended January 2, 2011 as compared to $63.1$321.7 million at December 28, 2008.  Forfor the year ended January 3, 2010.  The significant components, which accounted for the overall decreases in net cash provided by operating activities of $72.5 million and $90.4 million for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, respectively, for the year ended January 2, 2011 as compared to the year ended January 3, 2010 were as follows:

  Change 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
Accrued expenses and other current liabilities:         
Incentive compensation $(32.7) $0.2  $(32.5)
QSCC Co-op Agreement  (30.5)  -   (30.5)
Interest  (29.8)  0.4   (29.4)
Income taxes  4.5   (1.0)  3.5 
Accounts payable  38.4   (0.7)  37.7 
Tax sharing agreement  (28.9)  28.9   - 
Net (loss) income and non-cash adjustments, net  (13.0)  (16.4)  (29.4)
Other, net  1.6   6.5   8.1 
  $(90.4) $17.9  $(72.5)

The net decrease in the comparative operating cash providedflow principally resulted from (1) an increase in amounts paid under incentive compensation plans in 2010 versus 2009 for fiscal 2009 and fiscal 2008, respectively, combined with a decrease in the amounts accrued in 2010 as compared to 2009 due to lower operating performance, (2) the payment of start-up costs to QSCC in 2010 which were accrued in 2009, and (3) interest payments in 2010 primarily resulting from interest payments in January and July 2010 on the Senior Notes and a decrease in interest expense due to the redemption of the Wendy’s 6.25% senior notes in the second quarter of 2009, partially offset by an increase in interest expense accruals on the Senior Notes issued in June 2009.  The net decrease in comparative operating activities totaled $321.7 million,cash flow was partially offset by t he effect of the income tax benefit recorded in 2010 as compared to the provision for income taxes recorded in 2009 primarily due to variations in (loss) income before income taxes of our subsidiaries in 2010 and 2009. These changes were partially offset by the net impact of the following, which affected accounts payable:  (1) a decrease in the 2009 amounts payable for non-recurring items more typically included in accrued expenses rather than accounts payable with no comparable amounts in 2010, (2) a decrease in the volume of transactions processed as received from third parties, due in part to the decrease in sales in 2010 as compared to 2009, (3) a reduction in amounts paid to the Wendy’s national advertising cooperative in 2010 as compared to 2009 due to changes in the timing of royalty payments to them and a shift of product testing to the advertising co-op, and (4) amounts paid in 2009 associated with certain outstanding 2008 lease payments which did not recur in 2010.  Wendy& #8217;s/Arby’s Restaurants’ comparative operating cash flow was also impacted by an increase in amounts accrued in 2010 versus 2009 for Federal and state income taxes under a tax sharing agreement with Wendy’s/Arby’s, partially offset by 2009 tax payments under this agreement, which were settled in cash with Wendy’s/Arby’s.

Additionally, for the year ended January 2, 2011, the Companies had the following significant items:

sources and uses of cash other than from operating activities:
 ·Our net incomeProceeds from the term loan of $9.6$497.5 million;
 ·Depreciation and amortizationRepayments of $188.5 million;$250.8 million of Wendy’s/Arby’s Restaurants amended senior secured term loan;
 ·ImpairmentPayment of other long-lived assets charges$215.0 million, including a premium of $80.0 million;$15.0 million, to redeem the Wendy’s 6.25% senior notes;
 ·The write-offCash capital expenditures totaling $148.0 million, which included $50.1 million for the remodeling of restaurants, $10.9 million for the construction of new restaurants, and amortization of deferred financing costs of $15.8 million;$87.0 million for various capital projects;
 ·Distributions received from our investment in a joint ventureDeferred financing costs of $14.6$16.4 million;

(Wendy’s/Arby’s)

·Repurchases of Common Stock of $167.7 million, including commissions of $0.7 million and excluding $5.8 million of 2009 purchases that were not settled until 2010;
 ·Changes in operating assetsProceeds of $30.8 million, excluding interest, from the repayment and liabilities which resulted in a net usecancellation of cash of $3.4 million primarily due to a $1.3 million increase in accounts payable, accrued expenses and other current liabilities, a $1.9 million decrease in inventories and a $1.1 million decrease in prepaid expenses and other current assets, all offset by a $7.7 million increase in accounts and notes receivable.the DFR Notes;
·Dividend payments of $27.6 million; and


49

(Wendy’s/Arby’s Restaurants)

·Intercompany dividend payments of $443.7 million to Wendy’s/Arby’s.

The net cash used in continuing operations before the effect of exchange rate changes on cash was approximately $80.8 million and $341.8 million for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, respectively.

2009 Compared with 2008

Net cash provided by operating activities for Wendy’s/Arby’s was $298.8 million for the year ended January 3, 2010 as compared to $73.6 million for the year ended December 28, 2008.  Net cash provided by operating activities for Wendy’s/Arby’s Restaurants was $321.7 million for the year ended January 3, 2010 as compared to $101.0 million for the year ended December 28, 2008.  The significant components, which accounted for the overall increase in net cash provided by operating activities of $225.2 million and $220.7 million for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, respectively, for the year ended January 3, 2010 as compared to the year ended December 28, 2008 were as follows:

  Change 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
Accrued expenses and other current liabilities:
         
Incentive compensation $31.2  $7.5  $38.7 
Interest  32.5   (0.6)  31.9 
QSCC Co-op Agreement  15.4   -   15.4 
Key executive agreements  13.4   -   13.4 
Intercompany transactions  25.1   (25.1)  - 
Income taxes  (11.0)  5.2   (5.8)
Accounts payable  (67.1)  7.5   (59.6)
Tax sharing payment  47.0   (47.0)  - 
Net income (loss) and non-cash adjustments, net  132.4   57.3   189.7 
Other, net  1.8   (0.3)  1.5 
  $220.7  $4.5  $225.2 

The net increase in the comparative operating cash flow principally resulted from (1) an increase in amounts accrued under incentive compensation plans in 2009 due to higher operating performance as compared to plan in 2009 versus 2008, partially offset by amounts paid under the plans in 2009 versus 2008 for fiscal 2008 and 2007, respectively, (2) an increase in interest expense accruals on the Senior Notes issued in June 2009 and the debt assumed as a result of the Wendy’s Merger in September 2008, partially offset by interest payments in 2009 primarily for the debt assumed in the Wendy’s Merger, (3) amounts accrued during the 2009 fourth quarter related to funding start-up costs and other operating expenses for the QSCC without similar accruals in 2008, and (4) amounts paid in 2008 under key executive agreements assumed in the Wendy’s Merger.  These changes were partially offset by the net impact of the following, which affected accounts payable: (1) a decrease in the amounts payable for non-recurring items more typically included in accrued expenses rather than accounts payable, (2) a decrease in amounts payable for food costs in 2009 as compared to 2008 primarily due to lower commodity costs during the end of 2009 versus the end of 2008, (3) an accumulation of certain payables associated with Arby’s lease agreements which were accrued at the end of 2008 and paid in 2009, (4) an increase in amounts payable at the end of 2008 that were paid in 2009 related to the timing of receipt of vendor invoices, and (5) an increase in amounts paid to Wendy’s national advertising cooperative in 2009, combined with a decrease in amounts payable to the Wendy’s national advertising cooperative at the end of 2009 versus 2008.  In addition, the net increase in comparative operating a cash flow was partially offset by an increase in income tax payments in 2009 as compared to 2008.  Wendy’s/Arby’s Restaurants’ net increase in comparative operating cash flow was also impacted by (1) an increase in amounts accrued in 2009 versus 2008 for Federal and state income taxes under a tax sharing agreement with Wendy’s/Arby’s, combined with a decrease in tax payments made in 2008 versus 2009 under this agreement, and (2) a decrease in certain non-recurring intercompany transactions during 2008 which eliminate in the consolidation of Wendy’s/Arby’s.

Additionally, for the year ended January 3, 2010, wethe Companies had the following significant sources and uses of cash other than from operating activities:

 ·Proceeds of $607.5 million primarily from the issuance of the Senior Notes discussed below under “Long-term Debt”;
 ·Net repayments of other long-term debt of $209.5 million, including a prepayment of $132.5 million on our senior secured term loan;
 ·Cash capital expenditures totaling $101.9 million, includingwhich included $19.1 million for the remodeling of restaurants, $18.1 million for the construction of new restaurants, (approximately $18.1 million) and the remodeling of existing restaurants;$64.7 million for various capital projects;
 ·Deferred financing costs of $38.4 million;

(Wendy’s/Arby’s)

·Net investment proceeds of $38.1 million;
50
·Repurchases of Common Stock of $72.9 million, including commissions of $0.3 million and excluding $5.8 million of repurchases that were not settled until after year end;
 ·Dividend payments of $28.0 million; and

(Wendy’s/Arby’s Restaurants)

·Intercompany dividend payments of $115.0 million to Wendy’s/Arby’s.

The net cash provided by continuing operations before the effect of exchange rate changes on cash was approximately $502.6 million and $473.1 million.million for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, respectively.


38

Sources and Uses of Cash for 20102011

OurThe Companies’ anticipated consolidated cash requirements for continuing operations for 2010,2011, exclusive of operating cash flow requirements, consist principally of:
·  Cash capital expenditures of approximately $184 million as discussed below in “Capital Expenditures”;
·  Scheduled debt principal repayments aggregating $18 million;
·  Any potential business acquisitions or dispositions; and
·  The costs of any potential business acquisitions or financing activities.
 
(Wendy’s/Arby’s)

· Cash capital expenditures of·Quarterly cash dividends aggregating up to approximately $165.0$33.5 million as discussed below in “Capital Expenditures”“Dividends”;
·Potential dividends and fees, including $112.0repurchases of Common Stock of up to $250.0 million of dividends already paid to Wendy’s/Arby’s in 2010;
·  Scheduled debt principal repayments aggregating $16.2 million;
·  Scheduled payments of $14.3 million pursuant tounder the Co-op Agreement;
·  Severance payments of approximately $5.5 million related to our facilities relocation and restructuring accruals;currently authorized stock repurchase program; and
(Wendy’s/Arby’s Restaurants)

· The costs of any potential business acquisitions or financing activities.·Potential intercompany dividends and fees.

Based upon current levels of operations, wethe Companies expect that cash flows from operations and available cash will provide sufficient liquidity to meet operating cash requirements for at least the next twelve12 months.

Working Capital and Capitalization

Working capital, which equals current assets less current liabilities, was $344.7
  Year End 2010 
  
Wendy’s/Arby’s Restaurants
  Wendy’s/Arby’s 
       
Long-term debt, including current portion $1,559.7  $1,572.4 
Stockholders’ equity / Invested equity        
Common stock  -   47.0 
Additional paid-in capital  -   2,771.1 
Other capital  2,423.5   - 
Accumulated deficit  (499.5)  (412.5)
Advances to Wendy’s/Arby’s  (155.0)  - 
Common stock held in treasury  -   (249.5)
Accumulated other comprehensive income  7.7   7.1 
  $3,336.4  $3,735.6 

Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants’ total capitalization at January 2, 2011 decreased $123.6 million and $363.4 million from $3,859.2 million and $3,699.8 million, each respectively, at January 3, 2010 reflecting a current ratio, which equals current assets divided by current liabilities, of 1.7:1. Working capital at January 3, 2010 increased $488.4 million from a deficit of $143.7 million at December 28, 2008, primarily due to $321.7 million in net cash provided by continuing operating activities and $244.6 million in net cash provided by continuing financing activities.

Our total capitalization at January 3, 2010 was $3,699.8 million, consisting of invested equity of $2,197.9 million and long-term debt of $1,501.9 million, including current portion.  Our total capitalization at January 3, 2010 increased $355.3 million from $3,344.5 million at December 28, 2008 and was principally impacted by the following:

 ·The$412.2 millionThe net increase in long-term debt is principally due to the issuanceCredit Agreement entered into in May 2010 as further discussed below in “Long-term Debt - Credit Agreement” partially offset by the $250.8 million repayment of $565.0 million principal amount of Senior Notes less the $132.5 million prepayment on ourprior senior secured term loan;loan and $215.0 million from the redemption of the Wendy’s 6.25% senior notes;

(Wendy’s/Arby’s)

·   Repurchases of Common Stock of $173.5 million, including commissions of $0.7 million;
 ·Cash dividend paymentsdividends paid of $115.0 million to Wendy’s/Arby’s;$27.6 million;
 ·Net incomeloss of $9.6$4.3 million;

51
(Wendy’s/Arby’s Restaurants)

·   Intercompany cash dividend payments of $443.7 million to Wendy’s/Arby’s; and
 ·The components   Net loss of “Accumulated other comprehensive loss,” that are not included in the calculation of net income, of which $37.6 million principally reflects the currency translation adjustment for 2009.$2.6 million.


Long-term Debt
As of January 3, 2010
(in millions)
10.00% Senior Notes$                 551.8
Senior secured term loan251.5
6.20% senior notes204.3
6.25% senior notes193.6
Sale-leaseback obligations, excluding interest125.2
Capitalized lease obligations, excluding interest89.9
7% Debentures80.1
Other5.5
$              1,501.9
Long-term Debt  
  Year End
  2010
   
Senior Notes $553.3
Term Loan  495.2
6.20% senior notes  217.8
Sale-leaseback obligations, excluding interest  121.9
Capitalized lease obligations, excluding interest  86.7
7% Debentures  81.2
Other  3.6
Total Wendy’s/Arby’s Restaurants  1,559.7
6.54% aircraft term loan  12.7
          Total Wendy’s/Arby’s Group $1,572.4

DescribedExcept as described below, are thethere were no material changes to ourthe terms of any debt obligations during 2009.since January 3, 2010.  See Note 611 of the Consolidated Financial Statements and Supplementary Data contained in Item 8 of this document for more information related to our long-term debt obligations.

Senior Notes
Credit Agreement

On June 23, 2009, we issued $565.0May 24, 2010, Wendy’s/Arby’s Restaurants entered into a $650.0 million Credit Agreement (the “Credit Agreement”), which includes a $500.0 million senior secured term loan facility (the “Term Loan”) and a $150.0 million senior secured revolving credit facility (the “Credit Facility”).  The Credit Agreement contains provisions for an uncommitted increase of up to $300.0 million principal amount in the aggregate in the Credit Facility and/or Term Loan subject to the satisfaction of Senior Notes.certain conditions. The Senior Notes will matureCredit Facility includes a sub-facility for the issuance of up to $70.0 million of letters of credit. The obligations under the Credit Agreement are secured by substantially all of the non-real estate assets of Wendy’s/Arby’s Restaurants and its domestic subsidiaries (other than certain unrestricted subsidiaries), the stock of its domestic subsidiaries (other than certain unrestricted subsidiaries), 65% of the stock of certain of its foreign subsidiaries, as well as by mortgages on July 15, 2016 and accrue interest at 10.00% per annum, payable semi-annually on January 15 and July 15.  certain restaurant properties.

The first paymentTerm Loan was made on January 15, 2010. The Senior Notes were issued at 97.533%99.5% of the principal amount, representing a yield to maturitywhich represented an original issue discount of 10.50%0.5% and resultingresulted in net proceeds paid to us of $551.1$497.5 million. The $13.9$2.5 million discount is being accreted and the related charge included in “Interest expense” untilinterest expense through the Senior Notes mature.maturity of the Term Loan. The Senior Notes are fullyTerm Loan will mature on May 24, 2017 and unconditionally guaranteed, jointly and severally,requires quarterly principal installments which commenced on an unsecured basis bySeptember 30, 2010 equal to 1% per annum of the Guarantors.


39

An Indenture forinitial principal amount outstanding, with the Senior Notes dated as of June 23, 2009 (the “Indenture”) among Wendy’s/Arby’s Restaurants,balance payable on the Guarantors and U.S. Bank National Association, as trustee (the “Trustee”), includes certain customary covenants that, subject to a number of important exceptions and qualifications, limit the ability of Wendy’s/Arby’s Restaurants and its restricted subsidiaries to, among other things, incur debt or issue preferred or disqualified stock, pay dividends on equity interests, redeem or repurchase equity interests or prepay or repurchase subordinated debt, make some types of investments and sell assets, incur certain liens, engage in transactions with affiliates (except on an arms-length basis), and consolidate, merge or sell all or substantially all of their assets.maturity date.

Senior Secured
Should our strategic alternatives for Arby’s result in a sale of the brand, we may be required to utilize a portion of the sale proceeds to reduce the Term LoanLoan.

The Arby’s Credit Agreement was amended and restated asFacility expires not later than May 24, 2015. An unused commitment fee of March 11, 2009 (as so amended,50 basis points per annum is payable quarterly on the “Credit Agreement”) and includes an amended senior secured term loan (the “Amended Term Loan”) and an amended senior secured revolving credit facility (the “Amended Revolver”).  As a result of an agreement entered into on March 17, 2009, theaverage unused amount of the Amended Revolver increased from $100.0 million to $170.0 million.  Also, Wendy’s and certain of its affiliates became co-obligors in addition to Arby’s and certain of its affiliates.  Credit Facility until the maturity date.

The Amendedinterest rate on the Term Loan is due July 2012 and the Amended Revolver expires in July 2011.

On June 10, 2009, we entered into an Amendment No. 1 to the amended and restated Arby’s Credit Agreement which, among other things (1) permitted us to issue the Senior Notes described above and the incurrence of such debt, and permitted us to dividend to Wendy’s/Arby’s the net cash proceeds of the Senior Notes issuance less $132.5 million used to prepay the Amended Term Loan and pay accrued interest thereon and certain other payments, (2) modified certain total leverage financial covenants, added certain financial covenants based on senior secured leverage ratios and modified the minimum interest coverage ratio, (3) permitted the prepayment at any time prior to maturity of certain senior notes of Wendy’s and eliminated certain incremental debt baskets in the covenant prohibiting the incurrence of additional ind ebtedness and (4) modified the interest margins to provide that the margins will fluctuate based on our corporate credit rating.

The Amended Term Loan and amounts borrowed under the Amended Revolver under the Credit Agreement bear interest at our option at either (1)(i) the Eurodollar Rate (asas defined in the Credit Agreement), as adjusted pursuant to applicable regulationsAgreement (but not less than 2.75%1.50%), plus an interest rate margin of 4.00%3.50%, 4.50%, 5.00% or 6.00% per annum, depending on our corporate credit rating, or (2) thea Base Rate, (asas defined in the Credit Agreement), which is the higher of the interest rate announced by the administrative agent for the Credit Agreement as its base rate and the Federal funds rate plus 0.50% (but not less that 3.75%than 2.50%), in either case plus an interest rate margin of 3.00%, 3.50%, 4.00% or 5.00% per annum, depending on our corporate credit rating. Based on our corporate credit rating at the effective date of Amendment No. 1 and as of January 3, 2010, the applicable interest rate margins available to us were 4.50% for Eurodollar Rate borrowings and 3.50% for Base Rate borrowings.2.50%. Since the effective dateinception of Amendment No. 1 and as of January 3, 2010,the Term Loan, we have elected to use the BaseEurodollar Rate, which resulted in aan interest rate on the Term Loan of 7.25%5.00% as of January 3, 2010.2, 2011.

The Companies incurred approximately $16.4 million in costs related to the Credit Agreement, which is being amortized to interest expense over the Term Loan’s term utilizing the effective interest rate method.

Proceeds from the Term Loan were used to (1) repay approximately $253.8 million of existing indebtedness, including fees and interest, under the then existing Wendy’s/Arby’s Restaurants amended senior secured term loan which replaced the prior Arby’s credit agreement in March 2009 and which was scheduled to be due in 2012, (2) redeem the Wendy’s 6.25% senior notes scheduled to be due in 2011, and (3) pay fees and expenses related to the Credit Agreement. The remaining Term Loan proceeds were used for working capital and other general corporate purposes.

Concurrent with the closingThe Companies recognized a loss on early extinguishment of the issuance of the Senior Notes, we prepaid the Amended Term Loan in an aggregate principal amount of $132.5 million and accrued interest thereon.

During 2009, Arby's borrowed a net totaldebt of $26.2 million underin the Amended Revolver, however, no amounts were outstandingsecond quarter of 2010 related to the repayment of debt from the proceeds of the Term Loan. This loss consisted of (1) a $15.0 million premium payment required to redeem the Wendy’s 6.25% senior notes, (2) $5.5 million for the write-off of the unaccreted discount of the Wendy’s 6.25% senior notes
52
(recorded in connection with the Wendy’s Merger), and (3) $5.7 million for the write-off of deferred costs associated with the repayment of the prior senior secured term loan.

Debt Covenants

The affirmative and negative covenants in the Credit Agreement include, among others, preservation of corporate existence; payment of taxes; and maintenance of insurance; and limitations on: indebtedness (including guarantee obligations 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 restricting subsidiary distributions; and material changes in lines of business.  The financial covenants contained in the Credit Agreement are (i) a consolidated interest coverage ratio, (ii) a consolidated senior secured leverage ratio, and (iii) a consolidated senior secured lease adjusted levera ge ratio. The covenants generally do not restrict Wendy’s/Arby’s or any of its subsidiaries that are not subsidiaries of Wendy’s/Arby’s Restaurants. Wendy’s/Arby’s Restaurants was in compliance with all covenants of the Credit Agreement as of January 3, 2010. The Amended Revolver includes a sub-facility2, 2011 and we expect to remain in compliance with all of these covenants for the issuancenext 12 months.

The indentures that govern Wendy’s 6.20% senior notes and 7% debentures contain covenants that specify limits on the incurrence of letters of credit up to $50.0 million.  The availability under the Amended Revolverindebtedness secured by liens and sale-leaseback transactions. We were in compliance with these covenants as of January 3,2, 2011 and we expect to remain in compliance with these covenants for the next 12 months.

A significant number of the underlying leases in the Arby’s restaurants segment for sale-leaseback obligations and capitalized lease obligations, as well as operating leases, require or required periodic financial reporting of certain subsidiary entities within Arby’s or of individual restaurants, which in many cases have not been prepared or reported. The Companies have negotiated waivers and alternative covenants with their most significant lessors which substitute consolidated financial reporting of Arby’s for that of individual subsidiary entities and which modify restaurant level reporting requirements for more than half of the affected leases.  Nevertheless, as of January 2, 2011, we were not in compliance, and remain not in compliance, with the reporting requirements under those leases for which waivers and alternative financial reporting covenants have not been negotiated. However, none of the lessors has asserted that we are in default of any of those lease agreements. We do not believe that such non-compliance will have a material adverse effect on our consolidated financial position or results of operations.
Derivatives

In connection with the redemption of the Wendy’s 6.25% senior notes discussed above under “Credit Agreement,” we cancelled four interest rate swaps with notional amounts totaling $175.0 million that had swapped the fixed rate interest rates on these senior notes for floating rates.  We recognized a gain on the cancellation of $1.9 million in the second quarter of 2010, was $136.4 million, which is net of $33.6 million for outstanding letters of credit.included in “Interest expense.”

Other Revolving Credit Facilities

On January 14,In December 2009, Wendy’s executed a new $200.0 million revolving credit facility (the “Wendy’s Revolver”), borrowings under which were secured by substantially all of Wendy’s current assets, intangibles, stock of Wendy’s subsidiaries and a portion of their realas amended in February and personal property.  During 2009, Wendy’s borrowed a total of $25.0 million under the Wendy’s Revolver and repaid the $25.0 million prior to March 11, 2009.  The Wendy’s Revolver was terminated effective March 11, 2009, in connection with the execution of the amended and restated Credit Agreement described above.

Wendy’s U.S. advertising fund has a revolving line of credit of $25.0 million. Neither the Company nor Wendy’s guarantees this debt. The advertising fund facility was established to fund the advertising fund operations.  The availability under this line of credit as of January 3,August 2010, was $20.3 million.

At January 3, 2010, one of Wendy’s Canadian subsidiaries had a revolving credit facility of C$6.0 million which bears interest at the Bank of Montreal Prime Rate and is guaranteed by Wendy’s. The availability under this facility as of January 3, 2010 was C$5.7 million.

AFA’s bank line of credit matured and was not renewed as of January 2010. In connection with the establishment of a revolving loan agreement with ARG discussed above under “Introduction and Executive Overview – Related Party Transactions,” AFA drew on the ARG line and repaid all amounts outstanding under its bank line of credit on December 28, 2009.

On December 31, 2009, AFA entered into a revolving loan agreement with ARG.  ThisArby’s.  The terms of this agreement which provided for ARGallow AFA to makehave revolving loans of up to $5.5$14.0 million to AFA, was amended on February 25, 2010 to provide for revolving loans up to $14.5 million. Under the termsoutstanding with an expiration date of this agreement, outstanding amounts are due through April 4, 2011March 2012 and bearbearing interest at 7.5%. per annum.  In February 2011, the maximum principal amount was reduced to $11.0 million. As of January 3, 2010,2, 2011, the outstanding revolving loan balance under this agreement was $5.1$4.5 million.


Table of ContentsConvertible Notes
40
(Wendy’s/Arby’s)

On June 17, 2010, Wendy’s/Arby’s repurchased the remaining 5% convertible notes for $2.1 million, including accrued interest. The convertible notes were repurchased at a price of 100% of their principal amount plus accrued interest.
53
 

Derivatives

During the third quarter of 2009, we entered into several interest rate swap agreements (the “Interest Rate Swaps”) with notional amounts totaling $361.0 million that swap the fixed rate interest rates on our 6.20% and 6.25% Wendy’s Senior Notes for floating rates. The Company’s primary objective for entering into derivative instruments is to manage its exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt. The Interest Rate Swaps are accounted for as fair value hedges and qualify for the short-cut method under the applicable guidance. At January 3, 2010, the fair value of our Interest Rate Swaps was $1.6 million and has been included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the 6.20% and 6.25% Wend y’s Senior Notes.

Debt Covenants

The Credit Agreement also contains financial covenants that, among other things, require Wendy’s and ARG and their subsidiaries to maintain certain aggregate maximum leverage and minimum interest coverage ratios and restrict their ability to incur debt, pay dividends or make other distributions to Wendy’s/Arby’s, make certain capital expenditures, enter into certain fundamental transactions (including sales of assets and certain mergers and consolidations) and create or permit liens.  We were in compliance with all the covenants of the Credit Agreement as of January 3, 2010 and we expect to remain in compliance with all of these covenants for the next twelve months.

The indentures that govern Wendy’s 6.20% and 6.25% Senior Notes and 7% Debentures (the "Wendy's Notes") contain covenants that specify limits on the incurrence of indebtedness. We were in compliance with these covenants as of January 3, 2010 and project that we will be in compliance with these covenants for the next twelve months.

A significant number of the underlying leases in the Arby’s restaurants segment for sale-leaseback obligations and capitalized lease obligations, as well as the operating leases, require or required periodic financial reporting of certain subsidiary entities within ARG or of individual restaurants, which in many cases have not been prepared or reported. The Company has negotiated waivers and alternative covenants with its most significant lessors which substitute consolidated financial reporting of ARG for that of individual subsidiary entities and which modify restaurant level reporting requirements for more than half of the affected leases.  Nevertheless, as of January 3, 2010, the Company was not in compliance, and remains not in compliance, with the reporting requirements under those leases for which waivers a nd alternative financial reporting covenants have not been negotiated. However, none of the lessors has asserted that the Company is in default of any of those lease agreements. The Company does not believe that such non-compliance will have a material adverse effect on its consolidated financial position or results of operations.

Credit Ratings

Wendy’s/Arby’s Restaurants is rated by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).

The most recent credit ratings, assigned in June 2009, for Wendy’s/Arby’s Restaurants and the Wendy’s Notes were as follows:

S&PMoody’s
Corporate family/corporate credit
     EntityNot applicableWendy’s/Arby’s Restaurants
     Rating-B2
     Outlook-Stable
Wendy’s/Arby’s Restaurants Senior NotesB+B2
Wendy’s/Arby’s Restaurants Term LoanBBBa2
Wendy’s NotesB-Caa1

There are many factors that could lead to future upgrades or downgrades of our credit ratings. Credit rating upgrades or downgrades could lead to, among other things, changes in borrowing costs and changes in our ability to access capital markets on acceptable terms.

A rating is not a recommendation to buy, sell or hold any security, and may be subject to revision or withdrawal at any time by the rating agency. Each rating should be evaluated independently of any other rating.


Contractual Obligations

The following table summarizes the expected payments under our outstanding contractual obligations at January 3, 2010:2, 2011:

 Fiscal Years  Fiscal Years 
 2010   2011-2012   2013-2014  After 2014  Total  2011   2012-2013   2014-2015  After 2015  Total 
 (in millions)    
Long-term debt (a) $108.8  $622.6  $367.2  $855.4  $1,954.0  $114.9  $228.5  $438.7  $1,316.1  $2,098.2 
Sale-leaseback obligations (b)  14.7   30.1   29.5   152.2   226.5   14.9   30.2   30.5   137.5   213.1 
Capitalized lease obligations (b)  17.7   27.1   24.2   110.4   179.4   15.9   25.1   26.8   108.7   176.5 
Operating leases (c)  145.1   259.3   225.8   1,125.2   1,755.4   150.5   272.1   233.3   1,032.9   1,688.8 
Purchase obligations (d)  51.5   62.0   60.1   106.6   280.2   90.4   70.1   56.8   77.7   295.0 
Other (e)  19.8   1.3   -   -   21.1   4.1   0.7   -   -   4.8 
Total (f) $357.6  $1,002.4  $706.8  $2,349.8  $4,416.6 
Total Wendy’s/Arby’s Restaurants  390.7   626.7   786.1   2,672.9   4,476.4 
Corporate long-term debt (a)  1.4   11.3   -   -   12.7 
Corporate operating leases (c)  1.6   0.7   -   -   2.3 
Other Corporate  0.2   0.1   -   -   0.3 
Total Wendy’s/Arby’s (f) $393.9  $638.8  $786.1  $2,672.9  $4,491.7 

__________________
(a)Excludes sale-leaseback and capitalized lease obligations, which are shown separately in the table.  The table above includes interest of approximately $607.0 million.$709.4 million for Wendy’s/Arby’s.  We have estimated the interest on our variable-rate debt based on current base rates, the current interest rate margin and the amortization schedule in our Credit Agreement.  The table above also reflects the effect of interest rate swaps entered into in 2009 which lowered our interest rate on certain of our fixed-rate debt.6.20% Wendy’s senior notes.  These amounts exclude the effects of the original issue discount on our Senior Notes and the fair value adjustments related to certain debt assumed in the Wendy’s Merger.

Should our strategic alternatives for Arby’s result in a sale of the brand, we may be required to utilize a portion of the sale proceeds to reduce the Term Loan.
 
(b)Excludes related sublease rental receipts of $9.4$8.1 million on sale-leaseback obligations and $3.5$2.7 million on capitalized lease obligations.  The table above includes interest of approximately $101.3$91.2 million for sale-leaseback obligations and $89.5$89.8 million for capitalized lease obligations.

(c)Represents the present value of minimum lease cash payments.  Excludes related sublease rental receipts of $73.0$85.5 million for Wendy’s/Arby’s Restaurants and additional sublease rental receipts for Wendy’s/Arby’s of $1.9 million.

(d)Includes (1) $249.7$215.0 million remaining for beverage purchase requirements for Wendy’s and Arby’s restaurants, (2) $2.0$2.8 million for advertising commitments, (3) $18.6$33.5 million for capital expenditures and (4) $9.9$43.7 million of other purchase obligations.

(e)Represents (1) $15.5$0.3 million for funding of QSCC, (2) $3.0 million for funding related to the Wendy’s Co-op AgreementSSG, (3) $1.4 million for potential additional capital investment requirements, and (2) $5.6(4) $0.1 million and $0.3 million in severance for Wendy’s personnel in connection with the Wendy’s Merger.Wendy’s/Arby’s Restaurants and Wendy’s/Arby’s, respectively.

(f)Excludes obligations for uncertain income tax positions of $20.3 million.$26.3 million and $36.4 million for Wendy’s/Arby’s Restaurants and Wendy’s/Arby’s, respectively.  We are unable to predict when, and if, cash payments on any of this accrual will be required.

Capital Expenditures

In 2009,2010, cash capital expenditures amounted to $101.9$148.0 million and non-cash capital expenditures, consisting of capitalized leases and certain sale-leaseback obligations, amounted to $6.4$5.7 million.  In 2010,2011, we expect that cash capital expenditures will amount to approximately $165.0$184 million, principally relating to (1) remodeling approximately 100 Arby’s and 100 Wendy’s Company-ownedcompany-owned restaurants, (2) ongoing maintenance capital expenditures for our Company-ownedcompany-owned restaurants, and (3) the opening of an estimated 1221 new Wendy’s Company-owned restaurants.company-owned restaurants, and (4) various capital projects.  We have $18.6$18.2 million of outstanding commitments for capital expenditures as of January 3, 2010,2, 2011, of which we expect $14.0$14.5 million to be paid in 2010.2011.

Dividends

(Wendy’s/Arby’s)

On March 15, 2010, June 15, 2010, and September 15, 2010, Wendy’s/Arby’s paid quarterly cash dividends of $0.015 per share on its Common Stock, aggregating $19.3 million.  On December 15, 2010, Wendy’s/Arby’s paid a quarterly cash dividend of $0.02 per share on its Common Stock, aggregating to $8.3 million.  During the 2011 first quarter, Wendy’s/Arby’s declared dividends of $0.02 per share to be paid on March 15, 2011 to shareholders of record as of March 1, 2011.  If Wendy’s/Arby’s pays regular quarterly cash dividends for the remainder of 2011 at the same rate as declared in our 2011 first quarter, Wendy’s/Arby’s’s total cash requirement for dividends for all of 2011 would be approximately $33.5 million based on the number of shares of i ts Common Stock outstanding at 
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February 25, 2011.  Wendy’s/Arby’s currently intends to continue to declare and pay quarterly cash dividends; however, there can be no assurance that any quarterly dividends will be declared or paid in the future or of the amount or timing of such dividends, if any.

(Wendy’s/Arby’s Restaurants)

During 2010, $443.7 million of intercompany dividends were paid to Wendy’s/Arby’s.  During 2009, $115.0 million of dividends were paid to Wendy’s/Arby’s.  No dividends were paid to Wendy’s/Arby’s during 2008.  During the fourth quarter of 2008, Wendy’s advanced an aggregate of $155.0 million to Wendy’s/Arby’s, Group, which were used to fund $150.2 million of capital contributions to Arby’s.  Arby’s used a portion of these capital contributions to prepay the Amended Term Loanterm loan under the prior Arby’s credit agreement in an aggregate principal amount of $143.2 million.  These advances do not bear interest and Wendy’s/Arby’s Group does not currently intend to repay such advances.

As of January 3, 2010,2, 2011, under the terms of the Credit Agreement, there was $306.5$25.6 million available for the payment of dividends indirectlydirectly to Wendy’s/Arby’s, under the c ovenants of the Credit Agreement, which includes the net proceeds, as defined, from the Senior Notes less any dividends paid since their issuance.


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Income TaxesArby’s.

The Company is included in the consolidated Federal and certain state income tax returns of Wendy’s/Arby’s.  The Company, however, provides for Federal and state income taxes on the same basis as if the Company and its subsidiaries filed consolidated returns separate from Wendy’s/Arby’s.  Stock Repurchases

The Wendy’s Merger qualified as(Wendy’s/Arby’s)

As of January 3, 2010, our Board of Directors had authorized the repurchase of up to a tax-free reorganization.  Based ontotal of $125.0 million of our Common Stock through January 2, 2011, when and if market conditions warrant and to the merger exchange ratio,extent legally permissible.  On January 27, 2010, March 22, 2010 and May 27, 2010, our Board of Directors authorized the former shareholdersrepurchase of Wendy’s owned approximately 80%up to an additional $75.0 million, $50.0 million and $75.0 million, respectively, of our Common Stock through January 2, 2011, when and if market conditions warrant and to the extent legally permissible. As of January 2, 2011, Wendy’s/Arby’s had repurchased 52.3 million shares with an aggregate purchase price of $245.5 million, excluding commissions of $1.0 million.

On November 11, 2010, our Board of Directors authorized the extension of the current stock repurchase program through January 1, 2012 and authorized the repurchase of up to an additional $170.0 million of our Common Stock, bringing the total amount currently authorized to approximately $250.0 million.  The stock ofrepurchase program will allow Wendy’s/Arby’s outstanding immediately after the Wendy’s Merger.  Therefore, the Wendy’s Merger was treatedto make repurchases as a reverse acquisition for U.S. Federal income tax purposes. As a result of the reverse acquisition, Wendy’s/Arby’smarket conditions warrant and its subsidiaries became part of the Wendy’s consolidated group with Wendy’s/Arby’s as its new parent.  In addition, Wendy’s/Arby’s had a short taxable year in 2008 ending on the date of the Wendy’s Merger.

The Internal Revenue Service (the “IRS”) is currently conducting an examination of Wendy’s/Arby’s 2010 and 2009 U.S. Federal income tax years as part of the Compliance Assurance Process (“CAP”).  As part of CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return.  Wendy’s has been participating in CAP since its 2006 tax year.  The Wendy’s federal income tax returns for 2007 and prior years have been settled.  The Company participated in CAP beginning with the tax period ended December 28, 2008 and this return is settled.  Wendy’s/Arby’s December 28, 2008 U.S. Federal income tax return included Wendy’s for all of 2008 and Wendy’s/Arby’ s for the period September 30, 2008 to December 28, 2008.extent legally permissible.

Wendy’s/Arby’s U.S. Federal income tax returns for 2005 to September 29, 2008 are not currently under examination by the IRS.  However, some of our state income tax returns and some of the Wendy’s state income tax returns for periods prior to the Wendy’s Merger are currently under examination.   Certain of these states have issued notices of proposed tax assessments aggregating $4.3 million.  We dispute these notices and believe ultimate resolution will not have a material adverse impact on our consolidated financial position or results of operations.

Guarantees and Other Contingencies

As of January 3, 2010
(in millions)
Lease guarantees and contingent rent on leases (1)$ 108.6
Loan guarantees (2)$   25.8
Letters of credit (3)$   33.9
  Year End 2010 
    
Lease guarantees and contingent rent on leases (1) $81.3 
Loan guarantees (2)  13.0 
Letters of credit (3)  32.4 
Total Wendy’s/Arby’s Restaurants  126.7 
Letters of credit (3)  0.7 
Total Wendy’s/Arby’s $127.4 
____________________

 (1)
Wendy’s is contingently liable for certain leases and other obligations primarily from Company-ownedcompany-owned restaurant locations now operated by franchises amounting to $81.9 $67.3 million as of January 3, 2010.2, 2011. These leases extend through 2030, including all existing extension or renewal option periods.2030. In addition, Wendy’s is contingently liable for certain leases which have been assigned to unrelated third parties, who have indemnified Wendy’s against future liabilities arising under the leases of $12.2 $9.8 million. These leases expire on various dates through 2022, including all existing extension or renewal option periods.2021. RTM, one of our subsidiaries, guarantees the lease obligations of 10eight RTM restaurants formerly operated by affiliates of RTM as of January 3, 20102, 2011 (the “Affiliate Lease Guarantees”). Certain former stockholders of RTM have indemnified us with respect to the Affiliate Lease Gua rantees. InGuarantees. I n addition, RTM remains contingently liable for 1210 leases for restaurants sold by RTM prior to the acquisition of RTM in 2005 if the respective purchasers do not make the required lease payments (collectively with the Affiliate Lease Guarantees, the “Lease Guarantees”). The Lease Guarantees, which extend through 2025, including all existing extension or renewal option periods2020, could aggregate a maximum of approximately $14.5$4.2 million as of January 3, 2010.2, 2011.
 
 (2)Wendy’s provided loan guarantees to various lenders on behalf of franchisees under debt arrangements for new store development and equipment financing. Recourse on the majority of these loans is limited, generally to a percentage of the original loan amount or the current loan balance on individual franchisee loans or an aggregate minimum for the entire loan arrangement.
 
 (3)
Wendy’s/Arby’s Restaurants and Wendy’sCorporate have outstanding letters of credit of $33.6 $32.4 million and $0.3$0.7 million, respectively, with various parties; however, our management does not expect any material loss to result from these letters of credit because we do not believe performance will be required.

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Universal Shelf Registration Statement

(Wendy’s/Arby’s)

In December 2008, Wendy’s/Arby’s filed a universal shelf registration statement with the Securities and Exchange Commission in connection with the possible future offer and sale, from time to time, of an indeterminate amount of our Common Stock, preferred stock, debt securities and warrants to purchase any of these types of securities. This registration statement became effective automatically upon filing.  Unless otherwise described in the applicable prospectus supplement relating to any offered securities, Wendy’s/Arby’s anticipates using the net proceeds of each offering for general corporate purposes, including financing of acquisitions and capital expenditures, additions to working capital and repayment of existing debt.  Wendy’s/Arby’s has not presently made any decision to issue any specific securities under this universal shelf registration statement.

Inflation and Changing Prices

We believe that inflation did not have a significant effect on our consolidated results of operations during the reporting periods since inflation rates generally remained at relatively low levels.


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Seasonality

Our restaurant operations are moderately impacted by seasonality.  Wendy’s restaurant revenues are normally higher during the summer months than during the winter months, and Arby’s restaurant revenues are somewhat lower in our first quarter.  Because our businesses are moderately seasonal, results for any future quarter will not necessarily be indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions in applying our critical accounting policies that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period.  Our estimates and assumptions concern, among other things, goodwill impairment, impairment of other long-lived assets, uncertainties for Federal and state income tax uncertainties, and allowance for doubtful accounts, and accounting for leases.accounts.  We evaluate those estimates and assumptions on an ongoing basis based on historical experience and on various other factor sfactors which we believebeliev e are reasonable under the circumstances.

We believe that the following represent our more critical estimates and assumptions used in the preparation of our consolidated financial statements:

 ·Goodwill impairment:

The Company operatesCompanies operate in two business segments consisting of two restaurant brands: (1) Wendy’s restaurant operations and (2) Arby’s restaurant operations. EachIn 2010, the Arby’s segment includes Company-ownedincluded company-owned restaurants and franchise reporting units which are considered to be separateand the Wendy’s segment included Wendy’s North America and international restaurant reporting units for purposes of measuring goodwill impairment.units. As of January 3, 2010,2, 2011, substantially all Wendy’s goodwill of $868.7$866.0 million relates to the Wendy’s franchisewas associated with its North America reporting unit.  Also,unit and Arby’s goodwill of $17.6 million relates entirely to the Arby’sits franchise operations.reporting unit.

We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired using a two-step process. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill).  If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test (measurement).  Step two of the impairment test, if necessary, requires the estimation of the fair value for the assets and liabilities of a reporting unit in order to calculate the implied fair value of the reporting unit’s goodwill.  Under step two, an impairment loss is recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill.  The fair value of the reporting unit is determined by management and is based on the results of (1) estimates we made regarding the present value of the anticipated cash flows associated with each reporting unit (the “income approach”) and (2) the indicated value of the reporting units based on a comparison and correlation of the Company
We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired using a two-step process. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill).  If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test (measurement).  Step two of the impairment test, if necessary, requires the estimation of the fair value for the assets and liabilities of a reporting unit in order to calculate the implied fair value of the reporting unit’s goodwill.  Under step two, an impairment loss is recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill.  T he fair value of the reporting unit is determined by management and is based on the results of (1) estimates we made regarding the present value of the anticipated cash flows associated with each reporting unit (the “income approach”) and (2) the indicated value of the reporting units based on a comparison and correlation of the Companies and other similar companies (the “market approach”).

The income approach, which considers factors unique to each of our reporting units and related long range plans that may not be comparable to other companies and that are not yet publicly available, is dependent on several critical management assumptions.  These assumptions include estimates of future sales growth, gross margins, operating costs, income tax rates, terminal value growth rates, capital 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 with our annual budgeting process and also incorporate amounts and timing of future cash flows based on our long range plan.

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The discount rates used in the income approach are an estimate of the rate of return that a market participant would expect of each reporting unit.  To select an appropriate rate for discounting the future earnings stream, a review was 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 level that would be perceived by a market participant.  A terminal value is included at the end of the projection period used in our discounted cash flow analyses to reflect the remaining value that each reporting unit is expected to generate.  The terminal value represents the present value in the last year of the projection period of all subsequent cash flow projections, as well as the risk level that would be perceived by a market participant.  A terminal value is included at the end of the projection period used in our discounted cash flow analyses to reflect the remaining value that each reporting unit is expected to generate.  The terminal value represents the present value in the last year of the projection period of all subsequent c ash flows into perpetuity.  The terminal value growth rate is a key assumption used in determining the terminal value as it represents the annual growth of all subsequent cash flows into perpetuity.

Under the market approach, we apply the guideline company method in estimating fair value.  The guideline company method makes use of market price data of corporations whose stock is actively traded in a public market.  The corporations we selected as guideline companies are engaged in a similar line of business or are subject to similar financial and business risks, including the opportunity for growth.  The guideline company method of the market approach provides an indication of value by relating the equity or invested capital (debt plus equity) of guideline companies to various measures of their earnings and cash flow, then applying such multiples to the business being valued.  The result of applying the guideline company approach is adjusted based on the incremental value associated with a controlling interest in the business.  This “control premium” represents the amount a new controlling shareholder would pay for the benefits resulting from synergies and other potential benefits derived from controlling the enterprise.

2010.  Our assessment of goodwill of the Wendy’s North America Restaurants in the fourth quarter of 2010 indicated that there had been no impairment and that the fair value of this reporting unit of $3,080 million was approximately 12% in excess of its carrying value.  Our assessment of the Arby’s franchise restaurant reporting unit in the fourth quarter of 2010 indicated that there had been no impairment and that its fair value significantly exceeded its carrying value.
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The estimated fair value of our reporting units are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.  Should actual cash flows and our future estimates vary adversely from those estimates we use, we may be required to recognize goodwill impairment charges in future years.

We performed our annual goodwill impairment test in the fourth quarter of 2009. As a result of our testing, we concluded that the fair value of each of the Wendy’s reporting units and Arby’s franchise restaurant reporting unit exceeded their carrying amounts.

 ·Impairment of other long-lived assets:

Other long-livedLong-lived assets include our Wendy’s and Arby’s Company-owned restaurantscompany-owned restaurant assets, and their intangible assets, which include trademarks, franchise agreements, favorable leases and reacquired rights under franchise agreements.agreements, and certain prepaid assets.

As of January 3, 2010,2, 2011, the net carrying value of Wendy’s restaurant segment long-lived assetstangible and intangible assets were $1,177.5 $1,145.7 million and $1,342.9 $1,312.6 million (which includes $903.0$903.0 million associated with Wendy’s non-amortizing trademarks), respectively, and Arby’s restaurant segment long-lived assetstangible and intangible assets were $419.8 $382.4 million and $32.0 $24.5 million, respectively.

We review long-lived tangible and amortizing intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  We assess the recoverability of property and equipment and finite-lived other intangible assets by comparing the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset.  If the carrying amount of the long-lived asset is not recoverable in full on an undiscounted cash flow basis, andthen impairment is recognized to the extent that the carrying amount exceeds its fair value and is included in “Impairment of the other long-lived assets.”  Our critical estimates in this review process include the anticipated future cash flows of each of Wendy’s and Arby’s and Wendy’s Comp any-ownedcompany-owne d restaurants used in assessing the recoverability of their respective long-lived assets.

Non-amortizing intangible assets are tested for impairment at least annually by comparing their carrying value to fair value; any excess of carrying value over fair value would represent impairment and a corresponding charge would be recorded.  Our critical estimates in the determination of the fair value of the non-amortizing intangible assets include the anticipated future salesrevenues of Company-ownedcompany-owned and franchised restaurants and the resulting cash flows.

Arby’s restaurantsOur restaurant impairment losses principally reflect impairment charges resulting from the deterioration in operating performance of certain Company-owned restaurants in 2009, 2008 and 2007. Wendy’s restaurants impairment losses also reflect impairment charges resulting from the same factors in 2009.company-owned restaurants. Those estimates are or were subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.  Should actual cash flows and our future estimates vary adversely from those estimates we used, we may be required to recognize additional impairment charges in future years.

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 ·Federal and state income tax uncertainties:

We measure income tax uncertainties in accordance with a two-step process of evaluating a tax position.  We first determine if it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position.  A tax position that meets the more-likely-than-not recognition threshold is then measured, for purposes of financial statement recognition, as the largest amount that has a greater than fifty percent likelihood of being realized upon effective settlement.  With the adoption of this approach, at January 1, 2007 we recognized an increase in our uncertain income tax positions of $4.7 million and an increase in our liability for interest of $0.2 million.  These increases were partially offset by an increase in a deferred income tax benefit of $2.4 million.  The net effect of all these adjustments was a decrease in retained earnings of $2.5 million.  We haveWendy’s/Arby’s has unrecognized tax benefits of $20.3$36.4 million and $23.6$39.1 million, which if resolved favorably would reduce the Company’stheir tax expense by $13.2$25.2 million and $16.3$27.1 million, at January 2, 2011 and January 3, 2010, respectively.  Wendy’s/Arby’s Restaurants has unreco gnized tax benefits of $26.2 million and December 28, 2008, respectively.$28.4 million, which if resolved favorably would reduce their tax expense by $17.1 million and $18.5 million, at January 2, 2011 and January 3, 2010.

We recognize interest accrued related to uncertain tax positions in “Interest expense” and penalties in “General and administrative expenses”.expenses.”  At January 2, 2011 and January 3, 2010, and December 28, 2008 weWendy’s/Arby’s had $4.1$5.0 million and $4.7$4.3 million accrued for the payment of interest and $0.8$1.5 million and $1.3$1.0 million accrued for penalties, both respectively.  Wendy’s/Arby’s Restaurants had $4.7 million and $4.1 million accrued for interest and $1.2 million and $0.8 million accrued for penalties, both respectively.

As discussed above in “Liquidity and Capital Resources,” the Company is includedWendy’s/Arby’s participates in the consolidated returnInternal Revenue Service (the “IRS”) Compliance Assurance Program (“CAP”).  As part of Wendy’s/Arby’s.  The 2010 and 2009 Wendy’s/Arby’s U.S. Federal incomeCAP, tax years are under examination as partaudited on a contemporaneous basis so that all or most issues are resolved prior to the filing of CAP.  Wendy’s/Arby’sthe tax return.  As such, our December 28, 2008 and January 3, 2010 tax returns, along with the Wendy’s pre-merger tax returns have been settled.  Our U.S. Federal income tax returns for 2005 to2007 and September 29, 2008 are not currently under examination while certainexamination.  Certain of ourthe Wendy’s/Arby’s state income tax returns from its 1998 fiscal year and certain of Wendy’s state income tax returns for periods priorforward remain subject to the merger are under examination.  We believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the completion of these examinations.

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 ·Allowance for doubtful accounts

Accounts and notes receivable consist primarily of royalty and franchise fee receivables, credit card receivables and rent. Notes receivable (non-current) consists of the notes receivable for franchisee obligations.

The need for an allowance for doubtful accounts on franchise obligations is reviewed on a specific franchisee basis based upon past due balances and the financial strength of the franchisee. If average sales or the financial health of franchisees were to deteriorate, it could result in an increase to the allowance for doubtful accounts related to franchise receivables. In 2009, Arby’s franchisee related accounts receivable and notes receivable and estimated reserves for uncollectibility have increased significantly, and may continue to increase, as a result of the deteriorating financial condition of some of our franchisees.  For the year ended January 3, 2010, we recorded $8.2 million in provision for doubtful accounts of which $7.4 million related to the Arby’s franchises.

 ·AccountingThe need for leasesan allowance for doubtful accounts on receivables related to franchisee obligations consisting primarily of royalties, franchise fees, and rents is reviewed on a specific franchisee basis based upon past due balances and the financial strength of the franchisee. If average sales or the financial health of franchisees were to deteriorate, it could result in an increase to the allowance for doubtful accounts related to franchise receivables. In 2010, Wendy’s and Arby’s franchisee related accounts receivable and notes receivable and estimated reserves for uncollectibility have increased significantly, and may continue to increase, as a result of the deteriorating financial condition of some of our franchisees.  For the year ended January 2, 2011, the Companies recorded $9.7 million in provision for doubtful accounts, which related to the Wendy’s and Arby’s franchisees.

We operate restaurants that are located on sites owned by us and sites leased by us from third parties. At inception, each lease is evaluated to determine whether the lease will be accounted for as an operating or capital lease based on lease terms. When determining the lease term we include option periods for which failure to renew the lease imposes an economic detriment.  The primary penalty to which we are subject is the economic detriment associated with the existence of leasehold improvements which might be impaired if we choose not to exercise the available renewal options.

For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as rent expense on a straight line basis (“Straight-Line Rent”) over the applicable lease terms.  Lease terms are generally for 20 years and, in most cases, provide for rent escalations and renewal options.  The term used for Straight-Line Rent expense is calculated from the date we obtain possession of the leased premises through the expected lease termination date at lease inception. We expense rent from possession date to the restaurant opening date.  There is a period under certain lease agreements referred to as a rent holiday (“Rent Holiday”) that generally begins on the possession date and ends on the rent commencement date. During the Rent Holiday period, no cash rent payments are typi cally due under the terms of the lease, however, expense is recorded for that period consistent with the Straight-Line Rent policy. 
For leases that contain rent escalations, we record the rent payable during the lease term, as determined above, on the straight-line basis over the term of the lease (including the rent holiday period beginning upon our possession of the premises), and record the excess of the Straight-Line Rent over the minimum rents paid as a deferred lease liability included in “Other liabilities.”  Certain leases contain provisions, referred to as contingent rent (“Contingent Rent”), that require additional rental payments based upon restaurant sales volume. Contingent rent is expensed each period as the liability is incurred.

Favorable and unfavorable lease amounts are recorded as components of “Other intangible assets” and “Other liabilities”, respectively, when we purchase restaurants and are amortized to “Cost of sales” – both on a straight-line basis over the remaining term of the leases.  When the expected term of a lease, including early terminations, is determined to be shorter than the original amortization period, the favorable or unfavorable lease balance associated with the lease is adjusted to reflect the revised lease term and a gain or loss recognized.

Management, with the assistance of a valuation firm, makes certain estimates and assumptions regarding each new lease agreement, lease renewal, and lease amendment, including, but not limited to property values, market rents, property lives, discount rates, and probable term, all of which can impact (1) the classification and accounting for a lease as capital or operating, (2) the rent holiday and/or escalations in payment that are taken into consideration when calculating straight-line rent, (3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of favorable and unfavorable leases. These estimates and assumptions may produce materially different amounts of depreciation and amortization, interest and rent expense that would be reported if different assumed lease terms were used.

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Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued guidelines on the consolidation of variable interest entities which alters how a company determines when an entity that is insufficiently capitalized or not controlled through voting interests should be consolidated. A company has to determine whether it should provide consolidated reporting of an entity based upon the entity's purpose and design and the parent company's ability to direct the entity's actions. The guidance is effective commencing with our 2010 fiscal year. We do not expect adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2010, the FASB issued amendments to the existing fair value measurements and disclosures guidance which requires new disclosures and clarifies existing disclosure requirements.  The purpose of these amendments is to provide a greater level of disaggregated information as well as more disclosure around valuation techniques and inputs to fair value measurements.  The guidance is effective commencing with our 2010 fiscal year.  We do not expect adoption of this standard to have a material effect on our consolidated financial statements.

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Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

Certain statements wethe Companies make under this Item 7A constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  See “Special Note Regarding Forward-Looking Statements and Projections” in “Part I – Other Information”I” preceding “Item 1.”

We are exposed to the impact of interest rate changes, changes in commodity prices, changes in the marketfair value of our investments and foreign currency fluctuations primarily related to the Canadian dollar.  In the normal course of business, we employ established policies and procedures to manage our exposure to these changes using financial instruments we deem appropriate.
 
Interest Rate Risk
 
Our objective in managing our exposure to interest rate changes is to limit the impact on our earnings and cash flows. Our policy is to maintain a target, over time and subject to market conditions, of between 50% and 75% of “Long-term debt” as fixed rate debt. As of January 3, 2010 our2, 2011, Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants long-term debt, including current portion, and excluding the effect of interest rate swaps discussed below, aggregated $1,501.9$1,572.4 million and $1,559.7 million, respectively. Long-term debt consisted of $1,035.3$868.6 million and $855.9 million of fixed-rate debt $251.5at Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, respectively; and $495.2 million of variable-ratevariable interest rate debt and $215.1$208.6 million of capitalized lease and sale-leaseback obligations. Ourobligations for both companies. The Companies variable interest rate debt consists of term$495.2 t erm loan borrowings under a variable-rate senior secured term loan facility due through 20122017 (the “Credit Agreement”“Term Loan”).  The term loan borrowings underinterest rate on the Credit AgreementTerm Loan is based on the Eurodollar rate, which has a floor of 1.50%, plus 3.50%, or a base rate, which has a floor of 2.50%, plus 2.50%.  Since the inception of the Term Loan, and amounts borrowe d underas of January 2, 2011, we have elected to use the revolving credit facility includedEurodollar Rate which resulted in the Credit Agreement bear interest at the borrowers’ option at either (1) LIBOR (0.25% at January 3, 2010) of not less than 2.75% plus an interest rate marginon the Term Loan of 4.5% or (2) the higher of a base rate determined by the administrative agent for the Credit Agreement or the Federal funds rate plus 0.5% (but not less than 3.75%), in either case plus an interest rate margin of 3.5%. The Base Rate option was chosen5.00% as of January 3, 2010 with a resulting 7.25% interest rate. 2, 2011.

Consistent with our policy, we entered into several outstanding interest rate swap agreements (the “Interest Rate Swaps”) during the third quarter of 2009 and the first quarter of 2010 with notional amounts totaling $361.0$186.0 million and $39.0 million, respectively, that swap the fixed rate interest rates on ourthe Wendy’s 6.20% and 6.25% Wendy’s senior notes for floating rates. The Interest Rate Swaps are accounted for as fair value hedges and qualify for the short-cut method under the applicable guidance.hedges.  At January 3, 2010,2, 2011, the fair v aluevalue of our Interest Rate Swaps was $1.6$9.6 million and was included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the Wendy’s 6.20% and 6.25% Wendy’s Senior Notes.senior notes. Our policies prohibit the use of derivative instruments for trading purposes, and we have procedures in place to monitor and control their use. If any portion ofo f the hedge is determined to be ineffective, any changes in fair value would be recognized in our results of operations.

Commodity Price Risk

In our restaurantsrestaurant segments, we purchase certain food products, such as beef, poultry, pork and cheese, that are affected by changes in commodity prices and, as a result, we are subject to variability in our food costs.  While price volatility can occur, which would impact profit margins, there are generally alternative suppliers available. Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate.  Management monitors our exposure to commodity price risk.

Arby’s does not enter into financial instruments to hedge commodity prices or hold any significant inventories of these commodities. In order to ensure favorable pricing for its major food products, as well as maintain an adequate supply of fresh food products, we are members of a purchasing cooperative along with our franchisees that negotiates contracts with approved suppliers on behalf of the Arby's system.  These contracts establish pricing arrangements, and historically have limited the variability of these commodity costs, but do not establish any firm purchase commitments by us or our franchisees.

During 2009, Wendy’s employed various purchasing and pricing contract techniques in an effort to minimize volatility. Generally these techniques included setting fixed prices with suppliers generally for one year or less, and setting in advance the price for products to be delivered in the future by having the supplier enter into forward arrangements (sometimes referred to as “buying forward”).” In 2010, Wendy’s, along with our franchisees, became members of a purchasing cooperative established in the fourth quarter of 2009 that negotiates contracts with approved suppliers on behalf of the Wendy's system in order to ensure favorable pricing for its major food products, as well as maintain an adequate supply of fresh food products. The purchasing contracts which established pricing arrangements, and histor icallyhistorically have limited the variability of these commodity costs but dodid not establish any firm purchase commitments by us or our franchisees, were transferred to the purchasing cooperative in January 2010.
 
Foreign Currency Risk
 
Our primary exposures to foreign currency risk are primarily related to fluctuations in the Canadian dollar relative to the U.S. dollar for our Canadian operations.  Exposure outside of North America is limited to the effect of rate fluctuations on royalties paid by franchisees.  To a more limited extent, we have exposure to foreign currency risk relating to our investments in certain investment limited partnerships and similar investment entities that hold foreign securities and a total return swap with respect to a foreign equity security.  We monitor these exposures and periodically determine our need for the use of strategies intended to lessen or limit our exposure to these fluctuations.  We have exposure to (1) our equity investment in a Canadian restaurant real estate joint venture (“TimWen”) with Tim Hortons Inc. (“THI”), (2) investme ntsinvestments in a Canadian subsidiary, and (3) export revenues and related receivables denominated in foreign currencies which are

subject to foreign currency fluctuations.  Wendy’s is a partner in a Canadian restaurant real estate joint venture with THI (“TimWen”). Wendy’s 50% share of TimWen is accounted for using the Equity Method. Our Canadian subsidiary exposures relate to its restaurants and administrativeadmini strative operations. The exposure to Canadian dollar exchange rates on the Company’sCompanies’ cash flows primarily includes imports paid for by Canadian operations in U.S. dollars and payments from the Company’sCompanies’ Canadian operations to the Company’sCompanies’ U.S. operations in U.S. dollars, and to a lesser extent royalties paid by Canadian franchisees.  Revenues from foreign operations for the year ended January 3, 20102, 2011 represented 9%10% of our total franchise revenues and 7%8% of our total revenues. For the year ended December 28, 2008,January 3, 2010, the same percentages were 7%9% and 3%7%, respectively.  Accordingly, an immediate 10% change in foreign currency exchange rates
59
versus the United States dollar from their levels at January 2, 2011 and January 3, 2010 and December 28, 2008 would not have a material effect on our consolidated financial position or results of operations.
 
Equity Market Risk

Our objective in managing our exposure to changes in the market value of our investments is to balance the risk of the impact of these changes on their earnings and cash flows with their expectations for long-term investment returns.
Overall Market Risk

Our overall market risk as of January 3, 2010 includes cash equivalents, a cost investment and2, 2011 with the exception of our equity investment in TimWen.TimWen was not material.  As of January 2, 2011 and January 3, 2010, and December 28, 2008, these investments wereour investment in TimWen was classified in ourthe consolidated balance sheets as follows (in millions):

  Year End 
  2009  2008 
Cash equivalents included in “Cash and cash equivalents” $237.7  $9.5 
Current restricted cash equivalents  1.1   20.8 
Non-current restricted cash equivalents  5.4   6.5 
Non-current investments  102.1   96.5 
  $346.3  $133.3 

Our cash equivalents are short-term, highly liquid investments with maturities of three months or less when acquired and consisted principally of cash in bank, money market and mutual fund money market accounts, and are primarily not in Federal Deposit Insurance Corporation (“FDIC”) insured accounts, $6.5 million of which was restricted as of January 3, 2010.
  Year End 2010 
Type At Cost  At Fair Value (a)  Carrying Value 
Non-current equity investment (b) $80.7  $98.6  $98.6 
             
  Year End 2009 
Type At Cost  At Fair Value (a)  Carrying Value 
Non-current equity investment (b) $89.0  $97.5  $97.5 

At January 3, 2010 our investments were classified in the following general types or categories (in millions):

        Carrying Value 
Type At Cost  At Fair Value (a)  Amount  Percent 
Cash equivalents $237.7  $237.7  $237.7   68.6%
Current and non-current restricted cash equivalents  6.5   6.5   6.5   1.9%
Other non-current investments accounted for at:                
Equity  89.0   97.5   97.5   28.2%
Cost  4.6   6.0   4.6   1.3%
  $337.8  $347.7  $346.3   100.0%
____________________________________
(a)There was no assurance at January 2, 2011 or January 3, 2010 that wethe Companies would have been able to sell certainthis investment at this amount.
(b)The Companies believe that the fair value of these investmentstheir equity interest in TimWen is at these amounts.least equal to its carrying value as there have been no indications of its impairment.

At December 28, 2008Wendy’s is a partner in TimWen and our investments were classified in50% share of the following general types or categories (in millions):

        Carrying Value 
Type At Cost  At Fair Value (a)  Amount  Percent 
Cash equivalents $9.5  $9.5  $9.5   7.1%
Current and non-current restricted cash equivalents  27.3   27.3   27.3   20.5%
Other non-current investments accounted for at:                
Equity  88.0   90.0   90.0   67.5%
Cost  6.5   6.5   6.5   4.9%
  $131.3  $133.3  $133.3   100.0%
_______________
(a)There was no assurance at December 28, 2008 that we would have been able to sell certain of these investments at these amounts.

Our investments which are accounted for at cost included limited partnerships and other non-current investments in which we do not have significant influence over the investees. Realized gains and losses on our investments recorded at cost are reported as income or loss in the period in which the securities are sold. Investmentsjoint venture is accounted for in accordance with the equity method of accounting are those in which we have significant influence over the investees and for which our results of operations include our share of the income or loss of the investees. We review all of our investments in which we have unrealized losses and recognize investment losses currently for any unrealized losses we deem to be other than temporary.

49

Sensitivity Analysis

Our estimate of marketMarket risk exposure for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants is presented for each class of financial instruments held by usthe Companies at January 2, 2011 and January 3, 2010 and December 28, 2008 for which an immediate adverse market movement would cause a potential material impact on ourtheir financial position or results of operations. We believe that the adverse market movements described below represent the hypothetical loss to our financial position or our results of operations and do not represent the maximum possible loss nor any expected actual loss, even under adverse conditions, because actual adverse fluctuations would likely differ. As of January 3, 2010,2, 2011, we did not hold any market-risk sensitive instruments, which were entered into for trading purposes. As such, the table below reflects the risk for those financialf inancial instruments entered into as of January 2, 2011 and January 3, 2010 and Dece mber 28, 2008 based upon assumed immediate adverse effects as noted below (in millions):

  Year End 2009 
  Carrying Value  Interest Rate Risk  Equity Price Risk  Foreign Currency Risk 
Cash equivalents $237.7  $-  $-  $- 
Current and non-current restricted cash equivalents  6.5   -   -   - 
Interest Rate Swaps  1.6   (5.6)  -   - 
Equity investment  97.5   -   (9.8)  (9.8)
Cost investment  4.6   (0.1)  (0.8)  - 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-variable rate  (251.5)  (5.3)  -   - 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-fixed rate  (1,035.3)  (36.6)  -   - 
  Year End 2010 
  Carrying Value  Interest Rate Risk  Equity Price Risk  Foreign Currency Risk 
Non-current equity investment $98.6  $-  $(9.9) $(9.9)
Interest rate swaps  9.6   (7.7)  -   - 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-variable rate  (495.2)  (30.7)  -   - 
                 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-fixed rate:                
Wendy’s/Arby’s Restaurants  (855.9)  (79.0)  -   - 
Corporate  (12.7)  (0.7)  -   - 
Wendy’s/Arby’s $(868.6) $(79.7) $-  $ - 
                 
60


  Year End 2008 
  Carrying Value  Interest Rate Risk  Equity Price Risk  Foreign Currency Risk 
Cash equivalents $9.5  $-  $-  $- 
Current and non-current restricted cash equivalents  27.3   -   -   - 
Equity investments  90.0   -   (9.0)  (9.0)
Cost investments  6.5   -   0.7   - 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-variable rate  (385.0)  (11.9)  -   - 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-fixed rate  (474.0)  (60.6)  -   - 
  Year End 2009 
  Carrying Value  Interest Rate Risk  Equity Price Risk  Foreign Currency Risk 
Non-current equity investment $97.5  $-  $(9.8) $(9.8)
Interest rate swaps  1.6   (5.6)  -   - 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-variable rate  (251.5)  (5.3)  -   - 
                 
Long-term debt, excluding capitalized lease and sale-leaseback obligations-fixed rate:                
Wendy’s/Arby’s Restaurants  (1,035.3)  (36.6)  -   - 
Corporate  (21.0)  (0.1)  -   - 
Wendy’s/Arby’s $(1,056.3) $(36.7) $ -  $ - 
                 

The sensitivity analysis of financial instruments held at January 2, 2011 and January 3, 2010 and December 28, 2008 assumes (1) an instantaneous one percentage point adverse change in market interest rates, (2) an instantaneous 10% adverse change in the equity markets in which we are invested and (3) an instantaneous 10% adverse change in the foreign currency exchange rates versus the United StatesU.S. dollar, each from their levels at January 2, 2011 and January 3, 2010, and December 28, 2008, respectively, and with all other variables held constant. The equity price risk reflects the impact of a 10% decrease in the carrying value of our non-current equity securities, including those in “Cost investments”investment in the tables above. The sensitivity analysis also assumes that the decreases in the equity markets and foreign exchange rates are other than temporary.& #160; We have not reduced the equity price risk for available-for-sale investments and cost investments to the extent of unrealized gains on certain of those investments, which would limit or eliminate the effect of the indicated market risk on our results of operations and, for cost investments, our financial position.

Our cash equivalents and restricted cash equivalents included $237.7 million and $6.5 million, respectively, as of January 3, 2010 of bank money market accounts and interest-bearing brokerage and bank accounts which are all investments with a maturity of three months or less when acquired and are designed to maintain a stable value.



As of January 3, 2010, we2, 2011, the Companies had amounts of both fixed-rate debt and variable-ratevariable interest rate debt.  On the fixed-rate debt, the interest rate risk presented with respect to our long-term debt, excluding capitalized lease and sale-leaseback obligations, primarily relates to the potential impact a decrease in interest rates of one percentage point has on the fair value of our $1,035.3$868.6 million of fixed-rate debt for Wendy’s/Arby’s and $855.9 million of fixed-rate debt for Wendy’s/Arby’s Restaurants and not on ourthe Companies’ financial position or our results of operations. However, as discussed above under “Interest Rate Risk,” wethe Companies have interest rate swap agreements on a portion of ourtheir fixed-rate debt. The interest rate risk of our fixed-rate debt presented in the tables above excludeexcludes the effect of the $361.0$225.0 million for which we designated interest rate swap agreements as fair value hedges for the terms of the swap agreements. As interest rates decrease, the fair market values of the interest rate swap agreements increase. The interest rate risksrisk presented with respect to the interest rate swap agreements representrepresents the potential impact the indicated change has on our results of operations. On the variable-ratevariable interest rate debt, the interest rate risk presented with respect to our long-term debt, excluding capitalized lease and sale-leaseback obligations, represents the potential impact an increase in interest rates of one percentage point has on our results of operations related to our $251.5$495.2 million of variable interest rate long-term debt outstanding as of January 2, 2011. The Companies’ variable-rate long-term debt outstanding as of January 3, 2010. Our variable-rate long-term debt outstanding as of January 3, 20102, 2011 had a weighted average remaining maturity of approximately twosix years.  



Item 8.   FinancialFinancial Statements and Supplementary DataData.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Page
Glossary of Defined Terms
5363
Wendy’s/Arby’s Group, Inc. and subsidiaries
Report of Independent Registered Public Accounting Firm
5565
Consolidated Balance Sheets as of January 2, 2011 and January 3, 2010 and December 28, 2008
5666
Consolidated Statements of Operations for the years ended January 2, 2011, January 3, 2010, and December 28, 2008
67
Consolidated Statements of Stockholders’ Equity for the years ended January 2, 2011, January 3, 2010, and December 30, 200728, 2008
5768
Consolidated Statements of Cash Flows for the years ended January 2, 2011, January 3, 2010, and December 28, 2008
70
Wendy’s/Arby’s Restaurants, LLC and subsidiaries
Report of Independent Registered Public Accounting Firm
72
Consolidated Balance Sheets as of January 2, 2011 and January 3, 2010
73
Consolidated Statements of Operations for the years ended January 2, 2011, January 3, 2010, and December 28, 2008
74
Consolidated Statements of Invested Equity for the years ended January 3,2, 2011, January 2, 2010, and December 28, 2008 and December 30, 2007
5875
Consolidated Statements of Cash Flows for the years ended January 2, 2011, January 3, 2010, and December 28, 2008 and December 30, 2007
5976
Wendy’s/Arby’s Group, Inc. and subsidiaries and Wendy’s/Arby’s Restaurants, LLC and subsidiaries
Notes to Consolidated Financial Statements
6178
(1)  Summary of Significant Accounting Policies
6178
(2)  Acquisitions and Dispositions
6682
(3)  Balance Sheet DetailDFR Notes
6884
(4)  InvestmentsIncome (Loss) Per Share
7185
(5)  Cash and Receivables
87
(6)  Pledged Assets
89
(7)  Investments
90
(8)  Properties
92
(9)  Goodwill and Other Intangible Assets
7293
(6)(10)  Accrued Expenses
94
(11)  Long-Term Debt
7395
(7)  Derivative Instruments
76
(8)(12) Fair Value of Financial Instruments
7797
(9)(13) Income Taxes
78101
(10)(14)  Stockholders’ Equity
106
(15)  Share-Based Compensation
81106
(11)(16)  Facilities Relocation and Restructuring
84110
(12)(17)  Impairment of Other Long-Lived Assets
85112
(13)(18)  Investment Income (Expense), Net
112
(19)  Other Than Temporary Losses on Investments
113
(20)  Discontinued Operations
113
(21)  Retirement Benefit Plans
86113
(14)(22)  Lease Commitments
87114
(15)(23)  Guarantees and Other Commitments and Contingencies
88117
(16)(24)  Transactions with Related Parties
90119
(17)(25)  Legal and Environmental Matters
92123
(18)(26)  Advertising Costs and Funds
92123
(19)(27)  Business Segments
92124
(20)(28)  Quarterly Financial Information (Unaudited)
95128
(21)(29) Guarantor/Non-GuarantorNon Guarantor
97129


 
Defined TermTerm
Footnote Where Defined
2010 Plan(15)Share-Based Compensation
401(k) PlansPlan(13)(21)Retirement Benefit Plans
Advertising Funds(18)(26)Advertising Costs and Funds
AFA(6)Long-Term Debt
Affiliate Lease Guarantees(15)(23)Guarantees and Other Commitments and Contingencies
Amended RevolverAffiliate Lease Guarantees(6)(23)Long-Term DebtGuarantees and Other Commitments and Contingencies
Amended Term LoanAircraft Lease Agreement(6)(24)Long-Term DebtTransactions with Related Parties
Arby's(1)Summary of Significant Accounting Policies
ARGARCOP(1)(24)Summary of Significant Accounting PoliciesTransactions with Related Parties
As Adjusted(2)Acquisitions and Dispositions
Bakery(13)(21)Retirement Benefit Plans
Black-Scholes Model(1)Summary of Significant Accounting Policies
CAP(9)(13)Income Taxes
Capitalized Lease Obligations(6)Long-Term Debt
Carrying Value Difference(1)Summary of Significant Accounting Policies
Class A Options(10)(15)Share-Based Compensation
Class B Options(10)(15)Share-Based Compensation
Closing Date(1)Summary of Significant Accounting Policies
CompanyCompanies(1)Summary of Significant Accounting Policies
Company’s Derivative InstrumentsCompany(1)Summary of Significant Accounting Policies
Contingent Rent(1)Summary of Significant Accounting Policies
Conversion(10)(2)Share-Based CompensationAcquisitions and Dispositions
Convertible Notes(4)Income (Loss) Per Share
Co-op Agreement(16)(24)Transactions with Related Parties
Cost MethodCorporate(1)Summary of Significant Accounting Policies
Credit Agreement(6)(11)Long-Term Debt
DebenturesCredit Facility(6)(11)Long-Term Debt
Equity InvestmentDeerfield(3)DFR Notes
Deerfield Sale(3)DFR Notes
Determination Date(3)DFR Notes
DFR(1)Summary of Significant Accounting Policies
Equity MethodDFR Notes(1)Summary of Significant Accounting Policies
Early Withdrawal(24)Transactions with Related Parties
Eligible Arby’s Employees(21)Retirement Benefit Plans
Equities Account(24)Transactions with Related Parties
Equities Sale(24)Transactions with Related Parties
Equity Plans(10)(15)Share-Based Compensation
FASBFormer Executives(1)(24)Summary of Significant Accounting PoliciesTransactions with Related Parties
Foundation(16)(24)Transactions with Related Parties
GAAP(1)Summary of Significant Accounting Policies
Grants(15)Share-Based Compensation
Guarantors(6)(11)Long-Term Debt
Indenture(6)Long-Term Debt
Interest Rate Swaps(6)(11)Long-Term Debt
IRS(9)(13)Income Taxes
Jurlique(7)Investments
Lease Guarantees(15)(23)Guarantees and Other Commitments and Contingencies
Legacy Assets(24)Transactions with Related Parties
Liquidation Services Agreement(24)Transactions with Related Parties
LIBOR(7)(12)DerivativeFair Value of Financial Instruments
Other Than Temporary LossesManagement Company(1)(22)Summary of Significant Accounting PoliciesLease Commitments
New CBA(21)Retirement Benefit Plans
New Services Agreement(24)Transactions with Related Parties
Package Options(10)(15)Share-Based Compensation
Parent(21)(29)Guarantor/Non-Guarantor
Preferred Stock(3)DFR Notes
Prior Plans(21)Retirement Benefit Plans
QSCC(16)(24)Transactions with Related Parties
Rent Holiday(1)Summary of Significant Accounting Policies
Restricted SharesRSAs(10)(15)Share-Based Compensation
RSAs(10)Share-Based CompensationCompensations
RSUs(10)(15)Share-Based CompensationCompensations
RTM(11)Facilities Relocation and Restructuring
RTM Acquisition(15)(23)Guarantees and Other Commitments and Contingencies
Sale-Leaseback ObligationsRTM Acquisition(6)(23)Long-Term Debt
Scioto(21)Guarantor/Non-GuarantorGuarantees and Other Commitments and Contingencies
Senior Notes(6)(11)Long-Term Debt
SERP(13)(21)Retirement Benefit Plans
Services Agreement(24)Transactions with Related Parties
SSG(24)Transactions with Related Parties
Straight-Line Rent(1)Summary of Significant Accounting Policies
Subleases(24)Transactions with Related Parties
Syrup(15)(23)Guarantees and Other Commitments and Contingencies
Target Amount(24)Transactions with Related Parties
TASCO(24)Transactions with Related Parties
Term Loan(11)Long-Term Debt
Term Loan Swap Agreements(7)(12)DerivativeFair Value of Financial Instruments
THI(1)Summary of Significant Accounting Policies
TimWen(1)Summary of Significant Accounting Policies
Triarc(1)Summary of Significant Accounting Policies
Trustee(6)(11)Long-Term Debt
Uncertain Tax Positions(1)Summary of Significant Accounting Policies
Union Pension Fund(13)(21)Retirement Benefit Plans
53
We(1)Summary of Significant Accounting Policies
Wendy’s(1)Summary of Significant Accounting Policies
Wendy’s/Arby’s(1)Summary of Significant Accounting Policies
Wendy’s/Arby’s Restaurants(1)Summary of Significant Accounting Policies
Wendy’s Merger(1)Summary of Significant Accounting Policies
Wendy’s Plans(10)(15)Share-Based Compensation
Wendy’s Pension Plans(13)(21)Retirement Benefit Plans
Wendy’s RevolverWithdrawal Agreement(6)(24)Long-Term DebtTransactions with Related Parties
Withdrawal Fee(24)Transactions with Related Parties



 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Stockholders and Board of Directors of
Wendy's/Arby's Group, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Wendy’s/Arby’s Group, Inc. and subsidiaries (the “Company”) as of January 2, 2011 and January 3, 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended January 2, 2011.  Our audits also included the financial statement schedule listed in the Index at Item 15.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2011 and January 3, 2010, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2011, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 2, 2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.


/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 2, 2011



Item 8.  Financial Statements and Supplementary Data

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

  January 2,  January 3, 
  2011  2010 
ASSETS      
Current assets:      
Cash and cash equivalents $512,508  $591,719 
Accounts and notes receivable  84,258   88,004 
Inventories  22,694   23,024 
Prepaid expenses and other current assets  24,386   29,212 
Deferred income tax benefit  34,389   66,557 
Advertising funds restricted assets  76,553   80,476 
Total current assets  754,788   878,992 
Properties  1,551,261   1,619,248 
Other intangible assets  1,358,574   1,392,883 
Goodwill  883,644   881,019 
Investments  107,223   107,020 
Notes receivable  12,612   39,295 
Deferred costs and other assets  64,552   56,959 
                Total assets $4,732,654  $4,975,416 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Current portion of long-term debt $18,415  $22,127 
Accounts payable  81,361   103,454 
Accrued expenses and other current liabilities  245,157   269,090 
Advertising funds restricted liabilities  76,553   80,476 
Total current liabilities  421,486   475,147 
Long-term debt  1,553,987   1,500,784 
Deferred income  11,460   13,195 
Deferred income taxes  412,293   475,538 
Other liabilities  170,254   174,413 
Commitments and contingencies        
Stockholders’ equity:        
Common stock, $0.10 par value; 1,500,000 shares authorized;
470,424 shares issued
  47,042   47,042 
Additional paid-in capital  2,771,126   2,761,433 
Accumulated deficit  (412,464)  (380,480)
Common stock held in treasury, at cost  (249,547)  (85,971)
Accumulated other comprehensive income (loss)  7,017   (5,685)
Total stockholders’ equity  2,163,174   2,336,339 
Total liabilities and stockholders’ equity $4,732,654  $4,975,416 



See accompanying notes to consolidated financial statements






WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)


  Year Ended 
  January 2,  January 3,  December 28, 
  2011  2010  2008 
Revenues:         
Sales $3,045,317  $3,198,348  $1,662,291 
Franchise revenues  371,097   382,487   160,470 
   3,416,414   3,580,835   1,822,761 
Costs and expenses:            
Cost of sales  2,610,761   2,728,484   1,415,534 
General and administrative  416,606   452,713   248,718 
Depreciation and amortization  182,172   190,251   88,315 
Goodwill impairment  -   -   460,075 
Impairment of long-lived assets  69,477   82,132   19,203 
Facilities relocation and restructuring  -   11,024   3,913 
Other operating expense, net  5,010   4,255   653 
   3,284,026   3,468,859   2,236,411 
Operating profit (loss)  132,388   111,976   (413,650)
Interest expense  (137,229)  (126,708)  (67,009)
Loss on early extinguishment of debt  (26,197)  -   - 
Investment income (expense), net  5,261   (3,008)  9,438 
Other than temporary losses on investments  -   (3,916)  (112,741)
Other income, net  3,782   1,523   2,710 
Loss from continuing operations before income taxes  (21,995)  (20,133)  (581,252)
Benefit from income taxes  17,670   23,649   99,294 
(Loss) income from continuing operations  (4,325)  3,516   (481,958)
Income from discontinued operations, net of income taxes  -   1,546   2,217 
Net (loss) income $(4,325) $5,062  $(479,741)
             
Basic and diluted (loss) income per share :            
Continuing operations:            
Common stock $(.01) $.01  $(3.06)
Class B common stock  N/A   N/A   (1.26)
       Discontinued operations:            
Common stock  N/A  $-  $.01 
Class B common stock  N/A   N/A   .02 
       Net (loss) income:            
Common stock $(.01) $.01  $(3.05)
Class B common stock  N/A   N/A   (1.24)
             
Dividends per share :            
Common stock $.07  $.06  $.26 
Class B common stock  N/A   N/A   .26 







See accompanying notes to consolidated financial statements.


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)
              Accumulated Other Comprehensive Income (Loss)    
  
Common Stock
  
Additional Paid-in Capital
  
Accumulated Deficit
  
Common Stock Held
in Treasury
  
Unrealized Gain on Available- for-Sale Securities
  
Foreign Currency Translation Adjustment
  
Unrecognized Pension Loss
  Total 
Balance at January 3, 2010 $47,042  $2,761,433  $(380,480) $(85,971) $59  $(4,696) $(1,048) $2,336,339 
Comprehensive income:                                
Net loss  -   -   (4,325)  -   -   -   -   (4,325)
Change in unrealized gain on available-for-sale securities  -   -   -   -   (59)  -   -   (59)
Change in unrecognized pension loss  -   -   -   -   -   -   95   95 
Foreign currency translation adjustment  -   -   -   -   -   12,666   -   12,666 
         Comprehensive income  -   -   -   -   -   -   -   8,377 
Cash dividends  -   -   (27,621)  -   -   -   -   (27,621)
Accrued dividends on nonvested restricted stock  -   -   (38)  -   -   -   -   (38)
Repurchases of common stock  -   -   -   (167,743)  -   -   -   (167,743)
Share-based compensation expense  -   13,704   -   -   -   -   -   13,704 
Common stock issued upon exercises of stock options  -   (562)  -   1,840   -   -   -   1,278 
Restricted common stock issued  -   (2,765)  -   2,765   -   -   -   - 
Other  -   (684)  -   (438)  -   -   -   (1,122)
Balance at January 2, 2011 $47,042  $2,771,126  $(412,464) $(249,547) $-  $7,970  $(953) $2,163,174 


              Accumulated Other Comprehensive Income (Loss)    
  
Common Stock
  
Additional Paid-in Capital
  
Accumulated Deficit
  
Common Stock Held
in Treasury
  
Unrealized Gain on Available- for-Sale Securities
  
Foreign Currency Translation Adjustment
  
Unrecognized Pension Loss
  Total 
Balance at December 28, 2008 $47,042  $2,753,141  $(357,541) $(15,944) $108  $(42,313) $(1,048) $2,383,445 
Comprehensive income:                                
Net income  -   -   5,062   -   -   -   -   5,062 
Change in unrealized gain on available-for-sale securities  -   -   -   -   (49)  -   -   (49)
Foreign currency translation adjustment  -   -   -   -   -   37,617   -   37,617 
         Comprehensive income  -   -   -   -   -   -   -   42,630 
Cash dividends  -   -   (27,976)  -   -   -   -   (27,976)
Accrued dividends on nonvested restricted stock  -   -   (25)  -   -   -   -   (25)
Repurchases of common stock  -   -   -   (78,720)  -   -   -   (78,720)
Share-based compensation expense  -   15,294   -   -   -   -   -   15,294 
Common stock issued upon exercises of stock options  -   (4,720)  -   6,686   -   -   -   1,966 
Restricted common stock issued  -   (1,777)  -   1,777   -   -   -   - 
Non-controlling interests, primarily distributions  -   (129)  -   -   -   -   -   (129)
Other  -   (376)  -   230   -   -   -   (146)
Balance at January 3, 2010 $47,042  $2,761,433  $(380,480) $(85,971) $59  $(4,696) $(1,048) $2,336,339 













See accompanying notes to consolidated financial statements.



WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)


                 Accumulated Other Comprehensive Income (Loss)    
  
Class A Common Stock
  
Class B Common Stock
  
Additional Paid-in Capital
  
Retained Earnings/ (Accumulated Deficit)
  
Common Stock Held in Treasury
  
Unrealized (Loss) Gain on Available- for-Sale Securities
  
Unrealized Loss on Cash Flow Hedges
  
Foreign Currency Translation Adjustment
  
Unrecognized Pension
Loss
  Total 
Balance at December 30, 2007 $2,955  $6,402  $292,080  $167,267  $(16,774) $(2,104) $(155) $689  $(528) $449,832 
Comprehensive loss:                                        
Net loss  -   -   -   (479,741)  -   -   -   -   -   (479,741)
Change in unrealized gain on available-for-sale securities  -   -   -   -   -   2,212   -   -   -   2,212 
Change in unrealized loss on cash flow hedges  -   -   -   -   -   -   155   -   -   155 
Foreign currency translation adjustment  -   -   -   -   -   -   -   (43,002)  -   (43,002)
Unrecognized pension loss  -   -   -   -   -   -   -   -   (520)  (520)
         Comprehensive loss                                      (520,896)
Cash dividends  -   -   -   (30,538)  -   -   -   -   -   (30,538)
Accrued dividends on nonvested restricted stock  -   -   -   (65)  -   -   -   -   -   (65)
Distribution of Deerfield Capital Corp. common stock  -   -   -   (14,464)  -   -   -   -   -   (14,464)
Share-based compensation expense  -   2   9,127   -   -   -   -   -   -   9,129 
Wendy’s International Inc. merger-related transactions:                                        
     Conversion of Class B common stock to Class A common stock  6,410   (6,410)  -   -   -   -   -   -   -   - 
Value of Wendy’s stock options converted into Wendy’s/Arby’s  Group, Inc. options  -   -   18,495   -   -   -   -   -   -   18,495 
Common stock issuance related to  merger of Triarc Companies, Inc. and Wendy’s International Inc.  37,678   -   2,438,519   -   -   -   -   -   -   2,476,197 
Common stock issued upon exercises of stock options  -   -   (45)  -   60   -   -   -   -   15 
Restricted common stock issued  -   1   (3,654)  -   3,627   -   -   -   -   (26)
Common stock withheld as payment for withholding taxes on capital stock transactions  -   -   -   -   (2,989)  -   -   -   -   (2,989)
Non-controlling interests, primarily distributions  -   -   (804)  -   -   -   -   -   -   (804)
Other  (1)  5   (577)  -   132   -   -   -   -   (441)
Balance at December 28, 2008 $47,042  $-  $2,753,141  $(357,541) $(15,944) $108  $-  $(42,313) $(1,048) $2,383,445 












See accompanying notes to consolidated financial statements.


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
  Year Ended 
  January 2,  January 3,  December 28, 
  2011  2010  2008 
Cash flows from continuing operating activities:         
    Net (loss) income $(4,325) $5,062  $(479,741)
Adjustments to reconcile net (loss) income to net cash provided by continuing operating activities:            
Depreciation and amortization  182,172   190,251   88,315 
Impairment of long-lived assets  69,477   82,132   19,203 
Accretion of long-term debt  15,016   10,400   2,452 
Distributions received from joint venture  13,980   14,583   2,864 
Share-based compensation provision  13,704   15,294   9,129 
Write-off and amortization of deferred financing costs  11,779   15,820   8,885 
Provision for doubtful accounts  9,694   8,169   670 
Non-cash rent expense  9,334   12,618   3,103 
Net recognition of deferred vendor incentive  (587)  (791)  (6,459)
Operating investment adjustments, net (see below)  (5,201)  2,484   105,357 
Equity in earnings in joint venture  (9,459)  (8,499)  (1,974)
Deferred income tax benefit  (29,779)  (40,127)  (105,276)
Income from discontinued operations  -   (1,546)  (2,217)
Goodwill impairment  -   -   460,075 
Other, net  (1,430)  (4,317)  (3,886)
Changes in operating assets and liabilities:            
Accounts and notes receivable  (4,730)  (6,074)  (4,187)
Inventories  394   1,879   (140)
Prepaid expenses and other current assets  1,514   3,987   8,808 
Accounts payable  (15,795)  (53,474)  6,135 
Accrued expenses and other current liabilities  (29,508)  50,947   (37,511)
Net cash provided by continuing operating activities  226,250   298,798   73,605 
Cash flows from continuing investing activities:            
Capital expenditures  (147,969)  (101,914)  (106,989)
Investment activities, net (see below)  32,158   38,141   51,066 
Proceeds from dispositions  5,660   10,882   1,322 
Cost of acquisitions, less cash acquired  (3,123)  (2,357)  (9,622)
Increase in cash from merger with Wendy’s  -   -   199,785 
Cost of merger with Wendy’s  -   (608)  (18,403)
Other, net  352   237   (228)
Net cash (used in) provided by continuing investing activities  (112,922)  (55,619)  116,931 
Cash flows from continuing financing activities:            
Proceeds from long-term debt  497,661   607,507   37,753 
Repayments of notes payable and long-term debt  (474,791)  (210,371)  (177,883)
Repurchases of common stock  (173,537)  (72,927)  - 
Dividends paid  (27,621)  (27,976)  (30,538)
Deferred financing costs  (16,353)  (38,399)  - 
Distributions to non-controlling interests  -   (156)  (1,144)
Other, net  491   1,715   (1,113)
Net cash (used in) provided by continuing financing activities  (194,150)  259,393   (172,925)
Net cash (used in) provided by continuing operations before effect of exchange rate changes on cash  (80,822)  502,572   17,611 
Effect of exchange rate changes on cash  1,611   2,725   (4,123)
Net cash (used in) provided by continuing operations  (79,211)  505,297   13,488 
Net cash used in operating activities of  discontinued operations  -   (3,668)  (1,514)
Net (decrease) increase in cash and cash equivalents  (79,211)  501,629   11,974 
Cash and cash equivalents at beginning of year  591,719   90,090   78,116 
Cash and cash equivalents at end of year $512,508  $591,719  $90,090 





See accompanying notes to consolidated financial statements.


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)

  Year Ended 
  January 2,  January 3,  December 28, 
  2011  2010  2008 
Detail of cash flows related to investments:         
Operating investment adjustments, net:         
Income on collection of DFR Notes $(4,909) $-  $- 
Other than temporary losses on investments  -   3,916   112,741 
Other net recognized gains  (292)   (1,432)  (7,384)
  $(5,201) $2,484  $105,357 
Investment activities, net:            
Proceeds from sales of investments $1,810  $31,289  $136,748 
Decrease in restricted cash held for investment  -   26,681   17,724 
Proceeds from repayment of DFR Notes  30,752   -   - 
Cost of investments purchased, and payments to cover short positions in securities  (404)  (19,829)  (103,406)
   32,158  $38,141  $51,066 
Supplemental disclosures of cash flow information:            
Cash paid during the year in continuing operations for:            
Interest $127,753  $86,439  $61,192 
Income taxes, net of refunds $14,262  $14,952  $5,094 
Supplemental schedule of noncash investing and financing activities:            
Total capital expenditures $153,744  $108,284  $115,419 
Cash capital expenditures  (147,969)  (101,914)  (106,989)
Non-cash capitalized lease and certain sales-leaseback obligations $5,775  $6,370  $8,430 
             
Non-cash transactions:            
Value of equity consideration issued in merger with Wendy’s            
     Common stock  N/A   N/A  $2,476,197 
     Stock options  N/A   N/A  $18,296 
Assumption of debt  N/A   N/A  $553,438 


See accompanying notes to consolidated financial statements.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Member of
Wendy’s/Arby’sWendy's/Arby's Restaurants, LLC
Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of Wendy’s/Arby’s Restaurants, LLC and subsidiaries (a wholly owned subsidiary of Wendy’s/Arby’s Group, Inc.) (the “Company”) as of January 2, 2011 and January 3, 2010, and December 28, 2008, and the related consolidated statements of operations, invested equity, and cash flows for each of the three years in the period ended January 3, 2010.2, 2011.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence sup portingsupporti ng the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2011 and January 3, 2010, and December 28, 2008, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2010,2, 2011, in conformity with accounting principles generally accepted in the United States of America.


/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 18, 20102, 2011



Item 8. Financial Statements and Supplementary Data

WENDY’S/WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Information)

 January 3,  December 28,  January 2,  January 3, 
 2010  2008  2011  2010 
ASSETS            
Current assets:            
Cash and cash equivalents $538,864  $63,080  $198,686  $538,864 
Restricted cash equivalents  1,114   20,792 
Accounts and notes receivable  87,607   91,347   83,352   87,607 
Inventories  23,024   24,647   22,694   23,024 
Prepaid expenses and other current assets  26,723   23,650   24,032   27,837 
Deferred income tax benefit  47,556   28,337   45,067   47,556 
Advertising funds restricted assets  80,476   81,139   76,553   80,476 
Total current assets  805,364   332,992   450,384   805,364 
Restricted cash equivalents  5,352   6,462 
Properties  1,541,853   1,607,858 
Other intangible assets  1,358,574   1,392,883 
Goodwill  888,921   886,296 
Investments  102,140   96,523   102,406   102,140 
Properties  1,607,858   1,754,920 
Goodwill  886,296   859,052 
Other intangible assets  1,392,883   1,411,420 
Notes receivable  12,612   13,599 
Deferred costs and other assets  63,997   40,969   61,947   55,750 
Total assets $4,863,890  $4,502,338  $4,416,697  $4,863,890 
                
LIABILITIES AND INVESTED EQUITY                
Current liabilities:                
Current portion of long-term debt $16,178  $29,537  $17,047  $16,178 
Accounts payable  95,839   135,245   81,148   95,839 
Accrued expenses and other current liabilities  268,181   230,763   244,300   268,181 
Advertising funds restricted liabilities  80,476   81,139   76,553   80,476 
Total current liabilities  460,674   476,684   419,048   460,674 
Long-term debt  1,485,732   1,060,150   1,542,684   1,485,732 
Due to Wendy’s/Arby’s  42,915   11,785   30,808   42,915 
Deferred income  13,195   16,860   11,460   13,195 
Deferred income taxes  502,979   526,658   478,472   502,979 
Other liabilities  160,488   155,426   157,595   160,488 
Commitments and contingencies                
Invested equity:                
Member interest, $0.01 par value; 1,000 shares authorized, one share issued and outstanding  -   -   -   - 
Other capital  2,854,775   2,958,921   2,423,459   2,854,775 
Accumulated deficit  (496,862)  (506,511)  (499,500)  (496,862)
Advances to Wendy’s/Arby’s  (155,000)  (155,000)  (155,000)  (155,000)
Accumulated other comprehensive loss  (5,006)  (42,635)
Accumulated other comprehensive income (loss)  7,671   (5,006)
Total invested equity  2,197,907   2,254,775   1,776,630   2,197,907 
Total liabilities and invested equity $4,863,890  $4,502,338  $4,416,697  $4,863,890 



See accompanying notes to consolidated financial statements.




WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)


 Year Ended  Year Ended 
 January 3,  December 28,  December 30,  January 2,  January 3,  December 28, 
 2010  2008  2007  2011  2010  2008 
Revenues:                  
Sales $3,198,348  $1,662,291  $1,113,436  $3,045,317  $3,198,348  $1,662,291 
Franchise revenues  382,487   160,470   86,981   371,097   382,487   160,470 
  3,580,835   1,822,761   1,200,417   3,416,414   3,580,835   1,822,761 
Costs and expenses:                        
Cost of sales  2,728,480   1,415,530   894,450   2,610,761   2,728,480   1,415,530 
General and administrative  442,686   213,161   136,848   408,419   442,686   213,161 
Depreciation and amortization  188,506   85,058   56,909   180,310   188,506   85,058 
Goodwill impairment  -   460,075   -   -   -   460,075 
Impairment of other long-lived assets  79,956   9,580   2,623 
Impairment of long-lived assets  69,477   79,956   9,580 
Facilities relocation and restructuring  8,016   3,221   652   -   8,016   3,221 
Other operating expense, net  3,239   652   263   5,147   3,239   652 
  3,450,883   2,187,277   1,091,745   3,274,114   3,450,883   2,187,277 
            
Operating profit (loss)  129,952   (364,516)  108,672   142,300   129,952   (364,516)
            
Interest expense  (125,392)  (66,925)  (59,224)  (136,193)  (125,392)  (66,925)
Other (expense) income, net  (2,973)  3,234   3,380 
Income (loss) from continuing operations before income taxes  1,587   (428,207)  52,828 
Benefit from (provision for) income taxes  8,062   63,121   (19,985)
Income (loss) from continuing operations  9,649   (365,086)  32,843 
Loss from discontinued operations, net of income taxes  -   -   (149)
Net income (loss) $9,649  $(365,086) $32,694 
Loss on early extinguishment of debt  (26,197)  -   - 
Other income (expense), net  2,667   (2,973)  3,234 
(Loss) income before income taxes  (17,423)  1,587   (428,207)
Benefit from income taxes  14,785   8,062   63,121 
Net (loss) income $(2,638) $9,649  $(365,086)







See accompanying notes to consolidated financial statements.

5774
 

  WENDY’S/
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INVESTED EQUITY
(In Thousands)


    Accumulated Other Comprehensive Income              Accumulated Other Comprehensive Income (Loss)  
Member Interest
Other
Capital
Accumulated Deficit
Advances to Wendy’s/
Arby’s
Unrealized Gain (Loss) on Cash Flow HedgesCurrency Translation Adjustment
Unrecognized Pension
Loss
Total 
Member Interest
  Other Capital  
Accumulated Deficit
  
Advances to Wendy’s/
Arby’s
  
Unrealized Gain (Loss) on Cash Flow Hedges
  
Currency Translation Adjustment
  
Unrecognized Pension Loss
  Total 
Balance at December 31, 2006$             -$ 326,681$    (171,582)$           -$     1,543$            18$    (211)$ 156,449
Cumulative effect of change in accounting for uncertainty in income taxes--(2,537)---(2,537)
Comprehensive income:     
Net income--32,694---32,694
Change in unrealized loss on cash flow hedges---(1,696)-(1,696)
Foreign currency translation adjustment----671-671
Recovery of unrecognized pension loss-----2727
Comprehensive income   -  29,159
Cash dividends to Parent-(37,000)---(37,000)
Share-based compensation expense-5,054---5,054
Balance at December 30, 2007            -294,735   (141,425)                -      (153)           689          (184)    153,662 $-  $294,735  $(141,425) $-  $(153) $689  $(184) $153,662 
Wendy’s International Inc. merger consideration, net of tax benefits-2,509,813---2,509,813  -   2,509,813   -   -   -   -   -   2,509,813 
Comprehensive loss:                                     
Net loss--(365,086)---    (365,086)  -   -   (365,086)  -   -   -   -   (365,086)
Change in unrealized loss on cash flow hedges---153-153  -   -   -   -   153   -   -   153 
Foreign currency translation adjustment----(43,002)-(43,002)  -   -   -   -   -   (43,002)  -   (43,002)
Unrecognized pension loss-----(138)(138)  -   -   -   -   -   -   (138)  (138)
Comprehensive loss     (408,073)                              (408,073)
Advances to Parent---(155,000)--(155,000)  -   -   -   (155,000)  -   -   -   (155,000)
Capital contributions from Parent-150,177---150,177  -   150,177   -   -   -   -   -   150,177 
Share-based compensation expense-8,770---8,770  -   8,770   -   -   -   -   -   8,770 
Other-(4,574)----(4,574)  -   (4,574)  -   -   -   -   -   (4,574)
Balance at December 28, 2008           -    2,958,921    (506,511)   (155,000)              -    (42,313)          (322) 2,254,775  -   2,958,921   (506,511)  (155,000)  -   (42,313)  (322)  2,254,775 
Comprehensive income:                                      
Net income--9,649-              --9,649  -   -   9,649   -   -   -   -   9,649 
Foreign currency translation adjustment---              -37,617-37,617  -   -   -   -   -   37,617   -   37,617 
Comprehensive income---              --47,266  -   -   -   -   -   -   -   47,266 
Cash dividends to Parent-(115,000)-              --(115,000)  -   (115,000)  -   -   -   -   -   (115,000)
Share-based compensation expense-13,570-              --13,570  -   13,570   -   -   -   -   -   13,570 
Other-(2,716)-              --12(2,704)  -   (2,716)  -   -   -   -   12   (2,704)
Balance at January 3, 2010$            -$ 2,854,775$  (496,862)$  (155,000)      $           -$      (4,696)$          (310)$ 2,197,907  -   2,854,775   (496,862)  (155,000)  -   (4,696)  (310)  2,197,907 
Comprehensive income:                                
Net loss  -   -   (2,638)  -   -   -   -   (2,638)
Foreign currency translation adjustment  -   -   -   -   -   12,666   -   12,666 
Comprehensive income  -   -   -   -   -   -   -   10,028 
Cash dividends to Parent  -   (443,700)  -   -   -   -   -   (443,700)
Share-based compensation expense  -   12,790   -   -   -   -   -   12,790 
Other  -   (406)  -   -   -   -   11   (395)
Balance at January 2, 2011 $-  $2,423,459  $(499,500) $(155,000) $-  $7,970  $(299) $1,776,630 




See accompanying notes to consolidated financial statements.



5875
 

WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 Year Ended  Year Ended 
 January 3,  December 28,  December 30,  January 2,  January 3,  December 28, 
 2010  2008  2007  2011  2010  2008 
Cash flows from continuing operating activities:                  
Net income (loss) $9,649  $(365,086) $32,694 
Adjustments to reconcile net income (loss) to net cash provided by continuing operating activities:            
Net (loss) income $(2,638) $9,649  $(365,086)
Adjustments to reconcile net (loss) income to net cash provided by continuing operating activities:            
Depreciation and amortization  188,506   85,058   56,909   180,310   188,506   85,058 
Impairment of other long-lived assets  79,956   9,580   2,623 
Impairment of long-lived assets  69,477   79,956   9,580 
Accretion of long-term debt  15,016   10,400   2,452 
Distributions received from joint venture  13,980   14,583   2,864 
Share-based compensation provision  12,790   13,570   8,770 
Write-off and amortization of deferred financing costs  11,763   15,796   3,753 
Provision for doubtful accounts  9,694   8,169   670 
Non-cash rent expense  9,334   12,618   3,103 
Tax sharing payable to Wendy’s/Arby’s, net  40,413   -   -   1,052   40,413   - 
Tax sharing payments to Wendy’s/Arby’s  (10,417)  (17,000)  -   -   (10,417)  (17,000)
Write-off and amortization of deferred financing costs  15,796   3,753   1,999 
Distributions received from joint venture  14,583   2,864   - 
Share-based compensation provision  13,570   8,770   5,054 
Non-cash rent expense  12,618   3,103   599 
Accretion of long-term debt  10,400   2,452   179 
Provision for doubtful accounts  8,169   670   631 
Deferred income tax benefit, net  (68,541)  (62,723)  (8,681)
Net recognition of deferred vendor incentive  (587)  (791)  (6,459)
Other operating transactions with Wendy’s/Arby’s  14,114   5,263   24,957   (8,032)  14,114   5,263 
Equity in earnings in joint venture  (8,499)  (1,974)  -   (9,459)  (8,499)  (1,974)
Net recognition of vendor incentive  (791)  (6,459)  (990)
Deferred income tax benefit  (25,752)  (68,541)  (62,723)
Goodwill impairment  -   460,075   -    -   -   460,075 
Other, net  5,553   4,352   (3,846)  (504)  5,553   4,352 
Changes in operating assets and liabilities:                        
Accounts and notes receivable  (7,679)  (1,367)  (356)  (4,193)  (7,679)  (1,367)
Inventories  1,879   (140)  (987)  394   1,879   (140)
Prepaid expenses and other current assets  1,121   19,800   (14,471)  755   1,121   19,800 
Accounts payable, accrued expenses, and other current liabilities  1,281   (50,026)  12,618 
Accounts payable  (14,184)  (52,560)  14,532 
Accrued expenses and other current liabilities  (27,962)  53,841   (64,558)
Net cash provided by continuing operating activities  321,681   100,965   108,932   231,254   321,681   100,965 
Cash flows from continuing investing activities:                        
Capital expenditures  (101,914)  (105,924)  (72,883)  (147,969)  (101,914)  (105,924)
Proceeds from dispositions  10,882   1,322   878   5,660   10,882   1,322 
Cost of acquisitions, less cash acquired  (2,357)  (9,622)  (4,094)  (3,123)  (2,357)  (9,622)
Increase in cash from merger with Wendy’s  -   199,785   -   -   -   199,785 
Other, net  192   (129)  48   1,263   192   (129)
Net cash (used in) provided by continuing investing activities  (93,197)  85,432   (76,051)  (144,169)  (93,197)  85,432 
Cash flows from continuing financing activities:                        
Proceeds from long-term debt  607,507   17,753   23,060   497,661   607,507   17,753 
Repayments of notes payable and long-term debt  (209,482)  (175,521)  (14,292)  (466,461)  (209,482)  (175,521)
Deferred financing costs  (38,399)  -   (4,517)  (16,353)  (38,399)  - 
Capital contributions from Wendy’s/Arby’s  -   150,177   -   -   -   150,177 
Dividends to Wendy’s/Arby’s  (115,000)  -   (37,000)
Advances to Wendy’s/Arby’s  -   (155,000)  - 
Dividends/advances to Wendy’s/Arby’s  (443,700)  (115,000)  (155,000)
Other, net  -   (659)  -   (21)  -   (659)
Net cash provided by (used in) continuing financing activities  244,626   (163,250)  (32,749)
Net cash provided by continuing operations before effect of exchange rate changes on cash  473,110   23,147   132 
Net cash (used in) provided by continuing financing activities  (428,874)  244,626   (163,250)
Net cash (used in) provided by continuing operations before effect of exchange rate changes on cash  (341,789)  473,110   23,147 
Effect of exchange rate changes on cash  2,725   (4,123)  -    1,611   2,725   (4,123)
Net cash provided by continuing operations  475,835   19,024   132 
Net cash (used in) provided by continuing operations  (340,178)  475,835   19,024 
Net cash used in operating activities of discontinued operations  (51)  -   (285)  -   (51)  - 
Net increase (decrease) in cash and cash equivalents  475,784   19,024   (153)
Net (decrease) increase in cash and cash equivalents  (340,178)  475,784   19,024 
Cash and cash equivalents at beginning of year  63,080   44,056   44,209   538,864   63,080   44,056 
Cash and cash equivalents at end of year $538,864  $63,080  $44,056  $198,686  $538,864  $63,080 
 
 

See accompanying notes to consolidated financial statements.


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WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)

 Year Ended  Year Ended 
 January 3,  December 28,  December 30,  January 2,  January 3,  December 28, 
 2010  2008  2007  2011  2010  2008 
                  
Supplemental disclosures of cash flow information:                  
Cash paid during the year in continuing operations for:                  
Interest $84,085  $60,446  $56,502  $126,589  $84,085  $60,446 
Income taxes, net of refunds $9,529  $3,130  $4,151  $9,830  $9,529  $3,130 
Supplemental schedule of non-cash investing and financing activities:                        
Total capital expenditures $108,284  $114,354  $87,349  $153,744  $108,284  $114,354 
Cash capital expenditures  (101,914)  (105,924)  (72,883)  (147,969)  (101,914)  (105,924)
Non-cash capitalized lease and certain sales-leaseback obligations $6,370  $8,430  $14,466  $5,775  $6,370  $8,430 
                        
Non-cash transactions:                        
Value of equity consideration issued in merger with Wendy’s                        
Common stock $-  $2,476,197  $-   N/A   N/A  $2,476,197 
Stock options $-  $18,296  $-   N/A   N/A  $18,296 
Assumption of debt $-  $553,438  $-   N/A   N/A  $553,438 



See accompanying notes to consolidated financial statements.


6077
 
WENDY’S/ARBY’S RESTAURANT,GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)Thousands Except Per Share Amounts)


 
(1) Summary of Significant Accounting Policies

Corporate Structure

Wendy’s/Arby’s Restaurants, LLCGroup, Inc. (“Wendy’s/Arby’s Restaurants”Arby’s” and, together with its subsidiaries, the “Company”, “we”, “us” or “our”), is a wholly-owned subsidiary holding company of Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s”).  Delaware corporation. On September 29, 2008, (the “Closing Date”), Wendy’s/Arby’s (formerly Triarc Companies, Inc. or “Triarc”)the Company completed the merger (the “Wendy’s Merger”) with Wendy’s International, Inc. (“Wendy’s”) and our former corporate name Triarc Companies, Inc. (“Triarc”) was changed to Wendy’s/Arby’s Group, Inc. Wendy’s/Arby’s is the parent company of its 100% owned subsidiary holding company, Wendy’s/Arby’s Restaurants, LLC (“Wendy’s/Arby’s Restaurants”).  The principal wholly-owned100% owned subsidiaries of Wendy’s/Arby’s Restaurants as of January 3, 20102, 2011 are Wendy’s and Arby’s Restau rantR estaurant Group, Inc. (“ARG” or “Arby’s”Arby’s”) and their subsidiaries. Wendy’s and Arby’s are the owners and franchisors of the Wendy’s® and Arby’s® restaurant systems. Wendy’s/Arby’s Restaurants’ was formed in October 2008 and its sole asset at formation consisted of the contribution by Wendy’s/Arby’s of its investment in Wendy’s.  In 2009, Wendy’s/Arby’s contributed its longstanding investment in ARG to Wendy’s/Arby’s Restaurants. Wendy’s/Arby’s Restaurants has noThe operations other than those of Wendy’s and Arby’s and their respective subsidiaries.each represent a reportable business segment.

NatureExcept where otherwise indicated, these notes relate to the consolidated financial statements for both Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants (the “Companies”). References herein to Wendy’s/Arby’s corporate (“Corporate”) represents Wendy’s/Arby’s parent company functions only and their effect on the consolidated results of operations and financial condition.

The Company’s restaurantIn January 2011, Wendy’s/Arby’s announced that it is exploring strategic alternatives for Arby’s, including a sale of the brand.  This process is in its early phases and there is no assurance as to any particular outcome.  To address uncertainties for our employees created by this process, Wendy’s/Arby’s has implemented a retention program; the payment of a portion of this program is conditioned on the sale of Arby’s.  While the process is pending, Arby’s will continue to execute its growth initiatives.  Arby’s did not meet the financial accounting requirements to be classified as held for sale or to be reported as discontinued operations comprise twoas of January 2, 2011.  As of January 2, 2011, the carrying value of our Arby’s business segments: Arby’s restaurants(defin ed as total assets less all non-intercompany liabilities) was $164,000. (See Notes 9 and Wendy’s restaurants subsequent to the Wendy’s Merger on September 29, 2008.27 for further segment information.)

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).   and include all of each Companies’ subsidiaries. The consolidated financial statements present the historical resultsaccounts of Wendy’s and Arby’s as if Wendy’s/Arby’s Restaurants had existed as a separate legal entity by the beginning of the earliest period presented.  Accordingly, the consolidated financial statements include the results of Wendy’s and Arby’s beginning from their time of ownership by Wendy’s/Arby’s. Therefore, the consolidated financial statements include the accounts of Wendy’sare included subsequent to the Closing Date. All intercompany balances and transactions have been eliminated in consolidation.

The Company participatesCompanies participate in three national advertising funds established to collect and administer funds contributed for use in advertising and promotional programs for Company-ownedcompany-owned and franchised stores. The revenue, expenses and cash flows of all such advertising funds are not included in the Company’s Consolidated StatementsCompanies’ consolidated statements of Operationsoperations or Consolidated Statementsconsolidated statements of Cash Flowscash flows because the contributions to these advertising funds are designated for specific purposes, and the Company actsCompanies act as an agent, in substance, agent with regard to these contributions. The assets and liabilities of these funds are reported as “Advertising funds restricted assets” and “Advertising funds restricted liabilities.”

All intercompany balances and transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period.  Actual results could differ materially from those estimates.

Fiscal yearYear

OurThe Companies’ fiscal reporting periods consist of 5352 or 5253 weeks ending on the Sunday closest to December 31 and are referred to herein as (1) “the year ended January 2, 2011” or “2010”, which consisted of 52 weeks, (2) “the year ended January 3, 2010” or “2009”, which consisted of 53 weeks (2)and (3) “the year ended December 28, 2008” or “2008” and (3) “the year ended December 31, 2007” or “2007” both of, which consisted of 52 weeks.

Cash equivalentsEquivalents

All highly liquid investments with a maturity of three months or less when acquired are considered cash equivalents. The Company’sCompanies’ cash equivalents principally consist of cash in bank, money market and mutual fund money market accounts and are primarily not in Federal Deposit Insurance Corporation insured accounts.

We believe that our vulnerability to risk concentrations in our cash equivalents is mitigated by (1) our policies restricting the eligibility, credit quality and concentration limits for our placements in cash equivalents and (2) insurance from the Securities Investor Protection Corporation of up to $500 per account as well as supplemental private insurance coverage maintained by substantially all of our brokerage firms, to the extent our cash equivalents are held in brokerage accounts.

6178
 
WENDY’S/ARBY’S RESTAURANT,GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
Thousands Except Per Share Amounts)



Accounts and notes receivableNotes Receivable

Accounts and notes receivable consist primarily of royaltyroyalties, franchise fees, rents due principally from franchisees, and franchise fee receivables, credit card receivables and rents, principally due from franchisees.receivables. The need for an allowance for doubtful accounts is reviewed on a specific identification basis based upon past due balances and the financial strength of the obligor. As of January 3, 2010, notes receivable (non-current) for Wendy’s/Arby’s also included the series A senior notes that Wendy’s/Arby’s received from Deerfield Capital Corp. (“DFR”) (the “DFR Notes”) in connection with the sale of our interest in DFR in 2007.  See Note 3 – DFR Notes for additional information.

Inventories

The Company’sCompanies’ inventories are stated at the lower of cost or market, with cost determined in accordance with the first-in, first-out method, and consist primarily of restaurant food items, kids’ meal toys and paper supplies.

Investments

The Company’s investmentInvestments in which wethe Companies have significant influence over the investee (“Equity Investment”), which pertains to ourinvestees includes their 50% share in a partnership in a Canadian restaurant real estate joint venture (“TimWen”) with Tim Hortons Inc. (“THI”), is. Such investments are accounted for in accordance withon the “Equity Method” of accountingequity method under which our results of operations include ourtheir share of the income or loss of the investee.  The Company’s investmentinvestees. Investments in limited partnerships and other non-current investments in which wethe Companies do not have significant influence over the investee isinvestees are recorded at cost, (the “Cost Method”), with related realized gains and losses reported as income or loss in the period in which the security issecurities are sold or otherwise disposed. 
 
The difference, if any, between the carrying value of the Company’s investment in TimWenequity investments and itsthe underlying equity in the net assets of theeach investee (the “Carrying Value Difference”) is accounted for as if the investee were a consolidated subsidiary.  Accordingly, the Carrying Value Differencecarrying value difference is amortized over the estimated lives of the assets of the investee to which such difference would have been allocated if the Equity Investmentequity investment were a consolidated subsidiary.  To the extent the carrying value difference represents goodwill, it is not amortized.  

The Company reviews itsCompanies review investments with unrealized losses and recognizesrecognize investment losses currently for any unrealized losses deemed to be other than temporary (“Other Than Temporary Losses”).temporary.  These investment losses are recognized as a component of net (loss) income. The Company considersCompanies consider such factors as the length of time the market value of an investment has been below its carrying value, the severity of the decline, the financial condition of the investee and the prospect for future recovery in the market value of the investment, including the Company’sCompanies’ ability and intent to hold the investments for a period of time sufficient for a forecasted recovery. The cost-basis component of investments represents original cost less a permanent reduction for any unrealized losses that were deemed to be other than temporary .temporary.

Properties and depreciationDepreciation and amortizationAmortization

Properties are stated at cost, including internal costs of employees to the extent such employees are dedicated to specific restaurant construction projects, less accumulated depreciation and amortization.  Depreciation and amortization of properties is computed principally on the straight-line basis using the following estimated useful lives of the related major classes of properties:  1 to 15 years for office and restaurant equipment, 5 to 15 years for transportation equipment, 7 to 30 years for buildings and 7 to 20 years for owned site improvements.  Leased assets capitalized and leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the respective leases, including periods covered by renewal options that the Company believes it isCompanies believe they are reasonably assured of e xercising.exercising.

The Company reviews itsCompanies review properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.  If such review indicates an asset group may not be recoverable, an impairment 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.

Goodwill

The Company operates in two business segments consisting of two restaurant brands: (1) Wendy’s restaurant operations and (2) Arby’s restaurant operations. Each segment includes Company-owned restaurants and franchise reporting units which are considered to be separate reporting units for purposes of measuring goodwill impairment. Substantially all goodwill at January 3, 2010 and December 28, 2008 was associated with our franchise reporting units.  Goodwill, representing the excess of the cost of an acquired entity over the fair value of the acquired net assets, is not amortized. For goodwill purposes, Wendy’s includes two reporting units comprised of its (i) North America company-owned and franchise restaurants and (ii) international operations; Arby’s reporting units represent (i) company-owned restaurants and (ii) franchise restaurants.  Substantially all goodwill at January 2, 2011 and January 3, 2010 was associated with Wendy’s North America restaurants.  The Company testsCompanies test goodwill for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset may be impaired, by comparing the fair value of each reporting unit, using both discounted cash

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


flows and market multiples based on earnings, to the carrying value to determine if there is an indication that a potential impairment may exist.

If wethe Companies determine that an impairment may exist, we then measure the amount of the impairment loss is measured as the excess, if any, of the carrying amount of the goodwill over its implied fair value. In determining the implied fair value of the reporting unit’s goodwill, the Company allocatesCompanies allocate the fair value of a reporting unit to all of the assets and liabilities of that unit as if the unit had been acquired in a

62
WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit.  The excess of the fair value of the unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill.  If the carrying amount of a reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Our fair value estimates are subject to change as a result of many factors including, among others, any changes in our business plans, changing economic conditions and the competitive environment.  Should actual cash flows and our future estimates vary adversely from those estimates we use, we may be required to recognize additional goodwill impairment charges in future years.

Other intangible assetsIntangible Assets and deferred costsDeferred Costs

Amortizing intangible assets are amortized on the straight-line basis using the following estimated useful lives of the related classes of intangibles: the terms of the respective leases, including periods covered by renewal options that the Company isCompanies are reasonably assured of exercising, for favorable leases; 19 to 21 years for franchise agreements; 1 to 5 years for costs of computer software; 20 years for reacquired rights under franchise agreements; and 20 years for trademarks with a definite life and distribution rights; and 3 to 8 years for non-compete agreements.rights. Trademarks acquired in the Wendy’s Merger have an indefinite life and are not amortized.

The Company reviewsCompanies review intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. Indefinite lived intangible assets are also reviewed for impairment annually.  If such review indicatesreviews indicate the intangible asset may not be recoverable, an impairment loss is recognized for the excess of the carrying amount over the fair value of the intangible asset.

Deferred financing costs are amortized as interest expense over the lives of the respective debt using the effective interest rate method.

Derivative instrumentsInstruments

The Company’sCompanies’ derivative instruments are recorded at fair value (the “Company’s Derivative Instruments”).value. Changes in the fair value of the Company’s Derivative Instrumentsderivative instruments that have been designated as fair value hedging instruments are recorded as an adjustment to the underlying debt balance being hedged to the extent of the effectiveness of such hedging instruments.  Changes in the fair value of the Company’s Derivative Instrumentsderivative instruments that have been designated as cash flow hedging instruments are included in the “Unrealized gain (loss) on cash flow hedges” component of “Accumulated other comprehensive income (loss)” to the extent of the effectiveness of such hedging instruments. Any ineffective portion of the change in fair value of the designated hedging instrumen tsinstruments is included in results of operations.

Share-Based Compensation

The Company has not granted any member interests as share-based compensation; however, Wendy’s/Arby’s has granted share-based compensation to certain employees of the CompanyWendy’s/Arby’s Restaurants under several equity plans of Wendy’s/Arby’s.  The Company has recordedWendy’s/Arby’s Restaurants recognizes such share-based compensation as capital contributions from Wendy’s/Arby’s. Wendy’s/Arby’s and the CompanyRestaurants has not granted any of its member interests as share-based compensation.

The Companies measure the cost of employee services received in exchange for an award of equity instruments, includingwhich include grants of employee stock options and restricted stock, based on the fair value of the award at the date of grant.  Wendy’s/Arby’s and the Company recognize share-basedShare-based compensation expense is recognized net of estimated forfeitures, determined based on historical experience.  Wendy’s/Arby’s and the Company us e (1) the Black-Scholes-Merton option pricing model (the “Black-Scholes Model”) for purposes of determining the fair value of stock options granted and (2) recognizesThe Companies recognize compensation costs ratably over the requisite service period for each separately vesting portion of the award.award unless the awards are subject to performance conditions, in which case they recognize compensation expense over the requisite service period to the extent performance conditions are considered probable. The Companies determine the grant-date fair value of stock opti ons using a Black-Scholes-Merton option pricing model (the “Black-Scholes Model”) unless the awards are subject to market conditions, in which case we use a Monte Carlo simulation model.  The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved.


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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


Foreign Currency Translation

Foreign currency translation

At January 3, 2010, substantiallySubstantially all of the Company’sCompanies’ foreign operations wereare in Canada where the functional currency is the Canadian dollar.  Financial statements of foreign subsidiaries are prepared in their functional currency then translated into United States dollars. Assets and liabilities are translated at the exchange rate as of the balance sheet date and revenues, costs, and expenses are translated at a monthly average exchange rate.  Net gains or losses resulting from the translation adjustment are charged or credited directly to the “Foreign currency translation adjustment” component of “Accumulated other comprehensive income (loss).”


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
Income taxesTaxes

WeThe Companies record income tax liabilities based on known obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax effects from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss, capital loss, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the years in which those differences are expected to be recovered or settled. When considered necessary, wethe Companies record a valuation allowance to reduce the carrying amount of deferred tax assets if it is more likely than not all or a portion of the asset will not be realized.

WeThe Companies apply a recognition threshold and measurement attribute for financial statement recognition and measurement of potential tax benefits associated with tax positions taken or expected to be taken in income tax returns (“Uncertain Tax Positions”).  A two-step process of evaluating a tax position is followed, whereby we first determine if it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  A tax position that meets the more-likely-than-not recognition threshold is then measured for purposes of financial statement recognition as the largest amount of benefit that is greater than 50 percent likely of being realized upon being effectively settled.  The Company adopted this new accounting guidance related to Uncertain Tax Positions on January 1, 2007.  As a result of adoption, the Company recorded a reduction of retained earnings of $2,537 as of the beginning of 2007.

Interest accrued for Uncertain Tax Positions is charged to “Interest expense”.expense.”  Penalties accrued for Uncertain Tax Positions are charged to “General and administrative”.administrative.”

The Company is included in the consolidated Federal and certain state income tax returns of Wendy’s/Arby’s.  Wendy’s/Arby’s files a consolidated Federal income tax return, which includes its principal corporate subsidiaries.  As a result of the Wendy’s Merger, which was treated as a reverse acquisition for Federal income tax purposes, Wendy’s/Arby’s became part of the Wendy’s consolidated group for Federal income tax reporting purposes with Wendy’s/Arby’s as its new parent.  As a result, Wendy’s/Arby’s had a short taxable year in 2008 ending on the date of the Wendy’s Merger.

Revenue recognitionRecognition

“Sales” includes revenues recognized upon delivery of food to the customer at company-owned restaurants and revenues for shipments of bakery items and kid’skids’ meal promotional items to our franchisees and others. “Sales” excludes sales taxes collected from the Company’sCompanies’ customers.
 
“Franchise revenues” includeincludes royalties, franchise fees, and rental income. Royalties from franchised restaurants are based on a percentage of net sales of the franchised restaurant and are recognized as earned.  Initial franchise fees are recorded as deferred income when received and are recognized as revenue when a franchised restaurant is opened sinceas all material services and conditions related to the franchise fee have been substantially performed by the Company upon the restaurant opening.  Renewal franchise fees are recognized as revenue when the license agreements are signed and the fee is paid since there are no material services and conditions related to the renewal franchise fee.  Franchise commitment fee deposits are forfeited and recognized as revenue upon the termination of the re latedrelated commitments to open new franchised restaurants.  Rental income from locations owned by the CompanyCompanies and leased to franchisees is recognized on a straight-line basis over the respective operating lease terms.

Cost of Sales

Cost of sales includes food and paper, restaurant labor, and occupancy, advertising and other operating costs.

Vendor incentivesIncentives

The Company receivesCompanies receive incentives from itstheir vendors. These incentives are recognized as earned and are generally classified as a reduction of “Cost of Sales.sales.”

Advertising costsCosts

The Company incursCompanies incur various advertising costs, including contributions to certain advertising cooperatives based upon a percentage of net sales by Company-ownedcompany-owned restaurants.  All advertising costs are expensed as incurred, with the exception of media development costs that are expensed beginning in the month that the advertisement is first communicated, and are included in “Cost of sales”.sales.”


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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


Self- insurance

We are self-insured for most domestic workers’ compensation, health care claims, general liability and automotive liability losses. We provide for ourtheir estimated cost to settle both known claims and claims incurred but not yet reported.  Liabilities associated with these claims are estimated, in part, by considering the frequency and severity of historical claims, both specific to us, as well as industry-wide loss experience, and other actuarial assumptions. We determine casualty insurance obligations with the assistance of actuarial firms. Since there are many estimates and assumptions involved in recording insurance liabilities, and in the case of workers’ compensation a significant period of time before ultimate resolution of claims, differences between actual future events and prior estimates and assumptions c ould resultcould re sult in adjustments to these liabilities.

Leases

We operate restaurants that are located on sites owned by us and sites leased by us from third parties.  At inception, each lease is evaluated to determine whether the lease will be accounted for as an operating or capital lease based on lease terms. When determining the lease term, we include option periods for which failure to renew the lease imposes a significant economic detriment.  The primary penalty to which we may be subject is the economic detriment associated with the existence of unamortized leasehold improvements which might be impaired if we choose not to exercise the available renewal options.

For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as rent expense on a straight line basis (“Straight-Line Rent”) over the applicable lease terms.  Lease terms are generally initially for 20 years and, in most cases, provide for rent escalations and renewal options.  The term used for Straight-Line Rent expense is calculated initially from the date we obtain possession of the leased premises through the expected lease termination date at lease inception.date. We expense rent from possession date to the restaurant opening date. There is a period under certain lease agreements referred to as a rent holiday (“Rent Holiday”) that generally begins on the possession date and ends on the rent commencement date. During the Rent Holiday period, no cash rent payments are typically due under the terms of the lease,lease; however, expense is recorded for that period on a straight linestraight-line basis consistent with the Straight-Line Rent policy.
       
For leases that contain rent escalations, we record the rent payable during the lease term, as determined above, on the straight-line basis over the term of the lease (including the rent holiday period beginning upon our possession of the premises), and record the excess of the Straight-Line Rent over the minimum rents paid as a deferred lease liability included in “Other liabilities.” Certain leases contain provisions, referred to as contingent rent (“Contingent Rent”), that require additional rental payments based upon restaurant sales volume. Contingent rentRent is expensed each period as the liability is incurred.

Favorable and unfavorable lease amounts, when we purchase restaurants, are recorded as components of “Other intangible assets” and “Other liabilities”,liabilities,” respectively, and are amortized to “Cost of sales” – both on a straight-line basis over the remaining term of the leases.  When the expected term of a lease including early terminations, is determined to be shorter than the original amortization period, the favorable or unfavorable lease balance associated with the lease is adjusted to reflect the revised lease term and a gain or loss recognized.

Management with the assistance of a valuation firm, makes certain estimates and assumptions regarding each new lease agreement, lease renewal, and lease amendment, including, but not limited to, property values, market rents, property lives, discount rates, and probable term, all of which can impact (1) the classification and accounting for a lease as capital or operating, (2) the rent holiday and/orand escalations in payment that are taken into consideration when calculating straight-line rent, (3) the term over which leasehold improvements for each restaurant are amortized, and (4) the values and lives of favorable and unfavorable leases. Different amounts of depreciation and amortization, interest and rent expense would be reported if different estimates and assumptions were used.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

Accounting Standards Not Yet Adopted

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued guidelines on the consolidation of variable interest entities which alters how a company determines when an entity that is insufficiently capitalized or not controlled through voting interests should be consolidated. A company has to determine whether it should provide consolidated reporting of an entity based upon the entity's purpose and design and the parent company's ability to direct the entity's actions. The guidance is effective commencing with our 2010 fiscal year. We do not expect adoption of this guidance to have a material impact on our consolidated financial statements.
In January 2010, the FASB issued amendments to the existing fair value measurements and disclosures guidance which requires new disclosures and clarifies existing disclosure requirements.  The purpose of these amendments is to provide a greater level of disaggregated information as well as more disclosure around valuation techniques and inputs to fair value measurements.  The guidance is effective commencing with our 2010 fiscal year.  We do not expect adoption of this standard to have a material effect on our consolidated financial statements.
 
(2) Acquisitions and Dispositions

Merger with Wendy’s International, Inc.

On September 29, 2008, Wendy’s/Arby’s completed the Wendy’s Merger in an all-stock transaction in which Wendy’s shareholders received a fixed ratio of 4.25 shares of Wendy’s/Arby’s Class A Common Stockcommon stock for each share of Wendy’s common stock owned.  At September 28, 2008, there were 6,625 Wendy’s restaurants in operation in the United States and in 21 other countries and U.S. territories.  Of these restaurants, 1,404 were operated by Wendy’s and 5,221 by Wendy’s franchisees.

The merger was accounted for using the purchase method of accounting and Wendy’s/Arby’s concluded that it was the acquirer for financial accounting purposes. The total merger consideration was allocated to Wendy’s net tangible and intangible assets acquired and liabilities assumed based on their fair values with the excess recognized as goodwill of which $42,282 is deductible for tax purposes.  The total consideration includesincluded merger related costs in accordance with the applicable guidance effective as of the Closing Date.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



The computation of the total merger consideration and the allocation of the consideration to the net tangible and intangible assets acquired and liabilities assumed was finalized during the year ended January 3, 2010 and is presented in the table below:

Value of shares of Wendy’s/Arby’s common stock issued in exchange for Wendy’s common shares $2,476,197  $2,476,197 
Value of Wendy’s stock options converted into Wendy’s/Arby’s options  18,296   18,296 
Wendy’s Merger costs  21,028   21,028 
Total merger consideration  2,515,521   2,515,521 
        
Net book value of Wendy’s assets acquired and liabilities assumed  712,794   712,794 
Excess of merger consideration over net book value of Wendy’s assets acquired and liabilities assumed  1,802,727   1,802,727 
Changes to fair values of assets and liabilities and deferred income tax liability related to the merger:        
(Increase)/decrease in:        
Current assets        
Accounts and notes receivable  (694)  (694)
Prepaid expenses and other current assets  985   985 
Investments  (64,852)  (64,852)
Properties  (46,527)  (46,527)
Other intangible assets        
Trademark  (900,109)  (900,109)
Franchise agreements  (353,000)  (353,000)
Favorable leases  (121,620)  (121,620)
Computer software  9,572   9,572 
Deferred costs and other assets  (377)  (377)
Increase/(decrease) in:        
Accrued expenses and other current liabilities  1,956   1,956 
Long-term debt, including current portion of $228  (56,337)  (56,337)
Other liabilities  (31,378)  (31,378)
Unfavorable leases  70,762   70,762 
Deferred income tax liability  557,995 
Total adjustments
  (933,624)
Total goodwill $869,103 
Wendy’s/Arby’s Restaurants deferred income tax liability  557,995 
Wendy’s/Arby’s Restaurants total adjustments
  (933,624)
Wendy’s/Arby’s Restaurants goodwill  869,103 
Decrease in Wendy’s/Arby’s deferred income tax liability  (5,277)
Wendy’s/Arby’s goodwill $863,826 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
In the Wendy’s Merger, 376,776 shares of Wendy’s/Arby’s Class A Common Stockcommon stock were issued to Wendy’s shareholders.  The equity consideration was based on the 4.25 conversion factor of the Wendy’s outstanding shares at a value of $6.57 per share which represented the average closing market price of Triarc Class A Common Stockcommon stock two days before and after the merger announcement date of April 24, 2008.  Immediately prior to the Wendy’s Merger, each share of Wendy’s/Arby’s Class B common stock was converted into Class A common stock on a one for one basis (the “Conversion”).  In connection with the May 28, 2009 amendment and restatement of Wendy’s/Arby’s Certificate of Incorporation, their former Class A common stock is now referred to as &# 8220;Common Stock.”

Outstanding Wendy’s stock options were converted upon completion of the merger into stock options with respect to Wendy’s/Arby’s common stock,Common Stock, based on the 4.25:1 exchange ratio.  The value of Wendy’s stock options that have been converted into Wendy’s/Arby’s stock options of $18,296 was calculated using the Black-Scholes option pricing model as of April 24, 2008.

The acquired franchise agreements have a weighted average amortization period of approximately 21 years and the acquired trademark has an indefinite life so there is no related amortization. The acquired favorable and unfavorable leases have a weighted average amortization period of approximately 19 and 16 years, respectively.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)




The following unaudited supplemental pro forma consolidated summary operating data (the “As Adjusted”) for 2008 and 2007 has been prepared by adjusting the historical data as set forth in the accompanying consolidated statements of operations for the yearsyear ended December 28, 2008 and December 30, 2007 to give effect to the Wendy’s Merger and the Conversion as if itthey had been consummated as of the beginning of 2007:
 
 2008  2007  2008 
      As Reported       As Adjusted       As Reported       As Adjusted  As Reported  As Adjusted 
Revenues:                  
Sales $1,662,291  $3,279,504  $1,113,436  $3,273,461  $1,662,291  $3,279,504 
Franchise revenues  160,470   383,137   86,981   374,604   160,470   383,137 
Total revenues  1,822,761   3,662,641   1,200,417   3,648,065   1,822,761   3,662,641 
Operating (loss) profit  (364,516)  (343,719)  108,672   256,793 
Net (loss) income  (365,086)  (377,371)  32,694   104,602 
        
(Wendy’s/Arby’s)        
Operating loss  (413,650)  (392,854)
Net loss  (479,741)  (492,026)
Basic and diluted loss per share:        
Common Stock  (3.05)  (1.05)
Class B common stock  (1.24)  N/A 
        
(Wendy’s/Arby’s Restaurants)        
Operating loss  (364,516)  (343,719)
Net loss  (365,086)  (377,371)

This unaudited pro forma information is provided for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the merger had been completed on the date set forth above, nor is it necessarily indicative of the future operating results of the consolidatedcombined company.  The As Reported and As Adjusted amounts for Wendy’s include (1) the effect of $84,231 of Special Committee costs incurred by Wendy’s before the date of the Wendy’s Merger in 2008. The As Adjusted loss per share data for 2008 and $24,670 in 2007, (2) $9,757assumes that the conversion of facilities relocation costs in 2007, and (3) $6,750 of impairment of other long-lived assets in 2007.all Class B common stock to Common Stock occurred prior to 2008.

Other Restaurant Acquisitions and Dispositions

During the year ended January 2, 2011, the Companies received proceeds from dispositions of $5,660 consisting of $2,332 from the sale of two company-owned Wendy’s restaurants and 11 company-owned Arby’s restaurants to franchisees of the respective brands, $1,231 from the sale of land and a building related to the exercise of a purchase option by a franchisee, $227 from the sale of surplus properties, and $1,870 related to other dispositions. These sales resulted in a net loss of $35, which is included in “Depreciation and amortization.”

During the year ended January 3, 2010, the Companies received proceeds from dispositions of $10,882 consisting of $5,045 from the sale of twelve Wendy’s units to a franchisee, $4,529 from the sale of surplus properties and $1,308 related to other dispositions. These sales resulted in a net gain of $1,203 which is included as an offset to “Depreciation and amortization.”

The CompanyCompanies completed the acquisitions of the operating assets, net of liabilities assumed, of 45 Arby’s franchised restaurants, including 41 restaurants in the California market, in two separate transactions during fiscal 2008.  The total net consideration for acquisitions, including deal costs, was $15,861 consisting of (1) $9,622 of cash and (2) the assumption of $6,239 of debt.

During the year ended January 3, 2010, the Company received proceeds from dispositions of $10,882 consisting of $5,045 from the sale of twelve Wendy’s units to a franchisee, $4,529 from the sale of surplus properties and $1,308 related to other dispositions. These sales resulted in a net gain of $1,203 which is included in “Depreciation and amortization.”

Other restaurant acquisitions and dispositions during the periods presented were not significant.
(3) DFR Notes

(Wendy’s/Arby’s)

On December 21, 2007, Wendy’s/Arby’s sold its 63.6% capital interest in Deerfield & Company, LLC (“Deerfield”), an asset management business and a subsidiary of the Company until its sale, to DFR (the “Deerfield Sale”).  The Deerfield Sale resulted in non-cash proceeds to the Company aggregating approximately $134,608 consisting of (1) 9,629 convertible preferred shares (the “Preferred Stock”) of a subsidiary of DFR with an estimated fair value of $88,398 at the date of the Deerfield Sale and (2) $47,986 principal amount of the DFR Notes due in December 2012 with an estimated fair value of $46,210 at the date of the Deerfield Sale.

A portion of the gain on the Deerfield Sale ($6,945) could not be recognized at the sale date due to the Company’s approximate 15% (at December 31, 2007) continuing interest in DFR through its ownership in the Preferred Stock, on an as-if converted basis, and common stock of DFR it already owned. Certain former officers of Wendy’s/Arby’s had an approximate 1.5% ownership interest in

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


DFR as of December 30, 2007. We accounted for the DFR Preferred Stock as an available-for-sale debt security due to their mandatory redemption requirement.

On March 11, 2008, DFR stockholders approved the one-for-one conversion of all its outstanding convertible preferred stock into DFR common stock which converted the Preferred Stock we held into a like number of shares of DFR common stock. On March 11, 2008, our Board of Directors approved the distribution of our shares of DFR common stock to our stockholders. The distribution in the form of a dividend, which was valued at $14,464, was paid in 2008 to holders of record of our then outstanding Class A common stock and Class B common stock.

In March 2008, in response to unanticipated credit and liquidity events in the first quarter of 2008, DFR announced that it was repositioning its investment portfolio to focus on agency-only residential mortgage-backed securities and away from its principal investing segment to its asset management segment with its fee-based revenue streams.  In addition, it stated that during the first quarter of 2008, its portfolio was adversely impacted by deterioration of the global credit markets and, as a result, it sold $2,800,000 of its agency and $1,300,000 of its AAA-rated non-agency mortgage-backed securities and reduced the net notional amount of interest rate swaps used to hedge a portion of its mortgage-backed securities by $4,200,000, all at a net after-tax loss of $294,300 to DFR.

Based on the events described above and their negative effect on the market price of DFR common stock, we concluded that the fair value and, therefore, the carrying value of our investment in the DFR common shares was impaired.  As a result, as of March 11, 2008 we recorded an other than temporary loss which is included in “Other than temporary losses on investments” for the year ended December 28, 2008 of $67,594 (without tax benefit as described below) which included $11,074 of pre-tax unrealized holding losses previously recorded as of December 30, 2007 and which were included in “Accumulated other comprehensive income (loss).” These common shares were considered available-for-sale securities due to the limited period they were to be held as of March 11, 2008 (the “Determination Date”) before the dividend distribution of the shares to our stockholders.  We also recorded an additional impairment charge, which is also included in “Other than temporary losses on investments” from March 11, 2008 through the March 29, 2008 record date of the dividend of $492. As a result of the distribution, the income tax loss that resulted from the decline in value of $68,086 is not deductible for income tax purposes and no income tax benefit was recorded related to this loss.

Additionally, from December 31, 2007 through the Determination Date, we recorded approximately $754 of equity in net losses of DFR which are included in “Other income (expense), net” for the year ended December 28, 2008 related to our investment in the  common shares of DFR already owned discussed above which were accounted for under the equity method through the Determination Date.

During the fourth quarter of 2008, the Company recognized an allowance for collectability of $21,227 to reduce the then carrying amount of the DFR Notes to $24,983. On June 9, 2010, pursuant to a March 2010 agreement between Wendy’s/Arby’s and DFR, the Company received cash proceeds of $31,330, including interest, in consideration for the repayment and cancellation of the DFR Notes. The proceeds represented 64.1% of the $47,986 aggregate principal amount of the DFR Notes.  We recognized income of $4,909 during the year ended January 2, 2011 as the repayment proceeds exceeded the carrying value of the DFR Notes.  This gain is included in “Investment income (expense), net.”

(3)(4) Income Balance Sheet detail(Loss) Per Share

Cash and cash equivalents
  Year End 
  2009  2008 
Cash $301,191  $53,609 
Cash equivalents  237,673   9,471 
  $538,864  $63,080 
(Wendy’s/Arby’s)

Restricted cash equivalentsBasic income (loss) per share for 2010 and 2009 was computed by dividing net income (loss) by the weighted average number of common shares outstanding. Prior to the Wendy’s Merger, the Company had Class B common stock which was converted to Class A common stock and is now referred to as “Common Stock” as discussed in Note 2.

  Year End 
Current 2009  2008 
Trust for termination costs for former Wendy’s executives $964  $20,641 
Other  150   151 
  $1,114  $20,792 
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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The number of shares used to calculate basic and diluted income (loss) per share was as follows:

Accounts
 2010 2009 2008 
Common Stock:      
Basic shares – weighted average shares outstanding426,247 466,204 137,669 
Dilutive effect of stock options and restricted shares- 483 - 
Diluted shares426,247 466,687 137,669 
Class B common stock:      
Basic shares – weighted average shares outstanding               47,965 (a)
Dilutive effect of stock options and restricted shares    - 
Diluted shares    47,965 
_____________
(a)   Represents the weighted average for the full year even though the Class B common stock was converted into Common Stock on September 29, 2008.

Basic loss per share for 2008 was computed by dividing the allocated loss for the Company’s Class A common stock and the Company’s Class B common stock by the weighted average number of shares of each class.  Net loss for 2008 was allocated equally among each share of our Class A common stock and Class B common stock up until the date of the Conversion; subsequent to the Conversion, net loss was only allocated to our Common Stock since Class B common stock no longer existed.

Diluted income per share for 2009 was computed by dividing income for our Common Stock by the weighted average number of shares outstanding plus the potential common share effect of dilutive stock options and of restricted shares, computed using the treasury stock method. Options and restricted shares to purchase 17,194 of common shares were excluded from the calculation of the 2009 diluted earnings per share because they were anti-dilutive.  Diluted loss per share for 2010 and 2008 was the same as basic loss per share for each share since the Company reported a net loss and, therefore, the effect of all potentially dilutive securities on the net loss per share would have been antidilutive. The shares used to calculate diluted income per share exclude any effect of the Company’s 5% convertible notes receivabledue 2023 (the ̶ 0;Convertible Notes”) which would have been antidilutive since the after-tax interest on the Convertible Notes per share obtainable on conversion exceeded the reported basic income from continuing operations per share.
  Year End 
Current 2009  2008 
Accounts receivable:      
Franchisees $74,555  $68,895 
Other  16,693   19,891 
   91,248   88,786 
Notes receivable:        
Franchisees  2,899   3,448 
   94,147   92,234 
Allowance for doubtful accounts  (6,540)  (887)
  $87,607  $91,347 

As of January 2, 2011, our potential common shares consisted of the following: (1) outstanding stock options which can be exercised into 28,074 shares of our Common Stock and (2) 3,092 restricted shares of our Common Stock.

Loss per share in 2008 was computed by allocating the loss as follows:

  2008 
Common Stock:   
Continuing operations $(421,599)
Discontinued operations  1,378 
Net Loss $(420,221)
Class B common stock:    
Continuing operations $(60,359)
Discontinued operations  839 
Net Loss $(59,520)





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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


(5) Cash and Receivables
(Wendy’s/Arby’s Restaurants) Year-End 
  2010  2009 
Cash and cash equivalents      
Cash $194,618  $301,191 
Cash equivalents  4,068   237,673 
  $198,686  $538,864 
Restricted cash equivalents
 
        
Current (1)        
Trust for termination costs for former Wendy’s executives $919  $964 
Other  149   150 
  $1,068  $1,114 
Non-current (2)        
Trust for termination costs for former Wendy’s executives $3,562  $5,352 
 
 
(Wendy’s/Arby’s) Year-End 
  2010  2009 
Cash and cash equivalents      
Cash (3) $508,364  $353,283 
Cash equivalents (4)  4,144   238,436 
  $512,508  $591,719 
Restricted cash equivalents        
Current (1)        
Trust for termination costs for former Wendy’s executives $919  $964 
Other  149   150 
  $1,068  $1,114 
Non-current (2)        
Trust for termination costs for former Wendy’s executives $3,562  $5,352 
Collateral supporting letters of credit securing payments due under leases  685   890 
  $4,247  $6,242 
____________________
(1)Included in “Prepaid expenses and other current assets.”
(2)Included in “Deferred costs and other assets.”
(3)Corporate cash was $313,746 and $52,092 at 2010 and 2009, respectively.
(4)Corporate cash equivalents were $76 and $763 at 2010 and 2009, respectively.


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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



(Wendy’s/Arby’s Restaurants) Year End 
  2010  2009 
Accounts and Notes Receivable      
Current      
Accounts receivable:      
Franchisees $73,214  $74,555 
Other  15,131   16,693 
   88,345   91,248 
Notes receivable:        
Franchisees  2,328   2,899 
   90,673   94,147 
Allowance for doubtful accounts  (7,321)  (6,540)
  $83,352  $87,607 
Non-Current        
Notes receivable:        
Franchisees $11,932  $9,850 
      AFA Service Corporation  4,458   5,089 
   16,390   14,939 
Allowance for doubtful accounts  (3,778)  (1,340)
  $12,612  $13,599 
         

(Wendy’s/Arby’s) Year End 
  2010  2009 
Accounts and Notes Receivable      
Current      
Accounts receivable:      
Franchisees $73,214  $74,555 
Other  16,037   17,090 
   89,251   91,645 
Notes receivable:        
Franchisees  2,328   2,899 
   91,579   94,544 
Allowance for doubtful accounts  (7,321)  (6,540)
  $84,258  $88,004 
Non-Current        
Notes receivable:        
DFR $-  $46,922 
Franchisees  11,932   9,850 
AFA Service Corporation  4,458   5,089 
   16,390   61,861 
Allowance for doubtful accounts  (3,778)  (22,566)
  $12,612  $39,295 


88
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The following is an analysis of the allowance for doubtful accounts:

  2009  2008  2007 
Balance at beginning of year:         
Current $887  $166  $224 
Non-current  577   354   - 
Provision for doubtful accounts:            
Franchisees  8,342   783   277 
Other  (173)  (113)  354 
Uncollectible accounts written off, net of recoveries  (1,754)  274   (335)
Balance at end of year:
Current  6,540   887   166 
Non-current (a)  1,339   577   354 
Total $7,879  $1,464  $520 
___________________
(a) The gross amount of non-current notes receivable was $14,939 and $9,841 for 2009 and 2008, respectively, and is included in “Deferred costs and other assets” net of the allowance for doubtful accounts.
  Wendy’s/Arby’s 
Balance at beginning of year: 2010  2009  2008 
Current $6,540  $887  $166 
Non-current  22,566   21,804   354 
Provision for doubtful accounts:            
DFR Notes (see Notes 3 and 19)  (21,227)  -   21,227 
Franchisees  9,694   8,342   783 
Other  -   (173)  (113)
Uncollectible accounts written off, net of recoveries  (6,474)  (1,754)  274 
Balance at end of year:            
Current  7,321   6,540   887 
Non-current  3,778   22,566   21,804 
Total $11,099  $29,106  $22,691 

Properties
  Year End 
  2009  2008 
Owned:      
Land $467,249  $460,588 
Buildings and improvements (a)  411,671   682,018 
Office, restaurant and transportation equipment  411,391   364,194 
Leasehold improvements (a)  402,755   166,113 
Leased (b):        
Capitalized leases  110,363   127,728 
Sale-leaseback assets  134,648   146,385 
   1,938,077   1,947,026 
Accumulated depreciation and amortization  (330,219)  (192,106)
  $1,607,858  $1,754,920 
__________________
(a)The 2009 amounts reflect a reclassification of approximately $200,000 from Buildings and improvements to Leasehold improvements related to assets acquired in the Wendy’s Merger.
(b)These assets principally include buildings and improvements.

69
WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
(6)  Pledged assets

The following is a summary of assets pledged as collateral for certain debt:

 Year End 2010 
 Year End  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
 2009  2008          
Cash and cash equivalents $515,655  $19,853  $172,921  $-  $172,921 
Accounts and notes receivable (including long-term)  98,320   17,482   92,336   -   92,336 
Inventories  21,870   11,096   21,558   -   21,558 
Investments  4,664   - 
Properties  520,722   333,792   497,420   9,183   506,603 
Goodwill  841,156   -   841,156 
Other intangible assets  1,256,800   22,299   1,233,530   -   1,233,530 
Deferred costs and other assets  -   2,571 
Other assets  24,309   13   24,322 
 $2,418,031  $407,093  $2,883,230  $9,196  $2,892,426 

  Year End 2009 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Cash and cash equivalents $515,655  $-  $515,655 
Accounts and notes receivable (including long-term)  98,320   -   98,320 
Inventories  21,870   -   21,870 
Investments  4,664   -   4,664 
Properties  520,722   10,812   531,534 
Other intangible assets  1,256,800   -   1,256,800 
  $2,418,031  $10,812  $2,428,843 

Accrued expenses and other current liabilities

  Year End 
  2009  2008 
Accrued compensation and related benefits $81,864  $64,447 
Insurance reserves  54,924   66,858 
Accrued taxes  40,952   49,138 
Accrued interest  34,283   8,871 
Other  56,158   41,449 
  $268,181  $230,763 


7089
 
WENDY’S/ARBY’S RESTAURANT,GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
Thousands Except Per Share Amounts)


(7) Investments
 (4) Investments

The following is a summary of the carrying value of our investments:

  Carrying Value 
  Year End 2009  Year End 2008 
At equity:      
Joint venture with THI $97,476  $89,771 
      Other  -   212 
         
At cost:  4,664   6,540 
  $102,140  $96,523 
  Year End 
  2010  2009 
       
At equity: Joint venture with THI $98,631  $97,476 
Cost investment  3,775   4,664 
Total Wendy’s/Arby’s Restaurants  102,406   102,140 
Cost investments  4,817   4,880 
Total Wendy’s/Arby’s $107,223  $107,020 

Investment in joint venture with Tim Hortons Inc.

Wendy’s is a partner in TimWen and our 50% share of the joint venture is accounted for using the Equity Method.equity method of accounting.  Our equity in earnings from this joint venture is included in “Other operating expense, net.”  The carrying value of our investment in TimWen exceeded the Company’sCompanies’ interest in the underlying equity of the joint venture by $59,446$60,306 and $54,787$59,446 as of January 2, 2011 and January 3, 2010, and December 28, 2008, respectively, primarily due to purchase price adjustments recorded in the Wendy’s Merger, net of accumulated amortization.  This purchase price adjustment is being accounted for as if TimWen were a consolidated subsidiary, and is assumed to have been allocated to net amortizable assets with an average life of 21.2 years.years from the Closing Date.

Presented below is activity related to our portion of TimWen included in our Consolidated Balance Sheetsconsolidated balance sheets and Consolidated Statementsconsolidated statements of Operationsoperations as of and for the yearyears ended January 2, 2011 and January 3, 2010 and the quarter ended December 28, 2008.

 2009  2008 
       2010  2009  2008 
Balance at beginning of period $89,771  $41,649  $97,476  $89,771  $41,649 
Purchase price adjustments  -   65,455   -   -   65,455 
  89,771   107,104   97,476   89,771   107,104 
                    
Equity in net earnings for the period  11,334   2,630   12,316   11,334   2,630 
Amortization of purchase price adjustments  (2,835)  (656)  (2,857)  (2,835)  (656)
  8,499   1,974   9,459   8,499   1,974 
                    
Distributions  (14,583)  (2,864)  (13,980)  (14,583)  (2,864)
Currency translation adjustment included in “Comprehensive Income”  13,789   (16,443)
Currency translation adjustment included in “Comprehensive income (loss)”  5,676   13,789   (16,443)
Balance at end of period $97,476  $89,771  $98,631  $97,476  $89,771 


7190
 
WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

 
Presented below is a summary of financial information of TimWen as of and for the yearyears and quarter ended January 2, 2011, January 3, 2010 and December 28, 2008, respectively, in Canadian dollars.  The summary balance sheet financial information does not distinguish between current and long-term assets and liabilities:
  Year End 
  January 2, 2011  January 3, 2010 
Balance sheet information:      
Properties C$    78,769  C$83,078 
Cash and cash equivalents  1,639   75 
Accounts receivable  4,529   4,989 
Other  3,001   3,150 
  C$ 87,938  C$91,292 
         
Accounts payable and accrued liabilities C$ 2,169  C$ 2,257 
Other liabilities  9,339   9,081 
Partners’ equity  76,430   79,954 
  C$87,938  C$ 91,292 
         

  January 3, 2010  December 28, 2008 
  (Canadian)  (Canadian) 
Balance sheet information:      
       
Properties C$ 83,078  C$ 87,292 
Cash and cash equivalents  75   5,063 
Accounts receivable  4,989   3,339 
Other  3,150   3,142 
  C$91,292  C$ 98,836 
         
Accounts payable and accrued liabilities C$ 2,257  C$ 2,521 
Other liabilities  9,081   10,893 
Partners’ equity  79,954   85,422 
  C$ 91,292  C$ 98,836 
         
     Quarter ended 
  2011  2010  December 28, 2008 
Income statement information:         
Revenues C$38,361  C$ 38,471  C$9,462 
Income before income taxes and net income  24,976   27,532   6,325 

  
Year ended
January 3, 2010
  
Quarter ended
December 28, 2008
 
  (Canadian)  (Canadian) 
Income statement information:      
Revenues C$ 38,471  C$ 9,462 
Income before income taxes and net income  27,532   6,325 
(Wendy’s/Arby’s)

Investment in Jurlique International Pty Ltd.

We account for our approximately 11% investment in Jurlique International Pty Ltd. (“Jurlique”) (an Australian manufacturer and multi-channel global marketer, which sells a high-end series of natural skincare products in certain department stores, duty-free shops, company and franchised locations) under the cost method since our voting interest does not provide us the ability to exercise significant influence over Jurlique’s operational and financial policies. Jurlique was affected by the global economic recession leading to lower than anticipated sales and margins. Based on financial results provided by the company, which noted significant declines in operations in 2008, economic conditions and our internal valuations of the company, we determined that our investment in this company was more than likely not recovera ble. Therefore, we recorded other than temporary losses of $8,504 in 2008.  In the third quarter of 2010, the Company made an additional investment of $325 in Jurlique. As of January 2, 2011, based on our review of the company’s most recent results of operations and financial condition, we concluded that the carrying value of this cost investment was recoverable.
Investment Activity

(Wendy’s/Arby’s)

Proceeds from sales of current and non-current available-for-sale securities, and gross realized gains and gross realized losses on those transactions, which are included in “Investment income (expense), net” are as follows:

  2010  2009  2008 
Proceeds from sales $288  $32,243  $87,301 
             
Gross realized gains $125  $3,035  $4,222 
Gross realized losses  -   (618)  (5,809)
  $125  $2,417  $(1,587)


91
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The following is a summary of the components of the net change in unrealized gains and losses on available-for-sale securities included in other comprehensive income (loss):

  2010  2009  2008 
Unrealized holding gains (losses) arising during the year $-  $101  $(4,505)
Reclassifications of prior year unrealized holding (gains) losses into            
   net income or loss  (101)  (168)  8,206 
Equity in change in unrealized holding (losses) gains arising during the year  -   -   (201)
   (101)  (67)  3,500 
Income tax benefit (provision)  42   18   (1,288)
  $(59) $(49) $2,212 

 
 (5)(8)   Properties

  Year End 2010 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Owned:         
Land $467,715  $-  $467,715 
Buildings and improvements  426,958   -   426,958 
Office, restaurant and transportation equipment  454,768   24,434   479,202 
Leasehold improvements  393,904   3,499   397,403 
Leased (a):            
Capitalized leases  111,622   -   111,622 
Sale-leaseback assets  123,791   -   123,791 
   1,978,758   27,933   2,006,691 
Accumulated depreciation and amortization  (436,905)  (18,525)  (455,430)
  $1,541,853  $9,408  $1,551,261 


  Year End 2009 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Owned:         
Land $467,249  $-  $467,249 
Buildings and improvements  411,671   -   411,671 
Office, restaurant and transportation equipment  411,391   24,433   435,824 
Leasehold improvements  402,755   3,499   406,254 
Leased (a):            
Capitalized leases  110,363   -   110,363 
Sale-leaseback assets  134,648   -   134,648 
   1,938,077   27,932   1,966,009 
Accumulated depreciation and
   amortization
  (330,219)  (16,542)  (346,761)
  $1,607,858  $11,390  $1,619,248 
______________________
(a)These assets principally include buildings and improvements.
92
(9)  Goodwill and Other Intangible Assets

The following is a summary of the components of goodwill for each business segment:

  2009  2008 
  Arby’s Restaurant Segment  Wendy’s Restaurant Segment  Total  Arby’s Restaurant Segment  Wendy’s Restaurant Segment  Total 
Balance at beginning of year:                  
Goodwill $499,692  $841,435  $1,341,127  $490,778   $-  $490,778 
Accumulated impairment losses  (482,075)  -   (482,075)  (22,000)  -   (22,000)
   17,617   841,435   859,052   468,778   -   468,778 
Changes in goodwill:                        
    Wendy’s Merger  -   18,195   18,195   -   850,908   850,908 
    Other restaurant acquisitions  -   -   -   8,914   -   8,914 
    Impairment  -   -   -   (460,075)  -   (460,075)
 Currency translation adjustment  -   9,049   9,049   -   (9,473)  (9,473)
Balance at end of year:                        
Goodwill  499,692   868,679   1,368,371   499,692   841,435   1,341,127 
Accumulated impairment losses  (482,075)  -   (482,075)  (482,075)  -   (482,075)
  $17,617  $868,679  $886,296  $17,617  $841,435  $859,052 


72
  2010  2009 
  Arby’s Restaurant Segment  Wendy’s Restaurant Segment  Total  Arby’s Restaurant Segment  Wendy’s Restaurant Segment  Total 
Balance at beginning of year:                  
Goodwill $499,692  $868,679  $1,368,371  $499,692  $841,435  $1,341,127 
Accumulated impairment losses  (482,075)  -   (482,075)  (482,075)  -   (482,075)
Total Wendy’s/Arby’s Restaurants goodwill  17,617   868,679   886,296   17,617   841,435   859,052 
   Corporate goodwill-related deferred tax
         adjustment
  -   (5,277)  (5,277)  -   (5,277)  (5,277)
Total Wendy’s/Arby’s goodwill  17,617   863,402   881,019   17,617   836,158   853,775 
                         
Changes in goodwill:                        
    Wendy’s Merger  -   -   -   -   18,195   18,195 
 Currency translation adjustment  -   2,625   2,625   -   9,049   9,049 
                         
Balance at end of year:                        
Goodwill  499,692   871,304   1,370,996   499,692   868,679   1,368,371 
Accumulated impairment losses  (482,075)  -   (482,075)  (482,075)  -   (482,075)
Total Wendy’s/Arby’s Restaurants goodwill  17,617   871,304   888,921   17,617   868,679   886,296 
   Corporate goodwill-related deferred tax
         adjustment
  -   (5,277)  (5,277)  -   (5,277)  (5,277)
Total Wendy’s/Arby’s goodwill $17,617  $866,027  $883,644  $17,617  $863,402  $881,019 
 
WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

The following is a summary of the components of other intangible assets:
  Year End 2010  Year End 2009 
  Cost  Accumulated Amortization  Net  Cost  Accumulated Amortization  Net 
Non-amortizable:                  
   Wendy’s trademarks $903,000  $-  $903,000  $903,000  $-  $903,000 
Amortizable:                        
   Franchise agreements  353,771   38,077   315,694   352,630   21,148   331,482 
   Favorable leases  134,445   27,867   106,578   144,683   20,627   124,056 
   Reacquired rights under
      franchise agreements
  15,716   4,172   11,544   17,348   3,721   13,627 
   Computer software  39,649   17,891   21,758   32,150   11,432   20,718 
  $1,446,581  $88,007  $1,358,574  $1,449,811  $56,928  $1,392,883 

  Year End 2009  Year End 2008 
  Cost  Accumulated Amortization  Net  Cost  Accumulated Amortization  Net 
Non-amortizable                  
Wendy’s trademarks $903,000  $-  $903,000  $900,389  $-  $900,389 
Amortizable                        
Franchise agreements  352,630   21,148   331,482   350,033   4,152   345,881 
Favorable leases  144,683   20,627   124,056   147,882   9,650   138,232 
Reacquired rights under franchise agreements  17,348   3,721   13,627   19,009   3,142   15,867 
Computer software  32,150   11,432   20,718   18,202   7,151   11,051 
  $1,449,811  $56,928  $1,392,883  $1,435,515  $24,095  $1,411,420 
93

Aggregate amortization expense:      
Actual for fiscal year (a): Total    
2007 $6,342 
2008  13,466 
2008 (b) $13,466 
2009  44,837   44,837 
2010  45,720 
Estimate for fiscal year:        
2010 $34,180 
2011  32,085  $32,654 
2012  30,423   31,198 
2013  29,349   30,374 
2014  27,693   29,069 
2015  26,364 
Thereafter  336,153   305,915 

______________
(a)Includes $11,012, $7,674 $1,096 and $906$1,096 of impairment charges related to other intangible assets in 2010, 2009 2008 and 2007,2008, respectively, which have been recorded as a reduction in the cost basis of the related intangible asset.
 
(b) Wendy’s/Arby’s included additional amortization expense in 2008 of $4.  This additional expense did not occur in any other year presented.

(6)(10)   Long-TermAccrued Expenses

  Year End 2010 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Accrued compensation and related
   benefits
 $83,036  $111  $83,147 
Insurance reserves  58,811   -   58,811 
Accrued taxes  38,081   (1,192)  36,889 
Accrued interest  29,901   62   29,963 
Other  34,471   1,876   36,347 
  $244,300  $857  $245,157 
  Year End 2009 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Accrued compensation and related
   benefits
 $81,864  $-  $81,864 
Insurance reserves  54,924   -   54,924 
Accrued taxes  40,952   (2,190)  38,762 
Accrued interest  34,283   286   34,569 
Other  56,158   2,813   58,971 
  $268,181  $909  $269,090 



94
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

(11) Long-Term Debt

Long-term debt consisted of the following:

  Year End 
  2009  2008 
10.00% Senior Notes, due 2016 (a) $551,779  $- 
Senior secured term loan, average effective interest of 7.25% as of January 3, 2010 (b)  251,488   385,030 
6.20% senior notes, due in 2014 (c)  204,303   199,111 
6.25% senior notes, due in 2011 (c)  193,618   188,933 
Sale-leaseback obligations due through 2029 (d)  125,176   123,829 
Capitalized lease obligations due through 2036 (e)  89,886   106,841 
7% Debentures, due in 2025 (f)  80,081   78,974 
Other  5,579   6,969 
   1,501,910   1,089,687 
Less amounts payable within one year  (16,178)  (29,537)
  $1,485,732  $1,060,150 
    
  Year End 
  2010  2009 
Senior Notes, due in 2016 (a) $553,258  $551,779 
Term Loan, due in 2017 (b)  495,226   - 
Senior secured term loan (b)  -   251,488 
6.20% senior notes, due in 2014 (c)  217,855   204,303 
6.25% senior notes (b)  -   193,618 
Sale-leaseback obligations, due through 2029  121,884   125,176 
Capitalized lease obligations, due through 2040  86,670   89,886 
7% debentures, due in 2025 (d)  81,204   80,081 
Other  3,634   5,579 
   1,559,731   1,501,910 
Less amounts payable within one year  (17,047)  (16,178)
Total Wendy’s/Arby’s Restaurants long-term debt  1,542,684   1,485,732 
6.54% aircraft term loan, due in 2013 (e)  12,671   18,901 
5% convertible notes (f)  -   2,100 
Less amounts payable within one year  (1,368)  (5,949)
Total Wendy’s/Arby’s long-term debt $1,553,987  $1,500,784 


73

WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
Aggregate annual maturities of long-term debt, excluding the effect of purchase accounting adjustments, discounts and interest rate swaps, as of January 3, 20102, 2011 were as follows:

Fiscal Year Amount  Wendy’s/Arby’s Restaurants  Corporate  Wendy’s/Arby’s 
2010 $16,178 
2011  337,115  $17,047  $1,368  $18,415 
2012  135,236   16,261   1,460   17,721 
2013  10,708   15,493   9,843   25,336 
2014  236,063   241,057   -   241,057 
2015  17,591   -   17,591 
Thereafter  826,829   1,292,240   -   1,292,240 
 $1,562,129  $1,599,689  $12,671  $1,612,360 
_____________________
(a)On June 23, 2009, Wendy’s/Arby’s Restaurants issued $565,000 principal amount of Senior Notes (the “Senior Notes”).  The Senior Notes will mature on July 15, 2016 and accrue interest at 10.00% per annum, payable semi-annually on January 15 and July 15, the first payment of which was made on January 15, 2010.  The Senior Notes were issued at 97.533% of the principal amount, representing a yield to maturity of 10.50% and resulting in net proceeds paid to us of $551,061.  The $13,939 discount is being accreted and the related charge included in “Interest expense” until the Senior Notes mature.  The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by certain direct and indirect domestic subsidiaries of Wendy’s/Arby’s Restaurants (collectively, the “Guarantors”) (see Note 21 for additional information relating t o such Guarantors).  Wendy’s/Wendy ’s/Arby’s Restaurants incurred approximately $21,599 in costs related to the issuance of the Senior Notes which are being amortized to “Interest expense” over the term of the Senior Notes’ termNotes utilizing the effective interest rate method.

An indenture for the Senior Notes dated as of June 23, 2009 (the “Indenture”) among Wendy’s/Arby’s Restaurants, the Guarantors and U.S. Bank National Association, as trustee (the “Trustee”), includes certain customary covenants that, subject to a number of important exceptions and qualifications, limit the ability of Wendy’s/Arby’s Restaurants and its restricted subsidiaries to, among other things, incur debt or issue preferred or disqualified stock, pay dividends on equity interests,interest, redeem or repurchase equity interests or prepay or repurchase subordinated debt, make some types of investments and sell assets, incur certain liens, engage in transactions with affiliates (except on an arms-length basis), and consolidate, merge or sell all or substantially all of their assets.

(b)The Arby’s Credit Agreement was amended and restated as of March 11, 2009 and includes an amended senior secured term loan (the “Amended Term Loan”) and an amended senior secured revolving credit facility (the “Amended Revolver”).  As a result of an agreement entered into on March 17, 2009, the amount of the senior secured revolving credit facility increased from $100,000 to $170,000.  Also, Wendy’s and certain of its affiliates became co-obligors in addition to Arby’s and certain of its affiliates.  The Amended Term Loan is due July 2012 and the Amended Revolver expires in July 2011.

On June 10, 2009,  Th e covenants generally do not restrict Wendy’s/Arby’s Restaurants entered into an Amendment No. 1 to the amended and restated Arby’s Credit Agreement (as so amended, the “Credit Agreement”) which, among other things (1) permitted the issuance byor any of Wendy’s/Arby’s Restaurantssubsidiaries which are not subsidiaries of the Senior Notes described above and the incurrence of debt thereunder, and permitted Wendy’s/Arby’s Restaurants to dividend to Wendy’s/Arby’s the net cash proceeds of the Senior Notes issuance less $132,500 used to prepay the Amended Term Loan and pay accrued interest thereon and certain other payments, (2) modified certain total leverage financial covenants, added certain financial covenants based on senior secured leverage ratios and modified the minimum interest coverage ratio, (3) permitted the prepayment at any ti me prior to maturity of certain senior notes of Wendy’s and eliminated certain incremental debt baskets in the covenant prohibiting the incurrence of additional indebtedness and (4) modified the interest margins to provide that the margins will fluctuate based on Wendy’s/Arby’s Restaurants’ corporate credit rating. Wendy’s/Arby’s Restaurants incurred approximately $3,107 in costs related to Amendment No. 1.Restaurants.

The Amended Term Loan and amounts borrowed under the Amended Revolver under the Credit Agreement bear interest at our option at either (i) the Eurodollar Rate (as defined in the Credit Agreement), as adjusted pursuant to applicable regulations (but not less than 2.75%), plus an interest rate margin of 4.00%, 4.50%, 5.00% or 6.00% per annum, depending on Wendy’s/Arby’s Restaurants’ corporate credit rating, or (ii) the Base Rate (as defined in the Credit Agreement), which is the higher of the interest rate announced by the administrative agent for the Credit Agreement as its base rate and the Federal funds rate plus 0.50% (but not less that 3.75%), in either case plus an interest rate margin of 3.00%, 3.50%, 4.00% or 5.00% per annum, depending on Wendy’s/Arby’s Restaurants’ corporate credit rating. Ba sed on Wendy’s/Arby’s Restaurants’ corporate credit rating at the effective date of Amendment No. 1 and as of January 3, 2010, the applicable interest rate margins available to us were 4.50% for Eurodollar Rate borrowings and 3.50% for Base Rate borrowings. Since the effective date of Amendment No. 1 and as of January 3, 2010, we have elected to use the Base Rate which resulted in a rate of 7.25% as of January 3, 2010.


7495
 
WENDY’S/ARBY’S RESTAURANT,GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


(b)On May 24, 2010, Wendy’s/Arby’s Restaurants entered into a $650,000 Credit Agreement (the “Credit Agreement”), which includes a $500,000 senior secured term loan facility (the “Term Loan”) and a $150,000 senior secured revolving credit facility (the “Credit Facility”).  The Credit Agreement contains provisions for an uncommitted increase of up to $300,000 principal


amount in the aggregate in the Credit Facility and/or Term Loan subject to the satisfaction of certain conditions. The Credit Facility includes a sub-facility for the issuance of up to $70,000 of letters of credit. The obligations under the Credit Agreement are secured by substantially all of the non-real estate assets of Wendy’s/Arby’s Restaurants and its domestic subsidiaries (other than certain unrestricted subsidiaries), the stock of its domestic subsidiaries (other than certain unrestricted subsidiaries), 65% of the stock of certain of its foreign subsidiaries, as well as by mortgages on certain restaurant properties.

The Term Loan was issued at 99.5% of the principal amount, which represented an original issue discount of 0.5% and resulted in net proceeds of $497,500. The $2,500 discount is being accreted and the related charge included in interest expense through the maturity of the Term Loan. The Term Loan will mature on May 24, 2017 and requires quarterly principal installments which commenced on September 30, 2010 equal to 1% per annum of the initial principal amount outstanding, with the balance payable on the maturity date.

Should our strategic alternatives for Arby’s result in a sale of the brand, we may be required to utilize a portion of the sale proceeds to reduce the Term Loan. 
The Credit Facility expires not later than May 24, 2015. An unused commitment fee of 50 basis points per annum is payable quarterly on the average unused amount of the Credit Facility until the maturity date.

The interest rate on the Term Loan is based on the Eurodollar Rate as defined in the Credit Agreement were secured by substantially all(but not less than 1.50%), plus 3.50%, or a Base Rate, as defined in the Credit Agreement (but not less than 2.50%), plus 2.50%. Since the inception of the assets,Term Loan, we have elected to use the Eurodollar Rate, which resulted in an interest rate on the Term Loan of 5.00% as of January 2, 2011.

The Companies incurred approximately $16,353 in costs related to the Credit Agreement, which is being amortized to interest expense over the Term Loan’s term utilizing the effective interest rate method.

Proceeds from the Term Loan were used to (1) repay approximately $253,849 of existing indebtedness, including fees and interest, under the then existing Wendy’s/Arby’s Restaurants amended senior secured term loan which replaced the prior Arby’s credit agreement in March 2009 and which was scheduled to be due in 2012, (2) redeem the Wendy’s 6.25% senior notes scheduled to be due in 2011, and (3) pay fees and expenses related to the Credit Agreement. The remaining Term Loan proceeds were used for working capital and other than real property,general corporate purposes.

The Companies recognized a loss on early extinguishment of debt of $26,197 in the second quarter of 2010 related to the repayment of debt from the proceeds of the Term Loan. This loss consisted of (1) a $14,953 premium payment required to redeem the Wendy’s 6.25% senior notes, (2) $5,477 for the write-off of the unaccreted discount of the Wendy’s 6.25% senior notes (recorded in connection with the Wendy’s Merger), and Arby’s restaurants segments which had an aggregate net book value(3) $5,767 for the write-off of approximately $2,227,682 as of January 3, 2010 and were also guaranteed by substantially alldeferred costs associated with the repayment of the entities comprising the Wendy’sprior senior secured term loan.

The affirmative and Arby’s restaurants segments.  In addition,negative covenants in the Credit Agreement include, among others, preservation of corporate existence; payment of taxes; and maintenance of insurance; and limitations on: indebtedness (including guarantee obligations 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 restricting subsidiary distributions; and material changes in lines of business.  The financial covenants contained various covenants relating toin the Wendy’s and Arby’s restaurants segments, the most restrictive of which (1) require periodic financial reporting, (2) require meeting certain leverage andCredit Agreement are (i) a consolidated interest coverage ratio, tests(ii) a consolidated senior secured leverage ratio, and (3)(iii) a consolidated senior secured lease adjusted levera ge ratio. The covenants generally do not restrict among other matters, (a) the incurrenceWendy’s/Arby’s or any of indebtedness, (b) certain asset dispositions, (c) certain affiliate transactions, (d) certain investments , (e) certain capital expenditures and (f) the paymentWendy’s/Arby’s subsidiaries that are not subsidiaries of dividends indirectly to Wendy’s/Arby’s.  The CompanyArby’s Restaurants.  Wendy’s/Arby’s Restaurants was in compliance with all of the covenants as of January 3, 2010.  As of January 3, 2010 there was $306,523 available for the payment of dividends indirectly to Wendy’s/Arby’s under the covenants of the Credit Agreement which includes the net proceeds, as defined, from the Senior Notes less any dividends paid since their issuance.

During 2009, Arby's borrowed a total of $26,182 under the Amended Revolver; however, no amounts were outstanding as of January 3, 2010.  The Amended Revolver includes a sub-facility for the issuance of letters of credit up to $50,000.  The availability under the Amended Revolver as of January 3, 2010 was $136,413, which is net of $33,587 for outstanding letters of credit.2, 2011.

(c)Wendy’s 6.20% senior notes were reduced to fair value at the date of and in connection with the Wendy’s Merger based on outstanding principal of $225,000 and $200,000 andan effective interest rates of 7.0% and 6.6% for the 6.20% senior notes and 6.25% senior notes, respectively.. The fair value adjustment is being accreted and the related charge included in “Interest expense” until the notes mature.  The value of the Wendy’s senior notes is adjusted to reflect the fair value of interest rate swaps associated with this debt (the “Interest Rate Swaps”).debt.  As of January 2, 2011 and January 3, 2010, this adjustment increased the value of the 6.20% senior notes by $9,623 and the 6.25% senior notes by $682, and $907, respectively.  These notes are unsecured and are redeemable prior to maturity at our option. The Wendy’s senior notes contain covenants that restrict the incurrence of indebtedness secured by liens and sale-leaseback transactions. The CompanyWendy’s was in compliance with these covenants as of January 3, 2010.2, 2011.
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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(d)The sale-leaseback obligations (the “Sale-Leaseback Obligations”), which extend through 2029, relate to capitalized restaurant leased assets with an aggregate net book value of $102,583 as of January 3, 2010.

(e)The capitalized lease obligations (the “Capitalized Lease Obligations”), which extend through 2036, relate to Arby’s capitalized restaurant leased assets and software with aggregate net book values of $58,512 and $6,388 respectively, as of January 3, 2010 and Wendy’s capitalized leased buildings with aggregate net book value of $20,317.

(f)Wendy’s 7% Debentures (the “Debentures”)debentures are unsecured and were reduced to fair value at the date of and in connection with the Wendy’s Merger based on their outstanding principal of $100,000 and an effective interest rate of 8.6%. The fair value adjustment is being accreted and the related charge included in “Interest expense” until the Debenturesdebentures mature.  These Debenturesdebentures contain covenants that restrict the incurrence of indebtedness secured by liens and sale-leaseback transactions. The CompanyWendy’s was in compliance with these covenants as of January 2, 2011.

(e)During 2008, Wendy’s/Arby’s entered into a $20,000 financing facility for an aircraft. The facility requires monthly payments, including interest, of approximately $180 through August 2013 with a final balloon payment of approximately $10,180 due September 2013. During the first quarter of 2010, we made a $5,000 prepayment on the loan. This loan is secured by an aircraft with a net book value of $9,183 and $10,812 as of January 2, 2011 and January 3, 2010.2010, respectively.

(f)On June 17, 2010, Wendy’s/Arby’s repurchased the remaining 5% convertible notes for $2,100, including accrued interest. The convertible notes were repurchased at a price of 100% of their principal amount plus accrued interest.

A significant number of the underlying leases in the Arby’s restaurants segment for sale-leaseback obligations, and capitalized lease obligations, as well as theand operating leases, require or required periodic financial reporting of certain subsidiary entities within ARGArby’s or of individual restaurants, which in many cases have not been prepared or reported. The CompanyArby’s has negotiated waivers and alternative covenants with itstheir most significant lessors which substitute consolidated financial reporting of ARGArby’s for that of individual subsidiary entities and which modify restaurant level reporting requirements for more than half of the affected leases.  Nevertheless, as of January 3, 2010, the Company2, 2011, Arby’s was not in compliance, and remains not in compliance, with the reporting requirements under those leases for which waivers a ndand alternative financial reporting covenantscovena nts have not been negotiated. However, none of the lessors has asserted that the CompanyArby’s is in default of any of those lease agreements. The Company doesCompanies do not believe that such non-compliance will have a material adverse effect on itstheir consolidated financial position or results of operations.

On January 14, 2009, Wendy’s executed a new $200,000 revolving credit facility (the “Wendy’s Revolver”), borrowings under which were secured by substantially all of Wendy’s current assets, intangibles, stock of Wendy’s subsidiaries and a portion of their real and personal property.  During 2009, Wendy’s borrowed a total of $25,000 under the Wendy’s Revolver and repaid the $25,000 prior to March 11, 2009.  The Wendy’s Revolver was terminated effective March 11, 2009, in connection with the execution of the amended and restated Credit Agreement described above.

AFA Service Corporation (“AFA”), an independently controlled advertising cooperative for the Arby’s restaurant system, in which we have voting interests of less than 50%, had a bank line of credit that matured and was not renewed as of January 2010.  In connection with the establishment of a revolving loan agreement with ARG discussed further in Related Party Transactions, AFA utilized the revolving line with ARG and repaid all amounts outstanding under its bank line of credit on December 28, 2009.

Wendy’s U.S. advertising fund has a revolving line of credit of $25,000. Neither the Company,Companies, nor Wendy’s, is the guarantor of the debt. The advertising fund facility was established to fund the advertising fund operations.  The availabilityfull amount of the line was available under this line of credit as of January 3, 2010 was $20,344.

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WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
2, 2011.

At January 3, 2010,2, 2011, one of Wendy’s Canadian subsidiaries had a revolving credit facility of $6,000 Canadian dollarsC$6,000 which bears interest at the Bank of Montreal Prime Rate. Wendy’s guarantees this debt.  The availability under this facility as of January 3, 20102, 2011 was $5,698 Canadian dollars.C$5,745.
 
(7)(12) Fair Derivative instruments

During the third quarter of 2009, we entered into the Interest Rate Swaps with notional amounts totaling $361,000 that swap the fixed rate interest rates on our 6.20% and 6.25% Wendy’s senior notes for floating rates. The Company’s primary objective for entering into derivative instruments is to manage its exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt. The Interest Rate Swaps are accounted for as fair value hedges and qualify for the short-cut method under the applicable guidance. At January 3, 2010, the fair value of our Interest Rate Swaps was $1,589 and has been included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the 6.20% and 6.25% Wendy’s senior notes.

Prior to their expiration through October 2008, we also had three interest rate swap agreements (the “Term Loan Swap Agreements”) related to our Term Loan.  The Term Loan Swap Agreements hedged a portion of the related Term Loan interest rate risk exposure.  Interest payments under Arby’s Term Loan are based on London InterBank Offered Rate (“LIBOR”) plus a spread.  These hedges of interest rate risk relating to Arby’s Term Loan had been designated as effective cash flow hedges at inception and on an ongoing quarterly basis through their expiration dates.  There was no ineffectiveness from these hedges through their expiration in 2008.  Accordingly, gains and losses f rom changes in the fair value of the hedges were included in the “Unrealized gains (loss) on cash flow hedges” component of “Accumulated other comprehensive income (loss).”  If a hedge or portion thereof had been determined to be ineffective, any changes in fair value would have been recognized in the Company’s results of operations.

The Company’s cash flow hedges included the Term Loan Swap Agreements.  The following is a summary of the components of the net change in unrealized gains and losses on cash flow hedges included in comprehensive income (loss):

  2008  2007 
Net unrealized holding losses arising during the year $(1,529) $(826)
Reclassifications of prior year unrealized holding gains (losses) into net income or loss  1,780   (1,951)
   251   (2,777)
Income tax (provision) benefit  (98)  1,081 
  $153  $(1,696)

The following income and expense items were recognized by the Company related to its derivative activity during each of the years presented below:

  2009  2008  2007 
Interest expense (income):         
Interest Rate Swaps $(2,865) $-  $- 
Term Loan Swap Agreements  -   1,780   (1,951)
  $(2,865) $1,780  $(1,951)


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WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

(8) Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company’sCompanies’ financial instruments for which the disclosure of fair values is required were as follows:

  Year End 
  2009  2008 
  Carrying Amount  Fair Value  Carrying Amount  Fair Value 
             
Financial assets:            
Cash and cash equivalents (a) $538,864  $538,864  $63,080  $63,080 
Restricted cash equivalents (a):                
    Current  1,114   1,114   20,792   20,792 
    Non-current  5,352   5,352   6,462   6,462 
Non-current Cost Investment for which it is                
    practicable to estimate fair value (b)  4,664   5,973   6,540   6,540 
Interest Rate Swaps (c)  1,589   1,589   -   - 
Financial liabilities:                
Long-term debt, including current portion:                
10.00% Senior Notes (d)  551,779   610,200   -   - 
Senior secured term loan, weighted average effective interest of 7.25% as of January 3, 2010 (d)  251,488   252,904   385,030   238,718 
6.20% senior notes (d)  204,303   223,425   199,111   168,974 
6.25% senior notes (d)  193,618   199,200   188,933   176,000 
Sale-leaseback obligations (e)  125,176   118,634   123,829   136,707 
Capitalized lease obligations (e)  89,886   86,706   106,841   111,788 
7% Debentures (d)  80,081   85,500   78,974   61,320 
Other  5,579   5,543   6,969   7,329 
Total long-term debt, including current portion $1,501,910  $1,582,112  $1,089,687  $900,836 
Guarantees of:                
Lease obligations for Arby’s restaurants not operated by the Company (f) $382  $382  $460  $460 
Wendy’s franchisee loans obligations (g) $592  $592  $706  $706 
  Year End 2010 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
Financial assets         
Carrying Amount:         
Cash and cash equivalents $198,686  $313,822  $512,508 
Restricted cash equivalents:            
    Current  1,068   -   1,068 
    Non-current  3,562   685   4,247 
Non-current cost investments  3,775   4,817   8,592 
Interest rate swaps  9,623   -   9,623 
             
Fair Value:            
Cash and cash equivalents (a) $198,686  $313,822  $512,508 
Restricted cash equivalents (a):            
    Current  1,068   -   1,068 
    Non-current  3,562   685   4,247 
Non-current cost investments (b)  5,555   14,540   20,095 
Interest rate swaps (c)  9,623   -   9,623 


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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)




  Year End 2009 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
Financial assets         
Carrying Amount:         
Cash and cash equivalents $538,864  $52,855  $591,719 
Restricted cash equivalents:            
    Current  1,114   -   1,114 
    Non-current  5,352   890   6,242 
Short-term investment  -   263   263 
DFR Notes receivable  -   25,696   25,696 
Non-current cost investments  4,664   4,880   9,544 
Interest rate swaps  1,589   -   1,589 
             
Fair Value:            
Cash and cash equivalents (a) $538,864  $52,855  $591,719 
Restricted cash equivalents (a):            
    Current  1,114   -   1,114 
    Non-current  5,352   890   6,242 
Short-term investment (d)  -   263   263 
DFR Notes receivable (e)  -   28,655   28,655 
Non-current cost investments (b)  5,973   5,382   11,355 
Interest rate swaps (c)  1,589   -   1,589 


  Year-End 
  2010  2009 
  
Carrying Amount
  Fair Value  
Carrying Amount
  Fair Value 
Financial liabilities            
Long-term debt, including current portion:            
Senior Notes (d) $553,258  $620,370  $551,779  $610,200 
Term Loan (d)  495,226   505,000   -   - 
Senior secured term loan (d)  -   -   251,488   252,904 
6.20% senior notes (d)  217,855   229,500   204,303   223,425 
6.25% senior notes (d)  -   -   193,618   199,200 
Sale-leaseback obligations (f)  121,884   128,171   125,176   118,634 
Capitalized lease obligations (f)  86,670   91,015   89,886   86,706 
7% debentures (d)  81,204   86,500   80,081   85,500 
Other  3,634   3,806   5,579   5,543 
Total Wendy’s/Arby’s Restaurants long-term debt, including current portion  1,559,731   1,664,362   1,501,910   1,582,112 
                 
6.54% aircraft term loan (f)  12,671   13,010   18,901   18,790 
5% convertible notes (g)  -   -   2,100   2,100 
Total Wendy’s/Arby’s long-term debt, including current portion $1,572,402  $1,677,372  $1,522,911  $1,603,002 
                 

Guarantees of:            
Lease obligations for restaurants not operated by the Companies (h) $294  $294  $382  $382 
Wendy’s franchisee loans obligations (i) $373  $373  $592  $592 
________________
(a)The carrying amounts approximated fair value due to the short-term maturities of the cash equivalents or restricted cash equivalents.


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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(b)This consistsFair value of an investment in a non-current cost investment.  The fair values of this investment werethese investments was based entirely on a statementstatements of account received from the investment managermanagers or investeeinvestees which iswere principally based on quoted market or broker/dealer prices. To the extent that some of these investments, including the underlying investments in investment limited partnerships, do not have available quoted market or broker/dealer prices, the Company reliesCompanies relied on valuations performed by the investment managers or investees in valuing those investments.investments or third-party appraisals.

(c)The fair values were estimated by the Company based on information provided by the bank counterparties that is model-driven and whose inputs arewere observable or whose significant value drivers arewere observable.

(d)The fair values arewere based on quoted market prices.  The senior secured term loan and 6.25% senior notes were repaid in 2010 as discussed above in Note 11 – Long-term Debt.

(e)The DFR Notes were repaid during 2010 as further described in Note 3 – DFR Notes.
 
(e)(f)The fair values were determined by discounting the future scheduled principal payments using an interest rate assuming the same original issuance spread over a current U.S. Treasury bond yield for securities with similar durations.

(f) (g) The convertible notes were repurchased in 2010 as discussed above in Note 11 – Long-term Debt.

(h)The fair value was assumed to reasonably approximate the carrying amount since the carrying amount represents the fair value as of the acquisition date ofamount. We have accrued liabilities for these lease obligations (2005) less subsequent amortization.based on a weighted average risk percentage.

(g)(i)Wendy’s provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility arrangements for new store development and equipment financing. Wendy’s has accrued a liability for the fair value of these guarantees, the calculation for which was based upon a weighed average risk percentage established at the inception of each program.


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WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

 
The carrying amounts of current accounts, and notes receivable and non-current notes receivable approximateapproximated fair value due to the effect of related allowanceallowances for doubtful accounts and notes receivable. The carrying amounts of accounts payable and accrued expenses and advertising funds restricted assets and liabilities approximated fair value due to the short-term maturities of those items.

Valuation techniques under the accounting guidance related to fair value measurements arewere based on observable and unobservable inputs.  Observable inputs reflectreflected readily obtainable data from independent sources, while unobservable inputs reflectreflected our market assumptions.  These inputs are classified into the following hierarchy:

Level 1 Inputs – Quoted prices for identical assets or liabilities in active markets.

Level 2 Inputs – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs – Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities.  The inputs into the determination of fair value require significant management judgment or estimation.

The following table presents ourthe Companies’ financial assets and liabilities (other than cash and cash equivalents) measured at fair value on a recurring basis as of January 3, 20102, 2011 by the valuation hierarchy as defined in the fair value guidance:

  January 3,  Fair Value Measurements 
  2010  Level 1  Level 2  Level 3 
             
Interest Rate Swaps (included in “Deferred costs and other assets”) $ 1,589  $ -  $ 1,589  $ - 
Total $1,589  $-  $1,589  $- 
  January 2,  Fair Value Measurements 
  2011  Level 1  Level 2  Level 3 
Interest rate swaps (included in “Deferred costs and other assets”) $9,623  $-  $9,623  $- 


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WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The following table presents the fair values for those assets and liabilities measured at fair value during 2010 and 2009 on a non-recurring basis.  Total losses include losses recognized from all non-recurring fair value measurements during the year ended January 2, 2011 and January 3, 2010.  The carrying value of properties presented in the table below substantially represents the remaining carrying value of land for properties that were impaired related to the Wendy’s and Arby’s restaurant segments.  See Note 1217 for more information on the impairment of our long-lived assets.

 January 3,  Fair Value Measurements     January 2,  Fair Value Measurements  2010 
 2010  Level 1  Level 2  Level 3  Total Losses  2011  Level 1  Level 2  Level 3  Total Losses 
                              
Properties $1,607,858  $-  $-  $1,607,858  $72,282  $1,975  $-  $-  $1,975  $58,465 
Other intangible assets  1,392,883   -   -   1,392,883   7,674   -   -   -   -   11,012 
Total $3,000,741  $-  $-  $3,000,741  $79,956 
Wendy’s/Arby’s Restaurants  1,975   -   -   1,975   69,477 
Properties  -   -   -   -   - 
Wendy’s/Arby’s $1,975  $-  $-  $1,975  $69,477 

 (9) Income Taxes
  January 3,  Fair Value Measurements  2009 
  2010  Level 1  Level 2  Level 3  Total Losses 
                
Properties $6,625  $-  $-  $6,625  $72,282 
Other intangible assets  -   -   -   -   7,674 
Wendy’s/Arby’s Restaurants  6,625   -   -   6,625   79,956 
Aircraft  -   -   -   -   2,176 
Wendy’s/Arby’s $6,625  $-  $-  $6,625  $82,132 
Derivative instruments

As disclosedThe Companies’ primary objective for entering into derivative instruments is to manage their exposure to changes in interest rates, as well as to maintain an appropriate mix of fixed and variable rate debt.
During the third quarter of 2009, we entered into eight interest rate swaps with notional amounts totaling $361,000 to swap the fixed rate interest rates on the 6.20% and 6.25% Wendy’s senior notes for floating rates. The interest rate swaps were designated as fair value hedges of the related debt and qualify to be accounted for under the short-cut method according to the applicable guidance.

During the first quarter of 2010, we entered into an interest rate swap with a notional amount of $39,000 on Wendy’s 6.20% senior notes.  At its inception, the interest rate swap was designated as an effective fair value hedge and is tested for effectiveness quarterly.

In connection with the redemption of the Wendy’s 6.25% senior notes, as discussed above in Note 1,11 – Long-term Debt, we cancelled four interest rate swaps with notional amounts totaling $175,000. Upon cancellation, we recognized a gain of $1,875 in the Companysecond quarter of 2010, which is included in the consolidated Federal and certain state income tax returns of Wendy’s/Arby’s.  The Company, however, provides for Federal and state income taxes on the same basis as if the Company and its subsidiaries filed consolidated returns separate from Wendy’s/Arby’s.  Amounts payable for Federal and certain state income taxes are paid in cash by the Company to Wendy’s/Arby’s under a tax sharing agreement.  During 2009, the Company made cash payments of $10,417 to Wendy’s/Arby’s for Federal and certain state income taxes“Interest expense” for the year ended January 2, 2011.

At January 2, 2011, the fair value of the interest rate swaps on the 6.20% Wendy’s senior notes was $9,623 and has been included in “Deferred costs and other assets” and as an adjustment to the carrying amount of the 6.20% Wendy’s senior notes.

At December 28, 2008, Wendy’s/Arby’s also had the following derivative instruments: (1) put options on equity securities and estimated for 2009.(2) total return swaps on equity securities. Wendy's/Arby's did not designate these derivatives as hedging instruments, and accordingly, these derivative instruments were recorded at fair value with changes in fair value recorded in Wendy's/Arby’s results of operations.

Prior to their expiration through October 2008, we also had three interest rate swap agreements (the “Term Loan Swap Agreements”) related to an Arby’s term loan.  The net amount due to Wendy’s/Arby’s for the Company’sTerm Loan Swap Agreements hedged a portion of 2009 Federalthe related term loan interest rate risk exposure.  Interest payments under the Arby’s term loan were based on London InterBank Offered Rate (“LIBOR”) plus a spread.  These hedges of interest rate risk relating to the Arby’s term loan had been designated as effective cash flow hedges at inception and were tested on an ongoing quarterly basis through their expiration dates.  There was no ineffectiveness from these hedges through their expiration in 2008.  Accordingly, gains and losses from changes in the fair value of the hedges we re included in the “Unrealized loss on cash flow hedges” component of “Accumulated other comprehensive loss.”
100
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The following items were recognized by the Companies related to derivative activity during each of the periods presented below:

  2010  2009  2008 
Interest (income) expense:         
Interest rate swaps (a) $(7,880) $(2,865) $- 
Term Loan Swap Agreements (b)  -   -   1,780 
Total Wendy’s/Arby’s Restaurants $(7,880) $(2,865) $1,780 
  Aircraft term loan swap agreement          17 
Investment (income) expense, net:            
Put and call option combinations on equity securities  -   (286)  (2,411)
Total return swaps on equity securities  -   -   5,165 
Put options  -   -   (1,036)
Total Wendy’s/Arby’s $(7,880) $(3,151) $3,515 

(a)  Includes a gain of $1,875 on the cancellation of four interest rate swaps discussed above.

(b) The following is a summary of the components of the net change in unrealized gains on cash flow hedges included in comprehensive income (loss):
  2008 
Net unrealized holding losses arising during the year $(1,529)
Reclassifications of prior year unrealized holding gains into net loss  1,780 
   251 
Income tax provision  (98)
Total Wendy’s/Arby’s Restaurants  153 
Other  2 
Total Wendy’s/Arby’s $155 

(13) Income Taxes

(Loss) income from continuing operations before income taxes taxes of certain states, and a  remaining payment for 2008 aggregates approximately $41,841 at January 3, 2010.is set forth below:

  Wendy’s/Arby’s 
  2010  2009  2008 
Domestic $(37,877) $(34,438) $(583,679)
Foreign  15,882   14,305   2,427 
  $(21,995) $(20,133) $(581,252)

 
  Wendy’s/Arby’s Restaurants 
  2010  2009  2008 
Domestic $(33,305) $(12,718) $(430,634)
Foreign  15,882   14,305   2,427 
  $(17,423) $1,587  $(428,207)



78101
 
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
The (loss) income from continuing operations before income taxes consisted of the following components:Thousands Except Per Share Amounts)

  2009  2008  2007 
Domestic $(12,718) $(430,634) $52,864 
Foreign  14,305   2,427   (36)
  $1,587  $(428,207) $52,828 

The benefit from (provision for) income taxes from continuing operations consisted of the following components:is set forth below:

  2009  2008  2007 
U.S. Federal $(46,062) $5,427  $(25,071)
State  (8,328)  (3,064)  (3,208)
Foreign  (6,089)  (1,965)  (387)
Current tax (provision) benefit  (60,479)  398   (28,666)
U.S. Federal  46,919   54,299   6,815 
State  18,626   8,221   1,866 
Foreign  2,996   203   - 
Deferred tax benefit (provision)  68,541   62,723   8,681 
Income tax benefit (provision) $8,062  $63,121  $(19,985)
  Wendy’s/Arby’s 
  2010  2009  2008 
U.S. Federal $-  $-  $- 
        State  (5,009)  (10,318)  (4,017)
Foreign, principally Canada  (7,100)  (6,160)  (1,965)
Current tax provision  (12,109)  (16,478)  (5,982)
U.S. Federal  25,003   8,066   90,465 
State  2,720   28,985   14,608 
Foreign, principally Canada  2,056   3,076   203 
Deferred tax benefit  29,779   40,127   105,276 
Income tax benefit $17,670  $23,649  $99,294 


The deferred income
  Wendy’s/Arby’s Restaurants 
  2010  2009  2008 
       U.S. Federal $3,382  $(46,062) $5,427 
       State  (7,249)  (8,328)  (3,064)
       Foreign, principally Canada  (7,100)  (6,089)  (1,965)
Current tax (provision) benefit  (10,967)  (60,479)  398 
       U.S. Federal  19,896   46,919   54,299 
       State  3,800   18,626   8,221 
       Foreign, principally Canada  2,056   2,996   203 
Deferred tax benefit  25,752   68,541   62,723 
Income tax benefit $14,785  $8,062  $63,121 

Deferred tax assets and the deferred income tax (liabilities) resulted from the following components:are set forth below:                           

 Wendy’s/Arby’s  Wendy’s /Arby’s Restaurants 
 Year End  Year End  Year End 
 2009  2008  2010  2009  2010  2009 
Deferred tax assets:                  
Net operating/capital loss and tax credit carryforwards $122,327  $92,418 
Operating and capital loss carryforwards $99,354  $110,637  $105,818  $106,364 
Tax credit carryforwards  62,518   33,841   13,951   15,963 
Accrued compensation and related benefits  32,252   33,162   37,512   34,327   35,333   32,252 
Unfavorable leases  34,595   36,830   31,009   34,595   31,009   34,595 
Other  67,681   55,651   71,664   81,449   63,679   67,681 
Valuation allowances  (96,031)  (83,537)  (88,363)  (87,231)  (95,850)  (96,031)
Total deferred tax assets  160,824   134,524   213,694   207,618   153,940   160,824 
                        
Deferred tax liabilities:                        
Intangible assets  (471,816)  (464,945)  (462,627)  (471,816)  (462,627)  (471,816)
Owned and leased fixed assets and related obligations  (104,707)  (116,895)
Owned and leased fixed assets net of related
obligations
  (100,198)  (110,033)  (95,588)  (104,707)
Other  (39,724)  (51,005)  (28,773)  (34,750)  (29,130)  (39,724)
Total deferred tax liabilities  (616,247)  (632,845)  (591,598)  (616,599)  (587,345)  (616,247)
 $(455,423) $(498,321) $(377,904) $(408,981) $(433,405) $(455,423)

At January 3, 2010, the Company’s net deferred tax liabilities totaled $455,423.  At December 28, 2008, the Company’s net deferred tax liabilities totaled $498,321.  TheWendy's/Arby’s decrease in net deferred tax liabilities is principally the result of increasesrecognizing foreign tax credits on the repatriation of foreign earnings, intangible and fixed asset differences including impairments, retirements of long-term debt and jobs credit carryforwards partially offset by a decrease in deferred tax assets resulting from the utilization of net operating loss carryforwards.  Wendy’s/Arby’s Restaurants decrease in net deferred tax liabilities is principally the result of intangible and fixed asset differences including impairments and retirements of long-term debt.
Wendy's/Arby’s loss and credit carryforwards have limited carryforward periods and will expire if unused.  U.S. Federal net operating loss carryforwards of approximately $117,837 at January 2, 2011 expire beginning in 2024. The utilization of these losses is limited, but the 2011 limitation exceeds the remaining net operating loss carryforward. A capital loss carryforward of $199,057 expires
102
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


in 2011.  Tax credits of $62,518 at January 2, 2011, principally consisting of foreign tax credits and jobs credits, expire beginning in 2017. State net operating loss carryforwards are  subject to various limitations including carryforward periods and begin expiring in 2011.  As of January 2, 2011, Wendy's/Arby’s has a net deferred tax asset, net of U.S. Federal taxes, of $26,904 related to state net operating losses.

Wendy’s/Arby’s Restaurants’ carryforwards at January 2, 2011 consist of a capital loss carryforward of $208,284 which will expire in 2011, a capital loss carryforward of $15,406 which will expire in 2014, tax credits of $13,951 principally consisting of foreign tax credits which expire beginning in 2018 and state net operating loss carryforwards subject to various limitations including carryforward periods and begin expiring in 2011.  As of January 2, 2011, Wendy’s/Arby’s Restaurants has a deferred tax asset, net of U.S. Federal taxes, of $21,688 related to state net operating losses.

Wendy's/Arby’s valuation allowances of $88,363 and $87,231 as of January 2, 2011 and January 3, 2010, respectively, relate to capital loss and state net operating loss carryforwards.  Valuation allowances increased $1,132 and $6,345 in 2010 and 2009, respectively, principally related to changes in state net operating losses.  Additionally, 2009 includes a $3,265 reduction related to capital losses utilized to offset 2009 capital gains.  The 2009 reduction was considered in merger related fair value (see Note 2).  Wendy’s/Arby’s Restaurants valuation allowances of $95,850, and $96,031 as of January 2, 2011 and January 3, 2010, respectively, relate to capital loss and state net operating loss carryforwards.  Valuation allowances (decreased) increased ($181) and $12,494 in 2010 and 2009, respectively, principally related to changes in state net operating losses. In making our determination of the need for valuation allowances, we reviewed available positive and negative evidence as well as prudent and feasible tax planning strategies regarding our ability to realize the benefit of the related deferred tax assets.

For U.S. Federal income tax purposes during the years prior to 2009, we deducted $117,939 relating to the exercise of stock options and vesting of restricted stock.  Wendy's/Arby’s has not recognized the $42,661 tax benefit relating to these deductions because it has no income taxes currently payable against which the benefits can be realized as a result of its net operating loss and credit carryforwards.  When such benefits are realized against future income taxes payable by Wendy's/Arby’s, it will recognize them in future periods as a reduction of current income taxes payable with an equal offsetting increase in “Additional paid-in capital.”

U.S. income taxes and foreign withholding taxes are provided on unremitted earnings of foreign subsidiaries, primarily Canadian, which are not essentially permanent in duration.  As of January 3, 2010,2, 2011, the Company hadCompanies have unremitted earnings of approximately $9,650$1,600 with a corresponding U.S. deferred income tax liability of $145.$200.

The Wendy’s Merger qualified as a tax-free reorganization.  Based on the merger exchange ratio, the former shareholders of Wendy’s owned approximately 80% of the total stock of Wendy’s/Arby’s outstanding immediately after the Wendy’s Merger.  Therefore, the Wendy’s Merger was treated as a reverse acquisition for U.S. Federal income tax purposes. As a result of the reverse acquisition, Wendy’s/Arby’s and its subsidiaries became part of the Wendy’s consolidated group with Wendy’s/Arby’s as its new parent.  In addition, Wendy’s/Arby’s had a short taxable year in 2008 ending on the date of the Wendy’s Merger. 
Also as a result of the Wendy’s Merger, for U.S. Federal tax purposes there was an ownership change at Wend y’s/Arby’s which places a limit on the amount of a company’s net operating losses that can be deducted annually.

79103
 

WENDY’S/ARBY’S RESTAURANT,GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


The Company has carryforwards principally consisting of:reconciliation of income tax computed at the U.S. Federal statutory rate to reported income tax is set forth below:

  1)  As of January 3, 2010, A $223,690 capital loss principally resulting from Wendy’s sale of Fresh Enterprises, Inc. and Subsidiaries “Baja Fresh” in 2006.  U.S. Federal capital losses may be carried forward for five years and are subject to certain limitations as a result of the Wendy’s Merger.  As of January 3, 2010, we have provided a full valuation allowance on the $82,471 deferred tax asset related to this capital loss carryforward as we believe it is more likely than not that the capital loss carryforward will expire unused in 2011.  As of December 28, 2008 our deferred tax assets included capital loss carryforwards of $209,860, unrealized investment losses of $16,167 and the related full valuation allowance of $83,537 on the deferred tax asset.  The 2009 change in the deferred tax asset and related valuation allowance resulted from 2009 capital gains and losses.
  Wendy’s/Arby’s 
  2010  2009  2008 
          
Income tax benefit at the U.S. Federal statutory rate $7,699  $7,047  $203,438 
State income tax (provision) benefit, net of U.S. Federal income tax effect  (1,489)  2,505   6,884 
Previously unrecognized state net operating losses, net of related    valuation allowance (a)  -   9,629   - 
Foreign and U.S. tax effects of foreign operations (b)  7,692   623   9,241 
Impairment of non-deductible goodwill  -   -   (99,696)
Canadian tax rate changes  -   2,000   - 
             
Loss on DFR common stock with no tax benefit  -   -   (20,259)
Jobs tax credits, net  3,469   3,792   1,805 
Valuation allowance changes  (198)  1,165   - 
Non-deductible expenses  (1,162)  (1,354)  (1,921)
Adjustments related to prior year tax matters  1,035   (1,603)  (706)
Other, net  624   (155)  508 
  $17,670  $23,649  $99,294 

__________________________
  2)  (a)As of January 3, 2010, tax credits aggregating $15,963 principally consisting of foreign tax credits generated in 2008 and jobs credits from 2009, 2008 and 2007.  The tax credits may be carried forward for periods of 10 years or more.

  3)  State net operating loss carryforwards are subject to various limitations including carryforward periods and begin expiring in 2010.  As of January 3, 2010, we have a deferred tax asset of $22,235 and a valuation allowance of $11,656 related to these assets.  As of December 28, 2008 our deferred tax asset for state net operating loss carryforwards was $1,098 and the related valuation allowance was $0.  Changes during 2009 in the state net operating loss carryforwards and related valuation allowances are principally the result of the recognition of an $18,152 deferred tax asset and an $8,523 valuation allowance for certain state net operating losses inIn connection with the fourth quarter 2009 dissolution of our captive insurance company, asthe likelihood of realization of thesecertain previously unrecognized state net operating losses is no longer remote.  Accordingly, an $18,152 deferred tax asset and related $8,523 partial valuation allowance was recognized.
(b)Includes previously unrecognized benefit in 2010 and 2008 of foreign tax credits, net of foreign income and withholding taxes on the repatriation of foreign earnings.

In summary, as of January 3, 2010 and December 28, 2008, the Company had valuation allowances of $96,031 and $83,537 for a change of $12,494 as described above.  As of December 30, 2007, our valuation allowance was $0.  The 2008 increase of $83,537 was due to the Wendy’s Merger.  In making our determination of the need for valuation allowances, we reviewed available positive and negative evidence as well as prudent and feasible tax planning strategies regarding our ability to realize the benefit of the related deferred tax assets.  

A reconciliation of the difference between the reported benefit from (provision for) income taxes and the respective benefit (tax) that would result from applying the 35% U.S. Federal statutory rate to the (loss) income from continuing operations before income taxes is as follows:
  Wendy’s/Arby’s Restaurants 
  2010  2009  2008 
Income tax benefit (provision) at the U.S. Federal statutory rate $6,098  $(555) $149,872 
      State income taxes (provision) benefit, net of U.S. Federal income tax effect  (2,242)  (2,935)  3,352 
      Previously unrecognized state net operating losses, net of related  valuation allowance (a)  -   9,629   - 
      Foreign and U.S. tax effects of foreign operations (b)  7,692   623   9,241 
      Impairment of non-deductible goodwill  -   -   (99,696)
      Canadian tax rate changes  -   2,000   - 
      Jobs tax credits, net  3,469   3,792   1,805 
     Valuation allowance changes  (198)  (581)  - 
     Non-deductible expenses  (607)  (792)  (676)
     Adjustments related to prior year tax matters  (126)  (3,279)  (1,152)
     Other, net  699   160   375 
  $14,785  $8,062  $63,121 

  2009  2008  2007 
Income tax benefit (provision) computed at U.S. Federal statutory rate $(555) $149,872  $(18,490)
State income taxes, net of U.S. Federal income tax effect  (2,935)  3,352   (872)
Previously unrecognized state net operating losses, net of related valuation allowance (a)  9,629   -   - 
Foreign tax credits, net of tax on Foreign earnings (b)  -   9,241   - 
Impairment of non-deductible goodwill  -   (99,696)  - 
Canadian tax rate changes  2,000   -   - 
Jobs tax credits, net  3,792   1,805   - 
Valuation allowance additions  (581)  -     - 
Non-deductible expenses  (792)  (676)  - 
Adjustments related to prior year tax matters  (3,279)  (1,152)  1,145 
Tax charge related to entity simplification  -   -   (1,056)
Other, net  783   375   (712)
  $8,062  $63,121  $(19,985)
________________________________________________
(a)In connection with the fourth quarter 2009 dissolution of our captive insurance company, the likelihood of realization of certain previously unrecognized state net operating losses is no longer remote.  Accordingly, a $18,152 deferred tax asset and related $8,523 partial valuation allowance was recognized.
(b)Includes previously unrecognized benefit in 2010 and 2008 of foreign tax credits, net of foreign income and withholding taxes on $23,985the repatriation of foreign earnings.


80
WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

    As disclosedWendy’s/Arby’s participates in Note 1, the Company is included in the consolidated Federal and certain state income tax returns of Wendy’s/Arby’s.  The Internal Revenue Service (“IRS”(the “IRS”) is conducting an examination of the Wendy’s/Arby’s 2010 and 2009 U.S. Federal income tax years as part of the Compliance Assurance Process (“CAP”).  As part of CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return.  As such, our December 28, 2008 and January 3, 2010 tax returns along with the Wendy’s haspre-merger tax returns have been participating in CAP since its 2006 tax year.   The Wendy’ssettled.  Our U.S. Federal income tax returns for 2007 and prior years have been settled.  Wendy’s/Arby’s participated in CAP beginning with the tax period ended December 28, 2008 and this return is settled.  Our December 2 8, 2008 U.S. Federal income tax return includes Wendy’s for all of 2008 and Wendy’s/Arby’s for the period September 30, 2008 to December 28, 2008.  Wendy’s/Arby’s U.S. Federal income tax returns for 2005 to September 29, 2008 are not currently under examination.

Certain of the Company’sWendy's/Arby’s state income tax returns from its 20011998 fiscal year and forward remain subject to examination.  VariousWe believe that adequate provisions have been made for any liabilities, including interest and penalties that may result from the comple tion of these examinations.

104
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



As disclosed in Note 1, Wendy’s/Arby’s Restaurants is included in the consolidated Federal and certain state income tax returns of Wendy’s/Arby’s.  However, Wendy’s/Arby’s Restaurants provides for Federal and state income taxes on the same basis as if consolidated returns were filed separate from Wendy’s/Arby’s.  Amounts payable for Federal and certain state income taxes are currentlysettled by Wendy’s/Arby’s Restaurants to Wendy’s/Arby’s under examination.  a tax sharing agreement.  During 2010 and 2009, Wendy’s/Arby’s Restaurants made tax sharing payments to Wendy’s/Arby’s of $0 and $10,417, respectively.  As of January 2, 2011 and January 3, 2010, the net amount due to Wendy’s/Arby’s for Federal and state inc ome taxes was $37,977 and $41,841, respectively.

Uncertain Tax Positions

As of January 2, 2011, Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants had unrecognized tax benefits of $36,434 and $26,249, respectively, of which, if resolved favorably would reduce income tax expense by $25,200 and $17,100, respectively.  A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 Wendy’s/Arby’s 
 2009  2008  2007  2010  2009  2008 
Beginning balance $23,617  $5,846  $6,827  $39,118  $38,421  $12,266 
Additions:                        
Wendy’s unrecognized tax benefits at the Wendy’s Merger date  -   16,816   -  
Wendy’s unrecognized tax benefits at the merger date (a)  -   -   24,916 
Tax positions related to the current year  613   996   387   19   6,627   996 
Tax positions of prior years  1,651   2,357   18   4,921   1,857   4,362 
Reductions:                        
Tax positions of prior years  (2,383)  (1,466)  (976)  (4,419)  (4,241)  (2,982)
Settlements  (1,045)  (372)  (72)  (416)  (1,407)  (578)
Lapse of statute of limitations  (2,139)  (560)  (338)
Lapse of statute of limitation  (2,789)  (2,139)  (559)
Ending balance $20,314  $23,617  $5,846  $36,434  $39,118  $38,421 

Included in the balance of unrecognized tax benefits at January 3, 2010 and December 28, 2008 respectively, are $13,204 and $16,289 (net of U.S. Federal benefit on state issues) of tax benefits that, if resolved favorably would reduce the Company’s tax expense.  
  Wendy’s/Arby’s Restaurants 
  2010  2009  2008 
 Beginning balance $28,414  $31,717  $5,846 
      Additions:            
          Wendy’s unrecognized tax benefits at the merger date (a)  -   -   24,916 
          Tax positions related to the current year  19   613   996 
          Tax positions of prior years  4,921   1,651   2,357 
Reductions:            
    Tax positions of prior years  (3,900)  (2,383)  (1,466)
    Settlements  (416)  (1,045)  (372)
    Lapse of statute of limitations  (2,789)  (2,139)  (560)
Ending balance $26,249  $28,414  $31,717 
__________________________
(a)The amount included in the tables above for 2008 of $24,916 has been corrected from the prior year presentation of $16,816; such revision had no impact on the Companies’ Consolidated Financial Statements.

During 2010, the Company believes2011, we believe it is reasonably possible itwe will reduce unrecognized tax benefits by up to $4,800$7,022, primarily as a result of the completion of certain state tax audits.  Increases in unrecognized tax benefits will result primarily from state tax positions expected to be taken on tax returns for 2010.  We do not expect any unrecognized tax benefits related to our U.S. Federal income tax for 2010.

The Company recognizes interest accrued related to unrecognized tax benefits in “Interest expense”During 2010, 2009 and penalties in “General2008, Wendy’s/Arby’s recognized $1,004, $(414) and administrative expenses”.  During 2009, 2008, and 2007, the Company recognized $(315), $792, and 479$390 of interest (reduction)(reductions) expense and $(535), $954,$425, $(888) and $0$1,307 of penalty (reductions) expense, both respectively, related to uncertain tax positions. The CompanyWendy's/Arby’s has approximately $4,062$5,005 and $4,702$4,262 accrued for interest and $779$1,451 and $1,315$1,026 accrued for penalties as of January 2, 2011 and January 3, 2010, respectively.

During 2010, 2009 and December 28, 2008, bothWendy’s/Arby’s Restaurants recognized $940, $(315) and $792 of interest (reductions) expense and $425, $(535) and $954 of penalty (reductions) expense, respectively, related to uncertain tax positions. Wendy’s/Arby’s Restaurants has approximately $4,741 and $4,062 accrued for interest and $1,204 and $779 accrued for penalties as of January 2, 2011 and January 3, 2010, respectively.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



(14) Stockholders’ Equity

(Wendy’s/Arby’s)
 
Our common stock and common stock held in treasury activity for 2010, 2009 and 2008 was as follows:

 Common Stock Treasury Stock
 2010 2009 2008 2010 2009 2008
 
Class B prior to September 29, 2008
Common Stock subsequent to September 29, 2008
 Common Stock Common Stock Common Stock Class B
Number of shares at beginning of year470,424 470,424 64,025 17,492 1,220 667 174
Net effect of Class B conversion- - 29,551 - - 2 (2)
Stock issuance related to Wendy’s Merger- - 376,776 - - - -
Common shares issued:             
Upon exercises of stock options, net- - - (383) (524) (5) -
Upon grant of restricted stock and for director’s fees- - 16 (470) (52) (63) (213)
Repurchase of common stock for Treasury- - - 35,406 16,911 - -
Other- - 56           5 (63) 619 41
Number of shares at end of year470,424 470,424 470,424 52,050 17,492 1,220 -
Preferred Stock

There were 100,000 shares authorized and no shares issued of preferred stock throughout the 2010, 2009 and 2008 fiscal years.

Restricted Net Assets of Subsidiaries

Restricted net assets of consolidated subsidiaries were $1,776,630, representing approximately 82% of Wendy's/Arby’s consolidated stockholders’ equity as of January 2, 2011, and consisted of net assets of Wendy's/Arby’s restaurant business segments which were restricted as to transfer to Wendy’s/Arby’s in the form of cash dividends, loans or advances under the covenants of the Credit Agreement.  As of January 2, 2011, there was $25,622 available for the payment of dividends directly to Wendy's/Arby’s from Wendy's/Arby’s restricted subsidiaries.

 (10)(15) Share Share-Based-Based Compensation

Wendy’s/Arby’s has granted stock options to certain key employees of the Company undermaintains several equity plans of Wendy’s/Arby’s (the “Equity Plans”), including those assumed in the Wendy’s Merger.Merger discussed below, which collectively provide or provided for the grant of stock options, restricted shares of Wendy’s/Arby’s Common Stock, tandem stock appreciation rights, restricted share units and performance shares (collectively, the “Grants”) to certain officers, other key employees, non-employee directors and consultants.  Wendy's/Arby’s has not granted any tandem stock appreciation rights. Since the establishment of Wendy’s/Arby’s Restaurants, substantially all Grants have been made to employees of Wendy’s/Arby’s Restaurants. The Equity Plans also provide for the grant of shares of Wendy’s/Arby’s common stoc k to non-employee directors.  During 2010, Wendy’s/Arby’s implemented the 2010 Omnibus Award Plan (the “2010 Plan”) for the issuance of equity instruments as described above. All equity grants during 2010 were issued from the 2010 Plan and it is the only equity plan from which all future equity instruments may be granted. As of January 2, 2011 there were approximately 66,133 shares of Common Stock available for future grants under the 2010 Plan.

       Effective with the Wendy’s Merger, Wendy’s/Arby’s also assumed the existing Wendy’s equity plans (the “Wendy’s Plans”) which collectively provided for the grant of stock options, restricted shares, stock appreciation rights or restricted stock units for certain employees and non-employee directors to acquire common shares of Wendy’s.  Pursuant to the merger agreement, each outstanding Wendy’s option as of the merger date was converted into 4.25 options for one share of Wendy’s/Arby’s Common Stock.  In addition, immediately prior to the Wendy’s Merger, each share of Wendy’s/Arby’s Class B Common Stock was converted into Wendy’s/Arby’s Class A Common Stock on a one for one basis (the “Conversion”).  Wendy’s/Arby’sWe performed valuations on the Wendy’s options both before and after the Conversion and determined that the value of the options after the Conversion was $1,923 higher than the pre-merger value included in the consideration in the Wendy’s Merger.  As such, we recorded additional compensation expense in 2008 for this amount.

All discussions below related to option and restricted share activity for prior years include options or restricted shares for Wendy’s/Arby’s Class B Common Stock which, if they were still outstanding as of the date of the Wendy’s Merger, represent options exercisable into Wendy’s/Arby’s Common Stock or restricted Common Stock.

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WENDY’S/ARBY’S RESTAURANT,GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


Stock Options

Prior to the date of the Conversion, Wendy’s/Arby’s outstanding stock options were exercisable for either (1) a package (the “Package Options”) of one share of Class A Common Stock and two shares of Class B Common Stock, (2) one share of Class A Common Stock (the “Class A Options”) or (3) one share of Class B Common Stock (the “Class B Options”).  As of the date of the Wendy’s Merger, Wendy’s/Arby’s converted to a single class of common stock.  As such, all stock options outstanding subsequent to the date of the Wendy’s Merger (including those under the Wendy’s Plans) are now exercisable for one share of Wendy’s/Arby’s Common Stock (three shares of Common Stock for Package Options).  Summary

The tables below summarize 2010 activity and include certain additional information regardingfor Wendy’s/Arby’s outstanding s tock options issued to our employees, including changes therein, is as follows:stock options.

  Package Options  Common Stock Options 
  Options  Weighted Average Exercise Price  Aggregate Intrinsic Value  Options  Weighted Average Exercise Price  Aggregate Intrinsic Value 
Outstanding at December 28, 2008  43   $24.14  $-   24,459   $7.27  $2,552 
Granted during 2009  -           2,340   4.46     
Cancelled options reinstated  -           374   3.87     
Exercised during 2009 (a)  -      $-   (524)  3.75  $784 
Forfeited during 2009  -   24.14       (4,996)  7.52     
Outstanding at January 3, 2010  43   $24.14  $-   21,653   $6.93  $2,501 
Vested or expected to vest at January 3, 2010 (b)  43   $24.14  $-   20,699   $6.98  $2,443 
Exercisable:                        
January 3, 2010  43   $24.14  $-   11,053   $7.95  $1,861 
  Package Options  Common Stock Options 
  Options  Weighted Average Exercise Price  Aggregate Intrinsic Value  Options  Weighted Average Exercise Price  Aggregate Intrinsic Value 
Outstanding at January 3, 2010  195  $23.82  $-   22,880  $7.15  $2,504 
Granted  -           6,617  $3.92     
Exercised  -           (409) $3.42  $488 
Forfeited /expired  (62) $22.16       (1,414) $7.46     
Outstanding at January 2, 2011 (a)  133  $24.59  $-   27,674  $6.42  $6,063 
Vested or expected to vest at January 2, 2011 (b)  133  $24.59  $-   26,519  $6.50  $5,586 
Exercisable at January 2, 2011 (c)  133  $24.59  $-   15,857  $7.75  $1,190 
_____________

(a)The aggregate intrinsic value of Common Stock Options exercised in 2008 and 2007 was $4 and $2,550, respectively. The aggregate intrinsic value of Package Options exercised in 2007 was $216.
(b)(a)The weighted average remaining contractual termslife for the Package Options and Common Stock Options that arewere outstanding at January 2, 2011 was 1.5 years and 7.5 years, respectively.

(b)The weighted average contractual life for the Package Options and Common Stock options that were vested or are expected to vest at January 3, 2010 are 2.12, 2011 was 1.5 years and 7.87.5 years, respectively.

(c)The weighted average contractual life for the Package Options and Common Stock Options that were exercisable at January 2, 2011 was 1.5 years and 6.6 years, respectively.

The weighted average fair value per share as of the grant date as calculated under the Black-Scholes Model of Wendy’s/Arby’sfor stock options granted during 2010, 2009 2008 and 20072008 (which were all granted at exercise prices equal to the market price of Wendy’s/Arby’s Common Stock or Class B Common Stockcommon stock on the grant date) were as follows:

Common Stock Options 
Class B
Options
 Common Stock Options  
Class B
Options
 
2010 $1.47   N/A 
20091.83 N/A $1.83   N/A 
20082.13 2.20 $2.12  $2.20 
2007- 4.51

The fair value of Wendy’s/Arby’s stock options on the date of grant and as of the Merger Date for options assumed in 2008 was calculated utilizing the following weighted average assumptions:

2009 2008 20072010 2009 2008 
Common Stock Options Class B Options Common Stock Options Class B Options Common Stock Options Class B OptionsCommon Stock Options Common Stock Options Common Stock Options Class B Options 
Risk-free interest rate2.46% N/A 2.11% 3.85% - 4.68%2.01% 2.46% 2.13% 3.78% 
Expected option life in years5.1 N/A 6.2 7.4 - 7.4  5.4     5.1   6.2   7.5   
Expected volatility49.6% N/A 47.3% 35.6% - 26.5%        45.2% 49.6% 47.0% 36.0% 
Expected dividend yield1.35% N/A 1.29% 2.65% - 2.38%1.53% 1.35% 1.29% 2.53% 
The risk-free interest rate represents the U.S. Treasury zero-coupon bond yield approximating the expected option life of stock options granted during the respective years.  The expected option life represents the period of time that the stock options granted during the period are expected to be outstanding based on Wendy’s/Arby’s historical exercise trends for similar grants.  The expected volatility is based on the

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WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



historical market price volatility of the classes of common stock for the related options granted during the years.  The expected dividend yield represents Wendy’s/Arby’s annualized average yield for regular quarterly dividends declared prior to the respective stock option grant dates.
 
The Black-Scholes Model has limitations on its effectiveness including that it was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable and that the model requires the use of highly subjective assumptions including expected stock price volatility.  Wendy’s/Arby’sEmployee stock option awards to employees have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimates.

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WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
       

As of January 3, 2010, there was $7,587 of total unrecognized compensation cost related to nonvested share-based compensation grants which would be recognized over a weighted-average period of 1.76 years.  Wendy’s/Arby’s currentlyThe Companies' current outstanding stock options have maximum contractual terms of ten years and, with certain exceptions, vest ratably over three years. All of the options under the Wendy’s Plans that were granted prior to 2008 vested immediately as of the date of the Wendy’s Merger.  Options granted under the Wendy’s Plans during 2008, regardless of whether they were granted before or after the merger, vest ratably over three years from the date of grant, with certain exceptions.

Wendy’s/Arby’s reduced the exercise prices of all outstanding stock options for the DFR dividend distributed to shareholders of record as of March 29, 2008.  The exercise prices were reduced by $0.39 for each of the Package Options and by $0.13 for each of the Common Stock Options and Class B Options.
Restricted Shares

Wendy’s/      Wendy's/Arby’s issues restricted share awards (“RSAs”) as well asand restricted share units (“RSUs”).  For the purposes of our disclosures, the term “Restricted Shares” applies to both RSAs and RSUs collectively unless otherwise noted.

A summary      The following table summarizes the activity of changesWendy's/Arby’s non-vested restricted shares for 2010:

  Common Stock 
  Shares  Weighted Average Fair Value 
Nonvested at January 3, 2010  1,481  $5.00 
Granted  192  $4.44 
Vested  (606) $5.54 
Forfeited  (14) $4.44 
Nonvested at January 2, 2011  1,053  $4.59 

Performance Shares

Under the 2010 Plan, Wendy’s/Arby’s grants performance-based awards to certain officers and key employees.  The vesting of these awards is contingent upon meeting a defined operational goal (a performance condition) or Common Stock share prices (a market condition).

The fair value of performance condition awards was determined using the average of the high and low trading prices of our Common Stock on the date of grant. Compensation cost recorded for performance condition awards is reevaluated at each reporting period based on the probability of the achievement of the goal. There was no compensation cost recorded during 2010 for the performance condition awards as Wendy’s/Arby’s believes that the achievement of the defined operational goal is not probable.

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WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)




The fair value of market condition awards was estimated on the date of the grant using the Monte Carlo simulation model.  The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the market conditions will be achieved, as noted in the Wendy’s/Arby’s nonvested Restricted Shares issued to our employees is as follows:table below:

  Common Stock 
  Shares  Weighted Average Fair Value 
       
Nonvested at December 28, 2008  336  $9.14 
Granted during 2009  1,105   4.46 
Vested during 2009  (148)  9.28 
Forfeited during 2009  (12)  7.25 
Nonvested at January 3, 2010  1,281  $5.10 
Risk-free interest rate0.93%
Expected life in years     2.98        
Expected volatility55.0%
Expected dividend yield (a)      0.0%     
________________________
(a)  The Monte Carlo method assumes a reinvestment of dividends.

Compensation cost is recorded ratably for market condition awards during the vesting period and is not reversed, except for forfeitures, at the vesting date, without regard as to whether the market condition is met.

The following table summarizes the activity of Wendy's/Arby’s non-vested performance shares for 2010:
  Performance Condition Awards  Market Condition Awards 
  Shares  Weighted Average Fair Value  Shares  Weighted Average Fair Value 
             
     Nonvested at January 3, 2010  -  $-   -  $- 
     Granted  1,209  $3.91   833  $5.56 
     Vested  -  $-   -  $- 
     Forfeited  (2) $3.91   (1) $5.56 
     Nonvested at January 2, 2011  1,207  $3.91   832  $5.56 
Share-Based Compensation Expense

(Wendy’s/Arby’s)

Total share-based compensation expense and related income tax benefit recognized in the Company’sWendy's/Arby’s consolidated statements of operations were as follows:

 2009  2008  2007  2010  2009  2008 
Compensation expense related to Wendy’/Arby’s stock options $11,139  $7,523  $3,796 
Compensation expense related to stock options $9,782  $12,497  $5,953 
Compensation expense related to the effect of the Conversion on Wendy’s stock options  -   -   1,923 
Compensation expense related to Restricted Shares  2,431   1,247   1,258   3,229   2,797   1,247 
Compensation expense related to Market Condition Performance Shares  693   -   - 
Compensation expense credited to “Stockholders’ Equity”  13,704   15,294   9,123 
Compensation expense related to Restricted Shares that was not credited to “Stockholders’ Equity” (a)  160   -   -   -   160   - 
Compensation expense related to dividends and related interest on the Restricted Shares (b)  3   13   6 
Total share-based compensation expense included in “General and administrative”  13,707   15,467   9,129 
Less: Income tax benefit  (4,969)  (3,231)  (1,971)  (4,995)  (5,629)  (3,363)
Share-based compensation expense, net of income tax benefit $8,761  $5,539  $3,083  $8,712  $9,838  $5,766 
_____________________________________
(a)
This amount representsRepresents amounts paid to terminated employees in lieu of receiving vested Restricted Shares to which they were entitledentitled.
(b) 
Dividends of $38, $25, and $65 that accrued on the Restricted Shares were charged to “Accumulated deficit” in 2010, 2009, and 2008, respectively.


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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


      As of January 2, 2011, there was $16,544 of total unrecognized compensation cost related to non-vested share-based compensation grants for Wendy’s/Arby’s. The unrecognized expense for Wendy’s/Arby’s will be recognized over a weighted average period of 1.85 years.
(Wendy’s/Arby’s Restaurants)

     Total share-based compensation expense and related income tax benefit recognized in Wendy’s/Arby’s Restaurants consolidated statements of operations were as follows:

 ��2010  2009  2008 
Compensation expense related to Wendy’s/Arby’s stock options $9,648  $11,139  $7,523 
Compensation expense related to Restricted Shares  2,458   2,431   1,247 
Compensation expense related to Market Condition Performance Shares  684   -   - 
Compensation expense related to Restricted Shares that was not credited to “Stockholder’s Equity” (a)  -   160   - 
Total share-based compensation expense included in  “General and administrative”  12,790   13,730   8,770 
Less:  Income tax benefit  (4,646)  (4,969)  (3,231)
Share-based compensation expense, net of income tax benefit $8,144  $8,761  $5,539 
____________________
(a)  Represents amounts paid to terminated employees in lieu of receiving vested Restricted Shares to which they were entitled.
      As of January 2, 2011, there was $15,814 of total unrecognized compensation cost related to non-vested share-based compensation grants for Wendy’s/Arby’s Restaurants. The unrecognized expense for Wendy’s/Arby’s Restaurants will be recognized over a weighted average period of 1.87 years.

((11)16) Facilities Relocation and Restructuring

The facilities relocation and corporate restructuring charges are summarized below:

 2009  2008 
 2009  2008  2007       
Wendy’s Restaurants segment $8,088  $3,101  $-  $8,088  $3,101 
Arby’s Restaurants segment  (72)  120   652   (72)  120 
 $8,016  $3,221  $652 
Total Wendy’s/Arby’s Restaurants  8,016   3,221 
Corporate  3,008   692 
Total Wendy’s/Arby’s $11,024  $3,913 

The CompanyCompanies incurred corporate restructuring charges in 2009 and 2008 primarily related to severance in conjunction withas a result of the Wendy’s Merger in 2009 and 2008.Merger. We do not expect to incur any additional corporate restructuring charges with respect to the Wendy’s MergerMerger. The Wendy’s/Arby’s Corporate charges for 2008 related to costs incurred under a prior restructuring plan that was completed in 2010.2008.

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The facilities relocation charges incurred and recognized in our Arby’s restaurant segment for 2008 and 2007 represent additional costs principally related to the now completed Company combination of its existing restaurant operations with those of the RTM Restaurant Group (“RTM”) following the acquisition of  RTM in 2005.

The components of facilities relocation and corporate restructuring charges in 2009, 20082010 and 20072009 and an analysis of related activity in the facilities relocation and corporate restructuring accrual arewere as follows:

 2010 
 2009  
Balance
January 3, 2010
  Adjustments  Payments  
Balance
January 2, 2011
  
Total Incurred
to Date
 
 Balance December 28, 2008  Provisions   Payments  Balance January 3, 2010  Total Expected to be Incurred  Total Incurred to Date                
Wendy’s restaurant
segment:
                                  
Cash obligations:                                  
Severance costs $3,101  $8,088   $(5,559) $5,630  $11,189  $11,189  $5,630  $(111) $(5,387) $132  $11,189 
Total Wendy’s restaurant segment  3,101   8,088    (5,559)  5,630   11,189   11,189   5,630   (111)  (5,387)  132   11,189 
                                             
Arby’s restaurant segment:                                             
Cash obligations:                                             
Employee relocation costs  72   (72)(a)  -   -   4,579   4,579   -   -   -   - �� 4,579 
Other  -   -    -   -   7,471   7,471   -   -   -   -   7,471 
  72   (72)   -   -   12,050   12,050   -   -   -   -   12,050 
Non-cash charges  -   -    -   -   719   719   -   -   -   -   719 
Total Arby’s restaurant segment  72   (72)   -   -   12,769   12,769   -   -   -   -   12,769 
 $3,173  $8,016   $(5,559) $5,630  $23,958  $23,958 
Total Wendy’s/Arby’s Restaurants  5,630   (111)  (5,387)  132   23,958 
Corporate:                    
Cash obligations:                    
Severance and retention incentive compensation  500   (133)  (92)  275   87,630 
Non-cash charges  -   -   -   -   835 
Total Corporate  500   (133)  (92)  275   88,465 
Total Wendy’s/Arby’s $6,130  $(244) $(5,479) $407  $112,423 


  2009 
  
Balance
December 28, 2008
  Provisions  Payments  
Balance
January 3, 2010
  
Total Incurred
to Date
 
                
Wendy’s  restaurant segment:               
    Cash obligations:               
Severance costs $3,101  $8,088  $(5,559) $5,630  $11,189 
Total Wendy’s restaurant segment  3,101   8,088   (5,559)  5,630   11,189 
                     
Arby’s restaurant segment:                    
    Cash obligations:                    
Employee relocation costs  72   (72)  -   -   4,579 
Other  -   -   -   -   7,471 
   72   (72)  -   -   12,050 
    Non-cash charges  -   -   -   -   719 
Total Arby’s restaurant segment  72   (72)  -   -   12,769 
Total Wendy’s/Arby’s Restaurants  3,173   8,016   (5,559)  5,630   23,958 
Corporate:                    
    Cash obligations:                    
Severance and retention incentive compensation  962   3,008   (3,470)  500   87,630 
       Non-cash charges  -   -   -   -   835 
                 Total Corporate  962   3,008   (3,470)  500   88,465 
Total Wendy’s/Arby’s $4,135  $11,024  $(9,029) $6,130  $112,423 



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WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
Thousands Except Per Share Amounts)

  2008 
  Balance December 30, 2007  Provisions   Payments  
Balance
December 28,
2008
 
Wendy’s  restaurants  segment:             
Cash obligations:             
Severance costs $-  $3,101   $-  $3,101 
Total Wendy’s restaurants segment  -   3,101    -   3,101 
                  
Arby’s restaurants segment:                 
Cash obligations:                 
Employee relocation costs  591   120 (a)  (639)  72 
Total Arby’s restaurants segment  591   120    (639)  72 
  $591  $3,221   $(639) $3,173 


  2007 
  Balance December 31, 2006  Provisions   Payments  
Balance
December 30,
2007
 
Arby’s restaurants segment:             
Cash obligations:             
Severance and retention incentive compensation $340  $15   $(355) $- 
Employee relocation costs  134   637    (180)  591 
Office relocation costs  45   -    (45)  - 
Lease termination costs  302   -    (302)  - 
Total Arby’s restaurants segment $821  $652 (a) $(882) $591 
____________
 (a) Reflects change in estimate of total cost to be incurred.

(12)(17) Impairment Impairment of Other Long-Lived Assets

The following is a summary of our impairment of other long-lived assets losses by business segment:

  2009  2008  2007 
Arby’s restaurants segment:         
Impairment of Company-owned restaurants:         
Properties $51,019  $6,906  $1,717 
Intangible assets  5,494   1,096   906 
   56,513   8,002   2,623 
Wendy’s restaurants segment:            
Impairment of Company-owned restaurants:            
    Properties  21,263   1,578   - 
Intangible assets  2,180   -   - 
   23,443   1,578   - 
             
Total impairment of other long-lived assets $79,956  $9,580  $2,623 
  2010  2009  2008 
Wendy’s restaurant segment:         
Impairment of company-owned restaurants:         
Properties $21,201  $21,263  $1,578 
Intangible assets  5,125   2,180   - 
   26,326   23,443   1,578 
Arby’s restaurant segment:            
Impairment of company-owned restaurants:            
Properties  37,264   51,019   6,906 
Intangible assets  5,887   5,494   1,096 
   43,151   56,513   8,002 
             
Total Wendy’s/Arby’s Restaurants  69,477   79,956   9,580 
Aircraft  -   2,176   9,623 
Total Wendy’s/Arby’s $69,477  $82,132  $19,203 

The Wendy’s and Arby’s and Wendy’s Company-owned restaurantscompany-owned restaurant impairment losses in each year predominantly reflected (1) impairment charges on all restaurant level assets resulting from the deterioration in operating performance of certain restaurants, (2) additional charges for capital improvements in restaurants impaired in a prior year which did not subsequently recover, and (3) write-downs in the carrying value of surplus properties and properties held for sale. Additionally, in 2010, the Wendy’s impairment losses included write-downs in the carrying value of options to purchase property.


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one of its owned aircraft and recorded additional impairment in 2009 based on the sale price. At December 28, 2008, Wendy’s/Arby’s classified the aircraft as held-for-sale and recorded an impairment charge to reflect its estimated fair value as a result of an appraisal related to its potential sale.

All of these impairment losses represented the excess of the carrying amount over the fair value of the affected assets and are included in “Impairment of other long-lived assets.”  The fair values of impaired assets discussed above for the Wendy’s and Arby’s restaurantsrestaurant segments arewere generally estimated based on the present values of the associated cash flows and on market value with respect to land.land (Level 3 inputs).
 
 (13)(18) Investment Income (Expense), Net

(Wendy’s/Arby’s)

  2010  2009  2008 
Interest income $14  $249  $1,285 
Distributions, including dividends  248   205   2,818 
Gain on DFR Notes  4,909   -   - 
Realized gains, net  179   2,948   8,460 
Unrealized losses, net  -   -   (1,128)
Fee on early withdrawal of Equities Account  -   (5,500)  - 
Other  (89)  (910)  (1,997)
  $5,261  $(3,008) $9,438 
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(In Thousands Except Per Share Amounts)

(19) Other Than Temporary Losses on Investments

(Wendy’s/Arby’s)

  2009  2008 
Decline in fair value of DFR common stock $-  $68,086 
Allowance for doubtful accounts for DFR Notes  -   21,227 
Decline in fair value of available-for-sale securities primarily held in the Equities Account  801   13,109 
Decline in fair value of cost method investments  3,115   10,319 
  $3,916  $112,741 

(20) Discontinued Operations

(Wendy’s/Arby’s)

Prior to 2007, we sold the stock of the companies comprising  our former premium beverage and soft drink concentrate business segments and the stock or the principal assets of the companies comprising its former utility and municipal services and refrigeration business segments. Wendy's/Arby’s has accounted for all of these operations as discontinued operations.

Income from discontinued operations, net of taxes, for 2009 and 2008 consisted of the following:

  2009  2008 
Income  from discontinued operations before income taxes $671  $242 
Reversals of tax reserves due to tax settlements  1,143   1,701 
(Provision for) benefit from income taxes  (268)  274 
Income from discontinued operations, net of income taxes $1,546  $2,217 
(21) Retirement Benefit Plans

401(k) Plans
 
Subject to certain restrictions, Wendy’s/Arby’s hadthe Companies have a 401(k) defined contribution plansplan (the “401(k) Plans”Plan”) for all of its employees who meet certain minimum requirements and elect to participate. Effective January 1, 2010, there were prior existing 401(k) Plans (the “Prior Plans”) that were combined into the 401(k) Plan. The 401(k) Plan permits employees to contribute up to 75% of their compensation, subject to certain limitations and provides for matching contributions of employee contributions up to 4% of compensation and for discretionary profit sharing contributions.
Under the provisions of the 401(k)Prior Plans, employees could contribute various percentages of their compensation ranging up to a maximum of 20%, 50%, 75%, or 100%75%, depending on the respective plan, subject to certain limitations.  The 401(k)Prior Plans provided for matching contributions of employee contributions up to 6% depending on the respective plan. Some of these 401(k)Prior Plans also permitted or required profit sharing contributions.
 In connection with the matching and profit sharing contributions, the CompanyCompanies provided $11,796, $4,616 and $405 as compensation expense in 2010, 2009 and 2008 and 2007, respectively. 0; Effective January 1, 2010, the 401(k) Plans were combined into one 401(k) plan, which permits employees to contribute up to 75% of their compensation, subject to certain limitations.  The combined 401(k) plan provides for matching contributions of employee contributions up to 4% of compensation and for discretionary profit sharing contributions.as follows:

  2010  2009  2008 
Wendy’s/Arby’s Restaurants $12,467  $11,796  $4,616 
Corporate  -   898   213 
Wendy’s/Arby’s $12,467  $12,694  $4,829 
Pension Plans

The CompanyWendy’s had two domestic defined benefit plans which were assumed in connection with the Wendy’s Merger (the “Wendy’s Pension Plans”).  The benefits under the Wendy’s Pension Plans were frozen prior to the Wendy’s Merger. In accordance with the terms of the Merger, Wendy’s obtained an actuarial valuation of the unfunded pension liability as of September 28, 2008. Wendy’s received approval for the termination of the Wendy’s Pension Plans by the Pension Benefit Guaranty Corporation and the Internal Revenue Service by the fourth quarter of 2008.  We made lump sum distributions and purchased annuities for the approved termination

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(In Thousands Except Per Share Amounts)


of the Wendy’s Pension Plans in the fourth quarter of 2008 and paid $304 for certain plan settlements in the first quarter of 20 09.2009.  In December 2010, a final payment of $296 was made to the Pension Benefit Guaranty Corporation for one of the pension plans.

(Wendy’s/Arby’s)

Wendy’s/Arby’s maintains two domestic defined benefit plans, the benefits under which were frozen in 1988 and for which Wendy’s/Arby’s has no unrecognized prior service cost.  Arby’s employees who were eligible to participate through 1988 (the “Eligible Arby’s Employees”) are covered under a defined benefit pension plan maintained by Wendy’s/Arby’s, the benefits under which were frozen in 1992 and for which the Company has no unrecognized prior service cost.one of these plans.  The measurement date used by the CompanyWendy’s/Arby’s in determining amounts related to thisits defined benefit planplans is its current fiscal year end based on the rollforwardroll forward of an actuarial report.

The balance of the accumulated benefit obligations and the fair value of this plan’sthe plans’ assets at January 3, 20102, 2011 was $1,123$3,983 and $820, respectively.$2,669, respectively, of which $1,227 and $839, respectively, was recorded by Wendy’s/Arby’s Restaurants related to the Eligible Arby’s Employees.  As of January 3, 2010, the planbalance of the accumulated benefit obligations and the fair value of the plans’ assets was $3,920 and $2,714, respectively, of which $1,123 and $820, respectively, was recorded by Wendy’s/Arby’s Restaurants related to the Eligible Arby’s Employees.  As of January 2, 2011 and January 3, 2010, each of the plans had accumulatedaccu mulated benefit obligations in excess of the fair value of the assets of the respective plan.  The CompanyWendy’s/Arby’s recognized $68, $42$221, $243, and $40$121 in benefit plan expenses included in “General and administrative” in 2010, 2009, and 2008, respectively, of which $64, $68, and 2007, respectively,$42 was recorded by Wendy’s/Arby’s Restaurants related to this defined benefit plan.  The Company’sthe Eligible Arby’s Employees.  Wendy’s/Arby’s’s future required contributions to the plan are not expected to be material.material.

Multiemployer Pension Plan

Prior to the fourth quarter of 2009, theThe unionized employees at The New Bakery Co. of Ohio, Inc. (the "Bakery"“Bakery”), a wholly-owned100% owned subsidiary of Wendy's, were covered by the Bakery and Confectionery Union and Industry International Pension Fund (the "Union“Union Pension Fund"Fund”), an underfunded union sponsored multiemployer pension plan.  Generally, the Bakery had no obligation to this plan other than to remit contributions based on hours worked by covered, unionized employees.  However, inIn the fourth quarter of 2009, the Bakery terminated its participation in the Union Pension Fund and formally notified the plan’s trustees of its complete withdrawal from that plan.  Accordingly, thisThis decision requires usrequired Wendy’s to assume a withdrawal liability of $4,975 in accordance with the applicable requirements of the Employee Retirement Income Security Act, as amended, and we recorded a liability of $4,975 at that time to reflect this obligation which has been included in “Cost of sales” and “Accrued expenses and other current liabilities.” TheIn addition, the unionized employees are currentlybecame eligible to participate in the Company’s combined 401(k) plan.Plan.

In the fourth quarter of 2010, the terms of a new collective bargaining agreement (the “New CBA”) were agreed to by the Bakery and Bakers Local No. 57, Bakery, Confectionery, Tobacco Workers & Grain Millers International Union of America, AFL-CIO.  Included in the terms of the New CBA, the Bakery agreed to participate in the Union Pension Fund as if it had not previously withdrawn its participation and the unionized employees would no longer be eligible to contribute to the 401(k) Plan.  Accordingly, the withdrawal liability recorded during the fourth quarter of 2009 was reversed during the fourth quarter of 2010 and credited to “Cost of sales.” The other terms of the New CBA resulted in additional expense to Wendy’s of approximately $900, which is included in “Cost of sales, ” in the fourth quarter of 2010.

Wendy’s Executive Plans

In accordance with the Wendy’s Merger agreement, amounts due under key executive agreements and supplemental executive retirement plans (the “SERP”) were funded into a restricted account.  The corresponding liability wasliabilities were included in “Accrued expenses and other current liabilities” and “Other liabilities” and in aggregate, wasand were approximately $6,397$5,391 and $26,725$6,397 as of January 2, 2011 and January 3, 2010, and December 28, 2008, respectively.


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Effective January 1, 2011 participation in the SERP was frozen and current participants' balances will only earn interest.
 

 (14)(22) Lease Lease Commitments

The Company leasesCompanies lease real property, leasehold interests, and restaurant, transportation, and office equipment.  Some leases which relate to restaurant operations provide for contingent rentals based on sales volume.  Certain leases also provide for payments of other costs such as real estate taxes, insurance and common area maintenance which are not included in rental expense or the future minimum rental payments set forth below.

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(In Thousands Except Per Share Amounts)



Rental expense under operating leases consists of the following components:

 2010 
 
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
 2009  2008  2007          
Minimum rentals $151,217  $94,069  $75,963  $145,955  $1,262  $147,217 
Contingent rentals  12,364   4,989   2,711   11,246   -   11,246 
  163,581   99,058   78,674   157,201   1,262   158,463 
Less sublease income  (20,089)  (4,771)  (9,131)  (18,075)  (1,506)  (19,581)
 $143,492  $94,287  $69,543  $139,126  $(244) $138,882 


  2009 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Minimum rentals $151,217  $1,723  $152,940 
Contingent rentals  12,364   -   12,364 
   163,581   1,723   165,304 
Less sublease income  (20,089)  (1,580)  (21,669)
  $143,492  $143  $143,635 

  2008 
  
Wendy’s/Arby’s Restaurants
  Corporate  Wendy’s/Arby’s 
          
Minimum rentals $94,069  $1,849  $95,918 
Contingent rentals  4,989   -   4,989 
   99,058   1,849   100,907 
Less sublease income  (4,771)  (1,371)  (6,142)
  $94,287  $478  $94,765 



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(In Thousands Except Per Share Amounts)


The Company’sCompanies’ future minimum rental payments and rental receipts, for noncancelablenon-cancelable leases, including rental receipts for leased properties owned by the Company,Companies, having an initial lease term in excess of one year as of January 3, 2010,2, 2011, are as follows:

 Rental Payments  Rental Receipts  Rental Payments  Rental Receipts 
 Sale-Leaseback Obligations  
 
Capitalized Leases
  
 
Operating Leases
  Sale-Leaseback Obligations  
 
Capitalized Leases
  
 
Operating Leases
  
 
Owned Properties
  Sale-Leaseback Obligations  
 
Capitalized Leases
  
 
Operating
Leases (a)
  Sale-Leaseback Obligations  Capitalized Leases  
Operating
Leases (a)
  Owned Properties 
Fiscal Year                                          
2010 $14,718  $17,709  $153,930  $1,022  $345  $11,766  $7,200 
2011  14,687   15,293   141,083   1,022   345   10,390   7,180  $14,948  $15,856  $150,465  $966  $291  $12,501  $7,064 
2012  15,380   11,755   132,182   1,022   345   9,208   7,118   15,406   12,372   140,592   966   291   11,271   7,001 
2013  14,767   11,996   121,980   1,001   345   7,511   6,707   14,824   12,729   131,518   946   291   9,541   6,590 
2014  14,758   12,177   113,032   964   345   6,361   6,456   14,814   12,899   120,996   931   291   8,493   6,393 
2015  15,640   13,912   112,363   887   291   7,551   6,113 
Thereafter  152,185   110,451   1,093,355   4,347   1,754   27,792   50,761   137,459   108,766   1,032,878   3,440   1,279   36,175   45,731 
Total minimum payments  226,495   179,381  $1,755,562  $9,378  $3,479  $73,028  $85,422   213,091   176,534  $1,688,812  $8,136  $2,734  $85,532  $78,892 
Less amounts representing interest, with interest rates of between 3% and 22%  (101,319)  (89,495)                      (91,207)  (89,864)                    
Present value of minimum sale leaseback and capitalized lease payments $125,176  $89,886                      $121,884  $86,670                     

(a)In addition to the amounts presented in the table above, Wendy’s/Arby’s has rental payments of $1,605 and $673, and rental receipts of $1,360 and $567 in 2011 and 2012, both respectively, under the lease for Wendy’s/Arby’s former corporate headquarters and of the sublease for office space on two of the floors covered under the lease to personnel from a management company formed by our Chairman, who was our former Chief Executive Officer, and our Vice Chairman, who was our former President and Chief Operating Officer, and a director, who was our former Vice Chairman (the “Management Company”).

As of January 3, 2010,2, 2011, the CompanyCompanies had $124,056$106,578 of “Favorable leases,” net of accumulated amortization, included in “Other intangible assets” and $92,261$82,499 of unfavorable leases included in “Other liabilities,” or $31,795$24,079 of net favorable leases.  The future minimum rental payments set forth above reflect the rent expense to be recognized over the lease terms and, accordingly, have been increased by the $31,795$24,079 of net favorable leases, net of (1) $31,375$40,941 of Straight-Line Rent and (2) $221$2,207 which represents amounts advanced by landlords for improvements of leased facilities and reimbursed through future rent payments, less payments to lessees for the right to assume leases which have below market rent.  Estimated sublease future rental receipts exclude sublessor rental obligations fo robligation s for closed locations.


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(In Thousands)
The Company leases properties it owns to third parties. Properties leased by the Companies to third parties under capitalized leases and operating leases as of January 2, 2011 and January 3, 2010 and December 28, 2008 include:

 Year End 
 2010  2009 
 2009  2008       
Land $26,325  $25,617  $27,434  $26,325 
Buildings and improvements  58,450   55,285   64,825   58,450 
Office, restaurant and transportation equipment  4,437   4,551   4,133   4,437 
  89,212   85,453   96,392   89,212 
Accumulated depreciation  (9,885)  (2,469)
Accumulated depreciation and amortization  (18,344)  (9,885)
 $79,327  $82,984  $78,048  $79,327 

The present values of minimum sale-leaseback and capitalized lease payments are included either with “Long-term debt” or “Current portion of long-term debt,” as applicable.

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 (15)(23) Guarantees and Other Commitments and Contingencies

Guarantees and Contingent Liabilities
 
Wendy’s has guaranteed the performance of certain leases and other obligations primarily from Company-ownedcompany-owned restaurant locations now operated by franchisees amounting to $81,860.$67,284.  These leases extend through 2030, including all existing extension or renewal option periods.2030.  We have not received any notice of default related to these leases as of January 3, 2010.2, 2011.  In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related restaurant locations.  Wendy’s is contingently liable for certain other leases which have been assigned to unrelated third parties amounting to $12,197.$9,804. These leases expire on various dates, which extend through 2022, including all existing extension or renewal option periods.2021.

RTM Restaurant Group ("RTM"), a subsidiary of Wendy’s/Arby’s,the Companies, guarantees the performance of the lease obligations of 10eight RTM restaurants formerly operated by affiliates of RTM as of January 3, 2010,2, 2011, (the “Affiliate Lease Guarantees”).  The former RTM stockholders have indemnified us with respect to the guarantee of the remaining lease obligations.  In addition, RTM remains contingently liable for 1210 leases for restaurants sold by RTM prior to our acquisition of RTM in 2005 (the “RTM Acquisition”) if the respective purchasers do not make the required lease payments (collectively with the Affiliate Lease Guarantees, the “Lease Guarantees”).  The Lease Guarantees, which extend through 2025, including all existing extension or renewal option periods,2020, could aggregate a maximum of approxim ately $14,500approximately $4,169 as of January 3, 2010, including2, 2011 inclu ding approximately $12,000$2,716 under the Affiliate Lease Guarantees, assuming all scheduled lease payments have been made by the respective tenants through January 3, 2010.2, 2011.  The estimated fair value of the Lease Guarantees as of the date of the RTM Acquisition was recorded as a liability and is being amortized to “Other income (expense), net” based on the decline in the net present value of those probability adjusted payments in excess of any actual payments made over time.  There remains an unamortized carrying amount of $382$294 included in “Other liabilities” as of January 3, 20102, 2011 with respect to the Lease Guarantees.
 
Wendy’s is self-insured for most domestic workers’ compensation losses and purchases insurance for general liability and automotive liability losses all subject to $500 per occurrence self-retention limits.  Arby’s purchases insurance for most domestic workers’ compensation, general liability and automotive liability losses subject to $500, $100, and $0 self-retention limits, respectively.  Both Wendy’s and Arby’s determine their liabilities for claims incurred but not reported for the insurance liabilities on an actuarial basis.  Wendy’s and Arby’s are self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations, and determines its liability for health care claims incurred but not reported based on historical claimscl aims runoff data.

Wendy’s provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility arrangements for new store development and equipment financing. Wendy’s has accrued a liability for the fair value of these guarantees, the calculation for which was based upon a weighed average risk percentage established at the inception of each program. Wendy’s potential recourse for the aggregate amount of these loans amounted to $25,771$12,998 as of January 3, 2010.2, 2011. During 2009,2010, Wendy’s recourse obligation associated with defaulted loans was not material,$450, and Wendy’s has not entered into any new loan guarantees since the Merger Date.  There remains an unamortized carrying amount of $592$373 included in “Other liabilities” as of January 3, 20102, 2011 with respect to the loan guarantees.
 
Wendy’s/Arby’s Restaurants and Wendy’s individually have outstandingThe following letters of credit of  $33,587 and $287, respectively, with various parties were outstanding as of January 3, 2010; however,2, 2011:

  Year End 
  2010 
Wendy’s $24,777 
Arby’s  7,660 
Wendy’s/Arby’s Restaurants  32,437 
Corporate  669 
Wendy’s/Arby’s $33,106 
However, our management does not expect any material loss to result from these letters of credit because we do not believe performance will be required.


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Purchase and Capital Commitments

Beverage Agreements

Wendy’s and Arby’s have entered into beverage agreements with certain beverage vendors to provide fountain beverage products and certain marketing support funding to the CompanyCompanies and itstheir franchisees.  These agreements require minimum purchases of fountain beverage syrup (“Syrup”), by the CompanyCompanies and itstheir franchisees at certain preferred prices until the total contractual gallon volume usage has been reached.  In connection with these contracts, the CompanyCompanies and itstheir national advertising funds (on behalf of the Company’sCompanies’ franchisees) received certain upfront fees at the inception of the contract which are being amortized based on Syrup usage over the contract term.  In addition, these agreements provide various annual fees paid to us, based on the vendor’s expectation of ann ual Companyannual Syrup

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(In Thousands Except Per Share Amounts)


usage of the Companies, which are amortized over annual usage as a reduction of “Cost of Sales” costs.  AnyThe unamortized amounts of upfront fees are included in “Deferred income” and usage that exceeds estimated amounts are included in “Accounts and notes receivable.”

Beverage purchases made by the CompanyCompanies under these various agreements during 2010, 2009 2008 and 20072008 were approximately $28,264, $27,932 $13,908 and $7,524$13,908, respectively.  Future purchases by the CompanyCompanies under these beverage purchase requirements are estimated to be approximately $28,614$28,806 per year over the next five years. Based on current preferred prices and the current ratio of sales at Company-ownedcompany-owned restaurants to franchised restaurants, the total remaining CompanyCompanies’ beverage requirement isrequirements are approximately $249,739$227,550 over the remaining life of the contracts.  As of January 3, 2010, $1,081, net,2, 2011, $1,001 is due tofrom beverage vendors and included in “Accounts payable”and notes receivables” for the declinedifference in Syrup usage in 20092010 over originally estimated annual usage amounts plus other contract provisions, and $1,777$1,635 is included in “Deferred income” relating to the remaining unamortized upfront fees.

Advertising Commitments

Arby’s had purchase commitments of approximately $2,029$2,814 related to execution of advertising strategy, including agency fees and media buy obligations for 2010.2011.  Because most media purchase commitments can be canceled within 90 days of scheduled broadcast, the Company doesCompanies do not believe that termination of these agreements would have a significant impact on the Company’sCompanies’ operations. All of Wendy’s advertising commitments at January 3, 20102, 2011 were incurred by the Wendy’s National Advertising Program, Inc.

Capital Expenditures Commitments

As of January 3, 2010,2, 2011, the Company has $18,638Companies have $18,195 of outstanding commitments for capital expenditures, of which $14,038$14,542 is expected to be paid in 2010.2011.

Effective February 2011, certain lenders are offering financing to Wendy’s United States franchisees to purchase new equipment and smallwares and modify other equipment needed to implement Wendy’s new hamburger product roll out.  Wendy’s has agreed to subsidize a portion of the interest, which is estimated to be approximately $1,500, that would otherwise be payable by the franchisees participating in this financing program.  The program is expected to end in September 2011.

AFA Dues Subsidy
 
As of April 1, 2010The AFA Service Corporation (“AFA”), an independent membership corporation in which every domestic Arby’s franchisee is required to participate, was formed to create advertising and perform marketing for the Arby’s system. Effective January 3, 2011 and for the remainder of 2010,2011, the AFA Board has approved a tiered dues increase based on a tiered rate structure for the payment of the advertising and marketing service fee ranging between 1.4%1.25% and 3.6%3.5% of gross monthly sales.  ARG’s advertising and marketing service fee percentage similarly calculated will be approximately 2.4% as of April 1, 2010.  In addition, ARG hasArby’s agreed to partially subsidize the top two rate tiers in 20102011 thereby decreasing the franchisees’ effective advertisingdues contribution rate percentages to 2.6% and marketing service fee percentages.  It is estimated that this3.1%.  This subsidy will require payments by ARGArby 217;s of approximately $4,200$2,900 to AFA for 2011. The 2010 subsidy for the top two tiers paid by Arby’s was approximately $2,635.


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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(24) Transactions with Related Parties
The following is a summary of transactions between the Companies and their related parties:

  2010  2009  2008 
Strategic Sourcing Group agreement (a) $5,145  $-  $- 
Wendy’s Co-op Agreement (b)  -   15,500   - 
Subleases with related parties (c)  (346)  (213)  (227)
Interest income on revolving credit facility (d)  (463)  (4)  - 
AFA dues subsidy (e)  2,635   -   - 
Advisory fees (g)  2,465   5,368   - 
Charitable contributions to the Dave Thomas Foundation for
    Adoption (o)
  -   -   1,000 
Charitable contributions to Foundation (p)  500   500   500 
             
             
(Wendy’s/Arby’s)            
Advisory fees (f) $1,000  $-  $- 
Services Agreement (h)  -   3,500   9,500 
Sublease income (i)  (1,632)  (1,886)  (1,633)
Executive use of corporate aircraft (j)  (120)  (613)  (3,028)
Sale of helicopter interest (k)  -   -   (1,860)
Equities Account (l)  -   -   38 
Withdrawal Agreement (m)  -   (37,401)  - 
Liquidation Services Agreement (n)  441   239   - 
Distributions to co-investment shareholders (q)  -   (795)  (2,014)
_____________________
Transactions with Purchasing Cooperatives, Foundation, and AFA
(a)On April 5, 2010, the Wendy’s independent purchasing cooperative Quality Supply Chain Co-op (“QSCC”) and the Arby’s independent purchasing cooperative (“ARCOP”), in consultation with Wendy’s/Arby’s Restaurants, established Strategic Sourcing Group Co-op, LLC (“SSG”).  SSG was formed to manage and operate purchasing programs which combine the purchasing power of both Wendy’s and Arby’s company-owned and franchised restaurants to create buying efficiencies for certain non-perishable goods, equipment, and services.
In order to facilitate the orderly transition of this purchasing function for the Companies’ North America operations, Wendy’s/Arby’s Restaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants purchasing employees to SSG in the second quarter of 2010. Wendy’s/Arby’s Restaurants had committed to pay approximately $5,145 of SSG expenses, which were expensed in 2010 and included in “General and administrative,” and was to be paid over a 24 month period through March 2012. We made payments of $2,000 in 2010.

Should a sale of Arby’s occur as discussed in Note 1, under the change of control provisions in the agreement that established SSG, the activities of SSG would be wound up. In the wind up process, the assets, personnel and functions of SSG would be transferred to QSCC and ARCOP as such parties and Wendy’s/Arby’s Restaurants agree. In contemplation of a possible sale, the parties are in discussion regarding the dissolution of SSG and transferring SSG’s assets, personnel and functions to QSCC and ARCOP.

(b) During the 2009 fourth quarter, Wendy’s entered into a purchasing co-op relationship agreement (the “Co-op Agreement”) to establish QSCC. QSCC manages food and related product purchases and distribution services for the Wendy’s system in the United States and Canada.  Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.  

QSCC’s supply chain management facilitates continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s North America supply chain. The system’s purchasing function for 2009 and prior was performed and paid for by Wendy’s. In order to facilitate the orderly transition of the 2010 purchasing function for North America operations, Wendy’s transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in the first quarter of 2010.  Pursuant to the terms of the Co-op Agreement, Wendy’s was required to pay $15,500 to QSCC over an 18 month period through May 2011 in order to provide funding for   
 

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


start-up costs, operating expenses and cash reserves. The required payments by Wendy’s under the Co-op Agreement were expensed in the fourth quarter of 2009 and included in “General and administrative.”  Wendy’s made payments of $15,195 in 2010. In connection with the ongoing operations of QSCC during 2010, QSCC reimbursed Wendy’s $913 for amounts Wendy’s had paid primarily for payroll-related expenses for certain Canadian QSCC purchasing employees.
(c) 
ARCOP subleased approximately 4,500 square feet of the corporate headquarters office space from Arby’s in 2010, and 2,680 square feet in 2009 and 2008. The Arby’s Foundation, Inc. (the “Foundation”), a not-for-profit charitable foundation in which Arby’s has non-controlling representation on the board of directors, subleased approximately 3,800 square feet of the corporate headquarters office space from Arby’s in 2010, 2009 and 2008. Effective January 4, 2010, QSCC subleased approximately 9,333 square feet of office space from Wendy’s.  Effective April 5, 2010, the SSG leased 2,300 square feet of office space from Arby’s. The Companies received $104, $106, and $111, of sublease income from ARCOP in 2010, 2009, and 2008, res pectively, $105, $107 and $116 of sublease income from Foundation in 2010, 2009, and 2008, respectively, $113 of sublease income from QSCC in 2010, and $24 of sublease income from SSG in 2010.
(d) In December 2009, and as amended in February and August 2010, AFA entered into a revolving loan agreement with Arby’s.  The terms of this agreement allow AFA to have revolving loans of up to $14,000 outstanding with an expiration date of March 2012 and bearing interest at 7.5% per annum.  In February 2011, the maximum principal amount of revolving loans was reduced to $11,000. As of January 2, 2011 and January 3, 2010, the outstanding revolving loan balance was $4,458 and $5,089, respectively.  Arby’s received interest income of $463 and $4 in 2010 and 2009, respectively, which is included in “Other income (expense).”
(e) Beginning in January 2010 and through March 2010, Arby’s and most domestic Arby’s franchisees paid 1.2% of sales as member dues to AFA.  Beginning in April 2010 and for the remainder of 2010, the AFA Board approved a dues increase based on a tiered rate structure for the payment of the advertising and marketing service fee ranging between 1.4% and 3.6% of sales.  As a result, the average Arby’s advertising and marketing service fee percentage from April 2010 to the end of the 2010 fiscal year was approximately 2.3%.  In addition, Arby’s partially subsidized the top two rate tiers in 2010 thereby decreasing franchisees’ effective advertising and marketing service fee percentages. This subsidy required payments by Arby’s of $2,635 to AFA in 2010.
Transactions with the Management Company
(f) 
Wendy’s/Arby’s and the Management Company entered into a new services agreement (the “New Services Agreement”), which commenced on July 1, 2009 and will continue until June 30, 2011, unless sooner terminated. Under the New Services Agreement, the Management Company assists us with strategic merger and acquisition consultation, corporate finance and investment banking services and related legal matters. Pursuant to the terms of this agreement, Wendy’s/Arby’s is paying the Management Company a service fee of $250 per quarter, payable in advance commencing July 1, 2009. In addition, in the event the Management Company provides substantial assistance to us in connection with a merger or acquisition, corporate finance and/or similar transaction that is consummated at any time during the period commencing on the date the New Services Agreement was executed and ending six months foll owing the expiration of its term, Wendy’s/Arby’s will negotiate a success fee to be paid to the Management Company which is reasonable and customary for such transactions. In addition, Wendy’s/Arby’s incurred service fees of $1,000 in 2010, which are included in “General and administrative.”
(g) 
The Companies paid approximately $2,465 and $5,368 in 2010 and 2009, respectively, in fees for corporate finance advisory services under the New Services Agreement in connection with the negotiation and execution of the Credit Agreement in 2010 and the issuance of the Senior Notes in 2009.
(h) In connection with its 2007 restructuring, Wendy’s/Arby’s entered into an agreement with the Management Company for the provision of services under a two-year transition services agreement (the “Services Agreement”), effective June 30, 2007, pursuant to which the Management Company provided Wendy’s/Arby’s with a range of professional and strategic services.  Under the Services Agreement, which expired on June 30, 2009 and was superseded by the New Services Agreement, Wendy’s/Arby’s paid the Management Company $3,000 per quarter for the first year of services and $1,750 per quarter for the second year of services.  Wendy’s/Arby’s incurred $3,500 and $9,500 of such service fees for 2009 and 2008, respectively, which are included in “General and administrative."
(i) In July 2008 and July 2007, Wendy’s/Arby’s entered into agreements under which the Management Company is subleasing (the “Subleases”) office space on two of the floors of the Company’s former New York headquarters.  Under the terms of the Subleases, the Management Company paid Wendy’s/Arby’s approximately $157 and $153 in 2009 and 2008, respectively, per month, which included an amount equal to the rent Wendy’s/Arby’s pays plus a fixed amount reflecting a portion of the increase in the then fair market value of Wendy’s/Arby’s leasehold interest, as well as amounts for property taxes and the

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(In Thousands Except Per Share Amounts)

other costs related to the use of the space.  During the second quarter of 2010, Wendy’s/Arby’s and the Management Company entered into an amendment to the sublease, effective April 1, 2010, pursuant to which the Management Company’s early termination right was cancelled in exchange for a reduction in rent.  Under the terms of the amended sublease, the sublease is not cancelable prior to the expiration of the prime lease and the Management Company pays rent to Wendy’s/Arby’s in an amount that covers substantially all of the Company’s rent obligations under the prime lease for the subleased space.  Wendy’s/Arby’s recognized $1,632, $1,886, and $1,633 from the Management Company under the Subleases for 2010, 2009, and 2008, respectively, which has been recorded as a reduction of “General and administrative.”
(j)In August 2007, Wendy’s/Arby’s entered into time share agreements under which the Chairman and then Chief Executive Officer and the Vice Chairman and then President and Chief Operating Officer of Wendy’s/Arby’s (the “Former Executives”) and the Management Company used two Wendy’s/Arby’s corporate aircraft in exchange for payment of certain incremental flight and related costs of such aircraft.  Those time share agreements expired during the second quarter of 2009 and, in the third quarter of 2009, one of the aircraft was sold to an unrelated third party. Such reimbursements for 2009 and 2008 amounted to $553 and $3,028 and have been recognized as a reduction of “General and administrative.”
In June 2009, Wendy’s/Arby’s and TASCO, LLC (an affiliate of the Management Company) (“TASCO”) entered into an aircraft lease agreement (the “Aircraft Lease Agreement”) for the other aircraft that was previously under the time share agreement mentioned above.  The Aircraft Lease Agreement originally provided that Wendy’s/Arby’s would lease such corporate aircraft to TASCO from July 1, 2009 until June 30, 2010.  Under the Aircraft Lease Agreement, TASCO pays $10 per month for such aircraft plus substantially all operating costs of the aircraft including all costs of fuel, inspection, servicing and storage, as well as operational and flight crew costs relating to the operation of the aircraft, and all transit maintenance costs and other maintenance costs required as a result of TASCO’s usage of the aircraft. Wendy’s/Arby’s contin ues to be responsible for calendar-based maintenance and any extraordinary and unscheduled repairs and/or maintenance for the aircraft, as well as insurance and other costs. The Aircraft Lease Agreement may be terminated by Wendy’s/Arby’s without penalty in the event it sells the aircraft to a third party, subject to a right of first refusal in favor of the Management Company with respect to such a sale.
On June 24, 2010, Wendy’s/Arby’s and TASCO renewed the Aircraft Lease Agreement for an additional one year period (expiring June 30, 2011). We received lease income of $120 and $60 in 2010 and 2009, respectively, under this agreement, which is included as an offset to “General and administrative.”
(k) The Management Company assumed Wendy’s/Arby’s 25% fractional interest in a helicopter on October 1, 2008 for $1,860 which is the amount Wendy’s/Arby’s would have received under the relevant agreement, if it exercised its right to sell the helicopter interest on October 1, 2008, which is equal to the then fair value, less a remarketing fee. The Management Company paid the monthly management fee and all other costs related to the helicopter interest to the owner on behalf of Wendy’s/Arby’s from July 1, 2007 until October 1, 2008.
(l)In 2005, the Company invested $75,000 in brokerage accounts (the “Equities Account”), which were managed by the Management Company.  The Equities Account was invested principally in equity securities, cash equivalents and equity derivatives of a limited number of publicly-traded companies. In addition, the Equities Account sold securities short and invested in market put options in order to lessen the impact of significant market downturns.   On September 12, 2008, 251 shares of Wendy’s common stock, which were included in the Equities Account, were sold to the Management Company at the closing market value as of the day the Company decided to sell the shares. The sale resulted in a loss of $38.
(m) 
On June 10, 2009, Wendy’s/Arby’s and the Management Company entered into a withdrawal agreement (the “Withdrawal Agreement”) which provided that Wendy’s/Arby’s would be permitted to withdraw all amounts in the Equities Account on an accelerated basis (the “Early Withdrawal”) effective no later than June 26, 2009. Prior to the Withdrawal Agreement and as a result of an investment management agreement with the Management Company which was terminated on June 26, 2009, Wendy’s/Arby’s had not been permitted to withdraw any amounts from the Equities Account until December 31, 2010, although $47,000 was released from the Equities Account in 2008 subject to an obligation to return that amount to the Equi ties Account by a specified date.  In consideration for obtaining such Early Withdrawal right, Wendy’s/Arby’s agreed to pay the Management Company $5,500 (the “Withdrawal Fee”), was not required to return the $47,000 referred to above and was no longer obligated to pay investment management and incentive fees to the Management Company. The Equities Account investments were liquidated in June 2009 for $37,401 (the “Equities Sale”), of which $31,901 was received by Wendy’s/Arby’s, net of the Withdrawal Fee, and for which Wendy’s/Arby’s realized a gain of $2,280 in 2009, which are both included in “Investment income (expense), net.”
(n) 
On June 10, 2009, Wendy’s/Arby’s and the Management Company entered into a liquidation services agreement (the “Liquidation Services Agreement”) pursuant to which the Management Company assists us in the sale, liquidation or other


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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


disposition of our cost investments and DFR Notes,  (the “Legacy Assets”), which are not related to the Equities Account.  As of the date of the Liquidation Services Agreement, the Legacy Assets were valued at $36,600 (the “Target Amount”), of which $5,138 was owned by Wendy’s/Arby’s Restaurants.  The Liquidation Services Agreement, which expires June 30, 2011, required Wendy’s/Arby’s to pay the Management Company a fee of $900 in two installments in June 2009 and 2010, which is being amortized over the term of the agreement.  $441 and $239 were amortized and recorded in “General and administrative” in 2010 and 2009, respectively.  In addition, in the event that any or all of the Legacy Assets are sold, liquidated or otherwise disposed of and the aggregate net proceeds to us are in excess of the Target Amount, we would be required to pay the Management Company a success fee equal to 10% of the aggregate net proceeds in excess of the Target Amount.  Assuming a current liquidation of all remaining Legacy Assets, the aggregate proceeds ($32,209 as of January 2, 2011 primarily related to the cancellation and repayment of the DFR Notes) would not be expected to be in excess of the Target Amount.
Transactions with Other Related Parties
(o) 
In 2008, the Companies pledged $1,000 to be paid in equal annual installments over a five year period commencing in 2008 to be donated to the Dave Thomas Foundation for Adoption, a related party. The amount pledged was recorded in “General and administrative” in 2008.
(p) During the 2010, 2009, and 2008, the Companies made charitable contributions of $500 to Foundation, primarily utilizing funds reimbursed to it by one of the beverage companies used by Arby’s as provided by their contract. Such payments are included in “General and administrative.”
(q) 
As part of its overall retention efforts, Wendy’s/Arby’s provided certain of its Former Executives and current and former employees, the opportunity to co-invest with Wendy’s/Arby’s in certain investments.  Wendy’s/Arby’s and certain of its former management have one remaining co-investment, 280 BT, which is a limited liability holding company principally owned by Wendy’s/Arby’s and former company management that, among other things, invested in operating companies.  During 2009 and 2008, Wendy’s/Arby’s received distributions of $795 and $2,014, respectively, from the liquidation of certain of the investments o wned by 280 BT. The minority portions of these distributions of $156 and $402 in 2009 and 2008, respectively, were further distributed to 280 BT’s minority shareholders. No distributions were received in 2010. The ownership percentages as of January 2, 2011 were 80.1%, 11.2% and 8.7% for Wendy’s/Arby’s, the former officers of Wendy’s/Arby’s and other investors, respectively.
On September 29, 2008, J. David Karam, a minority shareholder, director and former president of Cedar Enterprises, Inc., which directly or through affiliates is a Wendy’s franchisee operator of 146 Wendy's restaurants as of January 2, 2011, and 133 as of January 3, 2010 and December 28, 2008, became President of Wendy’s.  In connection with Mr. Karam’s employment, Mr. Karam resigned as a director and president of Cedar Enterprises, Inc. but retained his minority ownership.  After the Wendy’s Merger, the Companies recorded $7,315, $6,240 and $1,801 in royalties and $5,471, $4,633 and $1,339 in advertising fees in 2010, 2009, and 2008, respectively, from Cedar Enterprises and its affiliates as a franchisee of Wendy’s. Cedar Enterprises, Inc. and its affiliates also received $125, $175 an d $75 in remodeling incentives in 2010, 2009, and 2008 (the period from September 29, 2008 through December 28, 2008), respectively, from Wendy’s pursuant to a program generally available to Wendy’s franchisees, and $774 in 2010 related to funding for equipment related to their participation in product development testing.

Mr. Karam was also a minority investor in two other Wendy's franchisee operators, Emerald Food, Inc. and Diamond Foods, L.L.C., which, at the time, were operators of 44 and 16 Wendy's restaurants, respectively.  Mr. Karam disposed of his interests in these companies effective November 5, 2008.
 
(16) Transactions with Related Parties(Wendy’s/Arby’s Restaurants)

The following is a summary of transactions between the CompanyWendy’s/Arby’s Restaurants and its related parties:Wendy’s/Arby’s:

  2009  2008  2007 
Wendy’s/Arby’s cost allocation to restaurant segments (a) $34,085  $-  $- 
Advances to Wendy’s/Arby’s (b)  -   155,000   - 
Capital contributions from Wendy’s/Arby’s (b)  -   150,177   - 
Other transactions with Wendy’s/Arby’s:            
       Share-based compensation (c)  13,570   8,770   5,054 
       Payments for Federal and state income tax (d)  10,417   17,000   - 
       Expense (net credit) under management service agreements (e)  5,017   (1,504)  4,772 
Charitable contributions to the Dave Thomas Foundation for Adoption (f)  -   1,000   - 
Charitable contributions to the Arby’s Foundation, Inc. (g)  500   500   575 
Dividends paid to Wendy’s/Arby’s (h)  115,000   -   37,000 
Senior Notes fees (i)  5,368   -     - 
Wendy’s Co-op Agreement (j)  15,500   -   - 
Transactions with RTM selling shareholders (k)  -   -   (1,600)
Subleases with ARCOP and The Arby’s Foundation Inc. (l)  213   227   223 
Revolving credit facility with AFA Service Corporation (m)  5,089   -   - 
  2010  2009  2008 
Dividends paid (r) $443,700  $115,000  $- 
Cost allocation to restaurant segments (s)  -   34,085   - 
Advances paid (t)  -   -   155,000 
Capital contributions received (t)  -   -   (150,177)
Other transactions:            
Share-based compensation (u)  12,790   13,570   8,770 
Payments for Federal and state income tax (v)  -   10,417   17,000 
Expense (net credit) under management service agreements (w)  5,017   5,017   (1,504)


___________________
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(In Thousands Except Per Share Amounts)


 _____________________
    (a)(r) Wendy’s/Arby’s Restaurants paid cash dividends to Wendy’s/Arby’s which were charged to “Invested equity.”  During the 2010 second quarter, dividends paid to Wendy’s/Arby’s included $325,000 as specifically permitted under the terms of the Credit Agreement.
    (s) For the first quarter of 2009, Wendy’s/Arby’s charged the restaurant segments $34,085 for support services. Prior to that date, the restaurant segments had directly incurred such costs.  In the opinion of management, such allocation was reasonable. These costs are included in “General and administrative.” During 2009, we settled $20,526 of such support center costs in cash through our intercompany account with Wendy’s/Arby’s.
 
On the first day of the second quarter of 2009, we established a shared service center in Atlanta.Atlanta, Georgia.  As a result, support center costs from that date have been directly incurred by Wendy’s/Arby’s Restaurants and were allocated to the restaurant segments based on budgeted revenues.
 
    (b)(t) During the fourth quarter of 2008, the CompanyWendy’s/Arby’s Restaurants advanced an aggregate of $155,000 to Wendy’s/Arby’s; Wendy’s/Arby’s used such advances principally to fund $150,177 of capital contributions to Arby’s.  Arby’s used a portion of these capital contributions to prepay the Amended Term Loanprior Arby’s amended term loan in an aggregate principal amount of $143,200.  These advances by the CompanyWendy’s/Arby’s Restaurants do not bear interest and Wendy’s/Arby’s does not currently have intentintend to repay such advances.  Accordingly, the $155,000 of advances were reflected as a reduction of “Invested Equity.equity.”
 
    (c)(u) The CompanyWendy’s/Arby’s Restaurants provides share based compensation with respect to Wendy’s/Arby’s common stockCommon Stock to certain employees. Such compensation cost is allocated by Wendy’s/Arby’s to the CompanyWendy’s/Arby’s Restaurants and is correspondingly recorded as capital contributions from Wendy’s/Arby’s.
 
    (d)(v) The Company makesWendy’s/Arby’s Restaurants made payments to Wendy’s/Arby’s under a tax sharing agreement, as discussed in more detail in Note 9,13, which arewere settled in cash with Wendy’s/Arby’s.  
 
    (e)(w) The CompanyWendy’s/Arby’s Restaurants receives certain management services, including legal, accounting, tax, insurance, financial and other management services from Wendy’s/Arby’s. In connection with the RTM Acquisition, ARGArby’s entered into a management services agreement with Wendy’s/Arby’s effective July 25, 2005 that provides for an initial annual fixed fee of $4,500 plus annual cost of living adjustments beginning January 1, 2006.  Such fees are included in “General and administrative.” Amounts incurred under such service arrangements, and other incidental amounts, are settled through the Company’sWendy’s/Arby’s Restaurants’ intercompany account with Wendy’s/Arby’s.
As a result of the 2005 agreement with Wendy’s/Arby’s described above, the Company’s results of operations may not be indicative of those that would be achieved if the Company  As a result of the 2005 agreement with Wendy’s/Arby’s described above, Wendy’s/Arby’s Restaurants’ results of operations may not be in dicative of those that would be achieved if they had operated on a stand alone basis.
 
In 2008, the CompanyWendy’s/Arby’s Restaurants also provided services to Wendy’s/Arby’s. Costs of the services that arewere allocated to Wendy’s/Arby’s arewere based on actual direct costs incurred. The Company believes that these allocations were made on a reasonable basis, and that providing these services to Wendy’s/Arby’s creates cost efficiencies; however, there has been no study or any attempt to obtain quotes from third parties to determine what the cost of obtaining such services from third parties would have been.  The reimbursement of these costs totaled $6,472 for 2008 and areis included as a reduction of “General and administrative.”
 

WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
(f) 
In 2008, the Company pledged $1,000 to be paid in equal annual installments over a five year period to be donated to the Dave Thomas Foundation for Adoption, a related party. Payments of $200 were made in 2009 and 2008. The amount pledged was recorded in “General and administrative” in 2008.
  (g) 
During 2009 and 2008 the Company paid $500 of expenses on behalf of The Arby’s Foundation, Inc. (the “Foundation”) a not-for-profit charitable foundation in which the Company has non-controlling representation on the board of directors, primarily utilizing funds reimbursed to it by one of the beverage companies used by Arby’s as provided by their contract. In 2007 the Company made charitable contributions of $575 to the Foundation.  All such amounts are included in “General and administrative.”  The Company did not make any charitable contributions to the Foundation in 2009 or 2008.
  (h) The Company pays periodic cash dividends to Wendy’s/Arby’s which were charged to “Invested Equity.”
  (i)  Approximately $5,368 in fees for corporate finance advisory services were paid to a management company which was formed by directors of Wendy’s/Arby’s including its Chairman of the Board of Directors, who is its former Chief Executive Officer, its Vice Chairman of the Board of Directors, who is its former President and Chief Operating Officer, and another director, who is also its former Vice Chairman of the Board of Directors, in connection with the issuance of the Senior Notes.
  (j) During the 2009 fourth quarter, Wendy’s and its franchisees entered into a purchasing co-op relationship agreement (the “Co-op Agreement”) to establish a new Wendy’s purchasing co-op, Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC now manages food and related product purchases and distribution services for the Wendy’s system in the United States and Canada.  Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating supplies under national contracts with pricing based upon total system volume.
QSCC’s supply chain management will facilitate continuity of supply and provide consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the North American supply chain. The system’s purchasing function for 2009 and prior was performed and paid for by Wendy’s. In order to facilitate the orderly transition of the 2010 purchasing function for North American operations, Wendy’s transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in the first quarter of 2010.  Pursuant to the terms of the Co-op Agreement, Wendy’s is required to pay $15,500 to QSCC over an 18 month period in order to provide funding for start-up costs, operating expenses and cash reserves. Future operations will be funded by all membe rs of QSCC, including Wendy’s and its franchisees. The required payments by Wendy’s under the Co-op Agreement were expensed in the fourth quarter of 2009 and included in “General and administrative.”  Effective January 4, 2010, the QSCC will be leasing 9,333 square feet of office space from Wendy’s for a two year period for an average annual rental of $113 with five one-year renewal options.

(k) During 2007 the Company paid $1,600 to settle a post-closing purchase price adjustment provided for in the agreement and plan of merger pursuant to which the Company acquired RTM. The sellers of RTM included certain current officers of a subsidiary of the Company and a former director of the Company.  The Company reflected such payment as an increase in “Goodwill.”  

(l) ARCOP, the independent Arby’s purchasing cooperative, and the Foundation subleased approximately 2,680 and 3,800 square feet, respectively, of the corporate headquarters office space from ARG in 2009 and 2008. In 2007, ARCOP subleased approximately 2,680 square feet and the Foundation subleased approximately 5,000 square feet of office space from ARG. The Company has received $106, $111, and $106 of sublease income from ARCOP in 2009, 2008, and 2007, respectively, and $107, $116, and $117 of sublease income from the Foundation in 2009, 2008, and 2007, respectively.

(m) On December 31, 2009, AFA entered into a revolving loan agreement with ARG.  This agreement, which provided for ARG to make revolving loans of up to $5,500 to AFA, was amended on February 25, 2010 to provide for revolving loans of up to $14,500. Under the terms of this agreement, outstanding amounts are due through April 4, 2011 and bear interest at 7.5%.  As of January 3, 2010, the outstanding balance under this agreement was $5,089.

On September 29, 2008, J. David Karam, a minority shareholder, director and former president of Cedar Enterprises, Inc., which directly or through affiliates is a Wendy’s franchisee operator of 133 Wendy's restaurants as of January 3, 2010 and December 28, 2008, became President of Wendy’s.  In connection with Mr. Karam’s employment, Mr. Karam resigned as a director and president of Cedar Enterprises, Inc. but retained his minority ownership.  After the Wendy’s Merger, we recorded $6,240 and $1,801 in royalties and $4,633 and $1,339 in advertising fees in 2009 and 2008, respectively, from Cedar Enterprises and its affiliates as a franchisee of Wendy’s. Cedar Enterprises, Inc. and its affiliates also received $175 and $75 in remodeling incentives in 2009 and 2008 (the period from Septem ber 29, 2008 through December 28, 2008), respectively, from Wendy’s pursuant to a program generally available to Wendy’s franchisees.


WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

    Mr. Karam was also a minority investor in two other Wendy's franchisee operators, Emerald Food, Inc. and Diamond Foods, L.L.C., which, at the time, were operators of 44 and 16 Wendy's restaurants, respectively.  Mr. Karam disposed of his interests in these companies effective November 5, 2008.
 (17) 25) Legal and Environmental Matters

We are involved in litigation and claims incidental to our current and prior businesses.  We haveAs of January 2, 2011, Wendy’s/Arby’s Restaurants had reserves for all of ourits legal and environmental matters aggregating $6,105 as of January 3, 2010.$3,739, which are included in the $3,855 reserved by Wendy’s/Arby’s for all legal and environmental matters.  Although the outcome of these matters cannot be predicted with certainty and some of these matters may be disposed of unfavorably to us, based on currently available information, including legal defenses available to us, and given the aforementioned reserves and our insurance coverage, we do not believe that the outcome of these legal and environmental matters will have a material adverse effect on our consolidated financial position or results of operations.

(18)(26) Advertising Advertising Costs and Funds

Since the Wendy’s Merger, the Company participatesCompanies participate in three national advertising funds (the “Advertising Funds”) established to collect and administer funds contributed for use in advertising and promotional programs. Contributions to the Advertising Funds are required from both company-owned and franchise restaurants and are based on a percentage of restaurant sales. In addition to the contributions to the various Advertising Funds, company-owned and franchise restaurants make additional contributions to other local and regional advertising programs.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



Restricted assets and related liabilities of the Advertising Funds at January 2, 2011 and January 3, 2010 and December 28, 2008 are as follows:

 Year End 
 2009  2008  2010  2009 
Cash and cash equivalents $21,856  $29,270  $23,102  $21,856 
Accounts and notes receivable  42,195   39,976   42,672   42,195 
Other assets  16,425   11,893   10,779   16,425 
Total assets $80,476  $81,139  $76,553  $80,476 
                
Accounts payable $52,514  $32,220  $3,724  $15,299 
Accrued expenses and other current liabilities  41,906   54,457   76,897   79,121 
Member’s deficit  (13,944)  (5,538)  (4,068)  (13,944)
Total liabilities and deficit $80,476  $81,139  $76,553  $80,476 
 
The Company’sCompanies’ advertising expenses in 2010, 2009 and 2008 totaled $169,704, $182,008, and 2007 totaled $182,008, $110,849, and $79,270, respectively.
 
(19)(27) Business Segments

WeThe Companies manage and internally report ourtheir operations in two segments: (1) the operation and franchising of Wendy’s restaurants and (2) the operation and franchising of Arby’s restaurants. We evaluate segment performance and allocate resources based on each segment’s operating profit (loss).

The Wendy’s restaurants segment is operated through franchised and Company-ownedcompany-owned Wendy’s quick service restaurants specializing in hamburger sandwiches. The franchised restaurants are principally located throughout the United States and, to a lesser extent, in 2123 foreign countries and U. S. territories with the largest number in Canada. Company-owned restaurants are located in 30 states, with the largest number in Florida, Illinois, Pennsylvania, Ohio, and Texas. Wendy’s restaurants offer an extensive menu featuring hamburgers, filet of chicken breast sandwiches, chicken nuggets, chili, side dishes, freshly prepared salads, soft drinks, milk, Frosty® desserts, floats and kidskids’ meals. In addition, the restaurants sell a variety of promotional products on a limited basis. The Bakery is a producer of buns for Wendy& #8217;sWendy’s restaurants, and to a lesser extent for outside parties.parties including certain distributors to the Arby’s system.


WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
The Arby’s restaurants segment is operated through franchised and Company-ownedcompany-owned Arby’s quick service restaurants specializing in slow-roasted roast beef sandwiches. The franchised restaurants are principally located throughout the United States, and to a much lesser extent, in four other countries; principally in Canada. Company-owned restaurants are located in 27 states, with the largest number in Michigan, Ohio, Indiana, Florida,Georgia, and Pennsylvania.Florida. Arby’s restaurants also offer an extensive menu of, roast beef, chicken, turkey and ham sandwiches, side dishes, snacks, soft drinks and milk, including its Market Fresh® sandwiches, salads, wraps and toasted subs.

We had no customers which accounted for 10% or more of consolidated revenues in 2010, 2009 2008 or 2007.2008. As of January 3, 2010,2, 2011, the Wendy’s restaurants segment hashad one main in-line distributor of food, packaging and beverage products, excluding produce and breads, that servicesserviced approximately 57%67% of its Company-ownedcompany-owned and franchised restaurants and two additional in-line distributors that, in the aggregate, serviceserviced approximately 23%20% of its Company-ownedcompany-owned and franchised restaurants. As of January 3, 2010,2, 2011, Arby’s restaurants segment hashad one main in-line distributor of food, packaging and beverage products, excluding produce, breads and beverage products, that servicesserviced approximately 46%48% of Arby’s Company-ownedcompany-owned and franchised restaurants and four additional in-line distributors that, in the aggregate, serviceserviced approximately 45% o f47% of Arby’s Company-ownedcompany-owned and franchised restaurants. We believe that our vulnerability to risk concentrations in our restaurant segments related to significant vendors and sources of its raw materials is mitigated as we believe that there are other vendors who would be able to service our requirements. However, if a disruption of service from any of our main in-line distributors was to occur, we could experience short-term increases in our costs while distribution channels were adjusted.

Because our restaurant operations are generally located throughout the United States, and to a much lesser extent, Canada and other foreign countries and U. S. territories, we believe the risk of geographic concentration is not significant.  Our restaurant segments could also be adversely affected by changing consumer preferences resulting from concerns over nutritional or safety aspects of beef, poultry, french friesFrench Fries or other foodsproducts we sell or the effects of food-borne illnesses.food safety events or disease outbreaks. Our exposure to foreign exchange risk is primarily related to fluctuations in the Canadian dollar relative to the U.S. dollar for Canadian operations in the Wendy’s restaurant segment. However, our exposure to Canadian dollar foreign currency risk is mitigated by the fact that less than 10% of our restaurants are in Canada.Canad a.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


The following is a summary of the Company’sCompanies' segment information:

  Wendy’s  Arby’s       
2009 restaurants  restaurants  Corporate  Total 
Revenues:            
Sales $2,134,242  $1,064,106  $-  $3,198,348 
Franchise revenues  302,853   79,634   -   382,487 
   2,437,095   1,143,740   -   3,580,835 
Depreciation and amortization  128,048   56,188   4,270   188,506 
Operating profit (loss) $167,753  $(29,248) $(8,553)  129,952 
Interest expense              (125,392)
Other expense, net              (2,973)
Income from continuing operations before income taxes             $1,587 
  2010  2009  2008 
Revenues:         
Sales:         
Wendy's (1) $2,079,106  $2,134,242  $530,843 
Arby’s  966,236   1,064,106   1,131,448 
Corporate eliminations  (25)  -   - 
Total  3,045,317   3,198,348   1,662,291 
Franchise revenues:            
Wendy's  296,395   302,853   74,588 
Arby's  74,739   79,634   85,882 
Corporate eliminations  (37)  -   - 
Total  371,097   382,487   160,470 
Total revenues:            
Wendy's  2,375,501   2,437,095   605,431 
Arby's  1,040,975   1,143,740   1,217,330 
Corporate eliminations  (62)  -   - 
Total $3,416,414  $3,580,835  $1,822,761 
             
Depreciation and amortization:            
Wendy's $113,064  $128,048  $23,852 
Arby's  55,326   56,188   61,206 
Shared services center  11,920   4,270   - 
Wendy’s/Arby’s Restaurants  180,310   188,506   85,058 
Corporate  1,862   1,745   3,257 
Wendy’s/Arby’s $182,172  $190,251  $88,315 
             
Impairment of long-lived assets:            
Wendy's $26,326  $23,443  $1,578 
Arby's  43,151   56,513   8,002 
Wendy’s/Arby’s Restaurants  69,477   79,956   9,580 
Corporate  -   2,176   9,623 
Wendy’s/Arby’s $69,477  $82,132  $19,203 
             
Segment operating profit (loss):            
Wendy’s $204,911  $167,753  $30,788 
Arby’s  (50,685)  (29,248)  (395,304)
Corporate eliminations  (6)  -   - 
Shared services center  (11,920)  (8,553)  - 
Wendy’s/Arby’s Restaurants  142,300   129,952   (364,516)
Corporate  (9,912)  (17,976)  (49,134)
Wendy’s/Arby’s $132,388  $111,976  $(413,650)
             
Wendy’s/Arby’s Restaurants:            
Segment operating profit (loss) $142,300  $129,952  $(364,516)
Unallocated items:            
Interest expense  (136,193)  (125,392)  (66,925)
Loss on early extinguishment of debt  (26,197)  -   - 
Other income (expense), net  2,667   (2,973)  3,234 
(Loss) income from continuing operations before income taxes $(17,423) $1,587  $(428,207)

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



  2010  2009  2008 
Wendy’s/Arby’s:         
Segment operating profit (loss) $132,388  $111,976  $(413,650)
Unallocated items:            
Interest expense  (137,229)  (126,708)  (67,009)
Loss on early extinguishment of debt  (26,197)  -   - 
Investment income (expense), net  5,261   (3,008)  9,438 
Other than temporary losses on investments  -   (3,916)  (112,741)
Other income, net  3,782   1,523   2,710 
Loss from continuing operations before income taxes $(21,995) $(20,133) $(581,252)

  Year End 
  2010  2009 
Total assets:      
Wendy’s $3,725,108  $3,996,371 
Arby’s  522,569   562,192 
Wendy’s/Arby’s Restaurants corporate  169,020   305,327 
Wendy’s/Arby’s Restaurants  4,416,697   4,863,890 
Corporate  315,957   111,526 
Wendy’s/Arby’s $4,732,654  $4,975,416 
         
(Wendy’s/Arby’s Restaurants and Wendy’s/Arby’s)    
Equity method investment $98,631  $97,476 
    
  2010  2009 
Cash capital expenditures:      
Wendy’s $73,317  $55,155 
Arby’s  57,577   29,646 
Wendy’s/Arby’s Restaurants corporate (2)  17,075   17,113 
Wendy’s/Arby’s Restaurants  147,969   101,914 
Corporate  -   - 
Wendy’s/Arby’s $147,969  $101,914 

  Wendy’s  Arby’s    
2008 restaurants  restaurants  Total 
Revenues:         
Sales $530,843  $1,131,448  $1,662,291 
Franchise revenues  74,588   85,882   160,470 
   605,431   1,217,330   1,822,761 
Depreciation and amortization  23,852   61,206   85,058 
Operating profit (loss) $30,788  $(395,304)  (364,516)
Interest expense          (66,925)
Other income, net          3,234 
Loss from continuing operations before income taxes         $(428,207)
(1)Sales include sales of bakery items and kids’ meal promotion items sold to franchisees.
(2)The Wendy’s/Arby’s Restaurants corporate capital expenditures are primarily related to our shared services center.

Income for our equity investment in TimWen is included in the Wendy’s restaurants segment. For the 2007 fiscal year, we only operated in the Arby’s restaurant segment.


WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

In the first quarter of 2009, Wendy’s/Arby’s began charging the restaurant segments for support services based upon budgeted segment revenues. Prior to that date, the restaurant segments had directly incurred such costs. Commencing with the second quarter of 2009, Wendy’s/Arby’s established a shared service center in Atlanta and allocatedallocates its operating costs to the restaurant segments based also on budgeted segment revenues.

  Wendy’s  Arby’s          
2009 restaurants  restaurants  Corporate  Eliminations  Total 
                
Total assets $3,996,371  $562,192  $2,596,814  $(2,291,487)  $4,863,890 


  Wendy’s  Arby’s          
2008 restaurants  restaurants  Corporate  Eliminations  Total 
                
Total assets $3,845,490  $656,848  $-  $-  $4,502,338 

  Wendy’s  Arby’s          
2009 restaurants  restaurants  Corporate  Eliminations  Total 
                
Long term investments $102,140  $-  $-  $-  $102,140 

  Wendy’s  Arby’s          
2008 restaurants  restaurants  Corporate  Eliminations  Total 
                
Long term investments $96,523  $-  $-  $-  $96,523 

  Wendy’s  Arby’s       
  restaurants  restaurants  Corporate (a)  Total 
2009            
Cash capital expenditures $55,155  $29,646  $17,113  $101,914 
                 
2008                
Cash capital expenditures $33,650  $72,274  $-  $105,924 

________________
(a) The corporate capital expenditures in 2009 are primarily related to the establishment of our shared services center.


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
Thousands Except Per Share Amounts)


Revenues and long-lived asset information by geographic area are as follows:

 U.S  Canada  Other International  Total 
2010            
Revenues:            
Wendy’s restaurants $2,117,062  $244,654  $13,785  $2,375,501 
Arby’s restaurants  1,037,959   2,827   189   1,040,975 
Corporate eliminations  (62)  -   -   (62)
Consolidated revenue $3,154,959  $247,481  $13,974  $3,416,414 
                
Long-lived assets:                
Wendy’s restaurants $1,084,516  $61,172  $19  $1,145,707 
Arby’s restaurants  382,392   6   -   382,398 
Wendy’s/Arby’s Restaurants corporate  13,748   -   -   13,748 
Wendy’s/Arby’s Restaurants  1,480,656   61,178   19   1,541,853 
Corporate  9,408   -   -   9,408 
Wendy’s/Arby’s $1,490,064  $61,178  $19  $1,551,261 
 U.S.  Canada  Other International  Total                 
2009                            
Revenues:                            
Wendy’s restaurants $2,190,003  $233,359  $13,733  $2,437,095  $2,190,003  $233,359  $13,733  $2,437,095 
Arby’s restaurants  1,140,860   2,725   155   1,143,740   1,140,860   2,725   155   1,143,740 
Consolidated revenue $3,330,863  $236,084  $13,888  $3,580,835  $3,330,863  $236,084  $13,888  $3,580,835 
                                
Long-lived assets:                                
Wendy’s restaurants $1,114,057  $63,393  $32  $1,177,482  $1,114,057  $63,393  $32  $1,177,482 
Arby’s restaurants  419,748   7   -   419,755   419,748   7   -   419,755 
General corporate  10,621   -   -   10,621 
Consolidated Assets $1,544,426  $63,400  $32  $1,607,858 
Wendy’s/Arby’s Restaurants corporate  10,621   -   -   10,621 
Wendy’s/Arby’s Restaurants  1,544,426   63,400   32   1,607,858 
Corporate  11,390   -   -   11,390 
Wendy’s/Arby’s $1,555,816  $63,400  $32  $1,619,248 
                                
2008                                
Revenues:                                
Wendy’s restaurants $548,792  $53,201  $3,438  $605,431  $548,792  $53,201  $3,438  $605,431 
Arby’s restaurants  1,213,774   3,419   137   1,217,330   1,213,774   3,419   137   1,217,330 
Consolidated revenue $1,762,566  $56,620  $3,575  $1,822,761  $1,762,566  $56,620  $3,575  $1,822,761 
                
Long-lived assets:                
Wendy’s restaurants $1,216,736  $42,378  $53  $1,259,167 
Arby’s restaurants  495,743   10   -   495,753 
Consolidated Assets $1,712,479  $42,388  $53  $1,754,920 
                
2007                
Revenues:                
Arby’s restaurants $1,196,706  $3,574  $137  $1,200,417 


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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


(20)(28) Quarterly Quarterly Financial Information (Unaudited)

The table below sets forth summary unaudited consolidated quarterly financial information for 20092010 and 2008.2009.  The Company reportsCompanies report on a fiscal year typically consisting of 5352 or 5253 weeks ending on the Sunday closest to December 31.  With the exception of the fourth quarter of 2009 which had 14 weeks, the remainder of the Company’sCompanies’ fiscal quarters in 20092010 and 20082009 contained 13 weeks.  Wendy’s has been included in this unaudited consolidated quarterly financial information beginning with the date of the Wendy’s Merger on September 29, 2008.

(Wendy’s/Arby’s) 2010 Quarter Ended 
  April 4 (b)  July 4 (b)  October 3 (b)  January 2, 2011 (b)
             
Revenues $837,447  $877,021  $861,214  $840,732 
Cost of sales  641,422   659,084   667,063   643,192 
Operating profit  26,333   72,663   20,345   13,047 
Net (loss) income  (3,400)  10,742   (909)  (10,758)
Basic and diluted (loss) income per share (a) $(.01) $.03  $-  $(.03)
 
  2009 Quarter Ended 
  March 29 (c)  June 28 (c)  September 27 (c)  January 3, 2010 (c)
                 
Revenues $863,984  $912,687  $903,221  $900,943 
Cost of sales  675,942   686,462   684,071   682,009 
Operating profit (loss)  13,934   56,507   56,822   (15,287)
(Loss) income from continuing operations  (10,924)  14,892   14,266   (14,718)
Income from discontinued operations  -   -   422   1,124 
Net (loss) income  (10,924)  14,892   14,688   (13,594)
Basic and diluted (loss) income per share (a):                
Continuing operations $(.02) $.03  $.03  $(.03)
Discontinued operations $-  $-  $-  $- 
Net (loss) income $(.02) $.03  $.03  $(.03)
95
(Wendy’s/Arby’s Restaurants) 2010 Quarter Ended 
  April 4 (b)  July 4 (b)  October 3 (b)  January 2, 2011 (b)
             
Revenues $837,447  $877,021  $861,214  $840,732 
Cost of sales  641,422   659,084   667,063   643,192 
Operating profit  28,254   75,087   22,438   16,521 
Net (loss) income $(2,560) $9,375  $357  $(9,810)
                 
 
  2009 Quarter Ended 
  March 29 (c)  June 28 (c)  September 27 (c)  January 3, 2010 (c)
                 
Revenues $863,984  $912,687  $903,221  $900,943 
Cost of sales  675,942   686,462   684,071   682,005 
Operating profit (loss)  17,978   68,865   58,532   (15,423)
Net (loss) income $(6,080) $24,255  $14,220  $(22,746)
WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
 2009 Quarter Ended
 March 29 (a) June 28 (a) September 27 (a) January 3, 2010 (a)
        
Revenues$                  863,984 $               912,687 $                        903,221 $                              900,943
Cost of sales675,942 686,462 684,071 682,005
Operating profit (loss)17,978 68,865 58,532 (15,423)
Net (loss) income(6,080) 24,255 14,220 (22,746)
        
  
 2008 Quarter Ended
 March 30 (b) June 29 (b) September 28 (b) December 28 (b)
        
Revenues$                   302,854 $               313,014 $                        310,371 $                              896,522
Cost of sales233,445 244,992 239,880 697,213
Operating profit (loss)17,349 17,264 23,731 (422,860)
Net income (loss)             2,199 2,111 6,369 (375,765)

 _________________
________________________
 (a)Basic and diluted (loss) income per share amounts for the quarters have been calculated separately on a consistent basis with the annual calculations.  Basic and diluted (loss) income per share are being presented together since diluted (loss) income per share was the same as basic (loss) income per share for all periods presented. See Note 4 – Income (Loss) Per Share for additional information.

(b)The operating profit (loss) was materially affected by impairment of other long-lived assets of $6,880, $6,524, $15,528, and $51,024 for the first, second, third and fourth quarters of 2009, respectively.in 2010. The impact of the impairment of other long-lived assets on net (loss) income for the first, second, third and fourth quarters of 2010, was $4,266, $4,045, $9,627($7,193), ($1,497), ($16,994) and $31,635,($17,393), respectively, after income tax benefits of $4,408, $917, $10,415 and $10,660, respectively.

Net (loss) income for Wendy’s/Arby’s was also affected by income recognized in the second quarter of 2010 on the repayment and cancellation of the DFR notes of $3,044, after income tax expense of $1,865.

128
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)



(c)The operating profit (loss) was materially affected by impairment of long-lived assets in 2009. The impact of the impairment of long-lived assets on net (loss) income for the first, second, third and fourth quarters of 2009, was ($4,266), ($4,045), ($9,627) and ($31,635), respectively, after income tax benefits of $2,614, $2,479, $5,901 and $19,389, respectively.

(b)The operating profit (loss)  During the second quarter of 2009, Wendy’s/Arby’s net income was materially affectedimpacted by goodwilladditional impairment of $460,075 for the fourth quarterlong-lived assets of 2008. The effect on net (loss) income for the fourth quarter of the goodwill impairment was $391,735,($1,349) after an income tax benefit of $68,340.$827.


WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)

(21)Guarantor/Non-GuarantorWendy’s/Arby’s Restaurants)

Wendy’s/Arby’s Restaurants is the issuer of, and certain of its domestic subsidiaries have guaranteed amounts outstanding under our 10% Senior Notes. Each of the guaranteeing subsidiaries is a direct or indirect wholly-owned100% owned subsidiary of the CompanyWendy's/Arby's Restaurants and each has fully and unconditionally guaranteed the 10% Senior Notes on a joint and several basis.

The following are included in the presentation of our consolidating:our: (1) Condensed Consolidating Balance Sheet as of January 2, 2011 and January 3, 2010, and December 28, 2008, (2) Condensed Consolidating Statement of Operations for the years ended January, 2, 2011, January 3, 2010, and December 28, 2008, and December 30, 2007, and (3) Condensed Consolidating Statement of Cash Flows for the years ended January 2, 2011, January 3, 2010, and December 28, 2008 and December 30, 2007 to reflect:

(a) Wendy’s/Arby’s Restaurants (the “Parent”);
(b) the 10% Senior Notes guarantor subsidiaries as a group;
(c) the 10% Senior Notes non-guarantor subsidiaries as a group;
(d) elimination entries necessary to combine the Parent with the guarantor and non-guarantor subsidiaries; and
(e) Wendy’s/Arby’s Restaurants on a consolidatingconsolidated basis.

Substantially all of our domestic restricted subsidiaries that guarantee our senior secured credit facilities are required to be guarantors of the 10% Senior Notes. Certain of our subsidiaries, including our foreign subsidiaries do not guarantee our credit facilities and national advertising funds, do not guarantee the 10% Senior Notes.

Prior to the fourth quarter of 2009, Wendy’s then wholly-owned captive insurance subsidiary, Scioto Insurance Company (“Scioto”), and Scioto’s wholly-owned subsidiary, Oldemark LLC, which owns substantially all of the U.S. trademarks and other intellectual property associated with the Wendy’s brand, did not (as a result of regulatory requirements) guarantee the Senior Notes.  During the fourth quarter of 2009, Scioto filed articles of dissolution in Vermont and Oldemark LLC became a wholly-owned non-regulated subsidiary of Wendy’s, a guarantor of the Senior Notes, and a co-obligor under Arby’s Credit Agreement.  The accompanying consolidating financial statements for 2008 have been revised from those previously presented to reclassify amounts relating to Oldemark (and Sciot o) to guarantors (from non-guarantors), as if such structure had existed since the date of the Wendy’s Merger.

For purposes of presentation of such consolidating information, investments in subsidiaries are accounted for by the Parent on the equity method,Equity Method, as if Wendy’s/Arby’s Restaurants had existed as a separate legal entity by the beginning of the earliest period presented. The elimination entries are principally necessary to eliminate intercompany balances and transactions.
 


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


CONDENSED CONSOLIDATING BALANCE SHEET
January 2, 2011
                
  
 
 
 Parent
  
 
 Guarantor
Subsidiaries
  
Non-guarantor
Subsidiaries
  Eliminations  Total 
ASSETS               
Current assets:               
Cash and cash equivalents $79,355  $88,936  $30,395  $-  $198,686 
Accounts and notes receivable  320   79,404   3,628   -   83,352 
Inventories  -   21,558   1,136   -   22,694 
Prepaid expenses and other current assets  3,900   19,446   686   -   24,032 
Deferred income tax benefit  17,634   27,218   215   -   45,067 
Advertising funds restricted assets  -   -   76,553   -   76,553 
Total current assets  101,209   236,562   112,613   -   450,384 
Properties  13,748   1,466,769   61,336   -   1,541,853 
Other intangible assets  21,453   1,310,092   27,029   -   1,358,574 
Goodwill    -   841,156   47,765   -   888,921 
Investments  -   -   102,406   -   102,406 
Notes receivable  -   12,612   -   -   12,612 
Deferred costs and other assets  32,610   28,662   675   -   61,947 
Net investment in subsidiaries  2,559,526   246,578   -   (2,806,104)  - 
Deferred income tax benefit  86,423   -   97   (86,520)  - 
Due from affiliates  59,618   -   17,893   (77,511)  - 
                Total assets $2,874,587  $4,142,431  $369,814  $(2,970,135) $4,416,697 
                     
LIABILITIES AND INVESTED EQUITY               
Current liabilities:               
Current portion of long-term debt $5,228  $11,587  $232  $-  $17,047 
Accounts payable  4,624   70,901   5,623   -   81,148 
        Accrued expenses and other current liabilities  38,871   195,282   10,147   -   244,300 
Advertising funds restricted liabilities  -   -   76,553   -   76,553 
Total current liabilities  48,723   277,770   92,555   -   419,048 
Long-term debt  1,043,623   495,505   3,556   -   1,542,684 
Due to affiliates  -   108,319   -   (77,511)  30,808 
Deferred income  -   10,888   572   -   11,460 
Deferred income taxes  -   548,088   16,904   (86,520)  478,472 
Other liabilities  5,611   142,335   9,649   -   157,595 
Invested equity:                    
           Member interest, $0.01 par value; 1,000 shares authorized, one share issued and outstanding  -   -   -   -   - 
         Other capital  2,423,459   3,244,488   199,014   (3,443,502)  2,423,459 
        (Accumulated deficit) retained earnings  (499,500)  (537,633)  39,594   498,039   (499,500)
         Advances to Wendy’s/Arby’s  (155,000)  (155,000)  -   155,000   (155,000)
 Accumulated other comprehensive income  7,671   7,671   7,970   (15,641)  7,671 
Total invested equity  1,776,630   2,559,526   246,578   (2,806,104)  1,776,630 
Total liabilities and invested equity $2,874,587  $4,142,431  $369,814  $(2,970,135) $4,416,697 


130
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)

 
CONDENSED CONSOLIDATING BALANCE SHEET
 
January 3, 2010

    Guarantor  Non-guarantor           Guarantor  Non-guarantor       
 Parent  Subsidiaries  Subsidiaries  Eliminations  Total  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
ASSETS                              
Current assets:                              
Cash and cash equivalents $237,608  $268,761  $32,495  $-  $538,864  $237,607  $268,762  $32,495  $-  $538,864 
Restricted cash equivalents  -   1,114   -   -   1,114 
Accounts and notes receivable  29   84,291   3,287   -   87,607   29   84,291   3,287   -   87,607 
Inventories  -   21,870   1,154   -   23,024   -   21,870   1,154   -   23,024 
Prepaid expenses and other current assets  4,917   21,207   599   -   26,723   4,918   22,320   599   -   27,837 
Deferred income tax benefit  14,160   33,204   192   -   47,556   14,160   33,204   192   -   47,556 
Advertising funds restricted assets  -   -   80,476   -   80,476   -   -   80,476   -   80,476 
Total current assets  256,714   430,447   118,203   -   805,364   256,714   430,447   118,203   -   805,364 
Properties  10,621   1,533,663   63,574   -   1,607,858 
Other intangible assets  18,026   1,346,725   28,132   -   1,392,883 
Goodwill  -   841,156   45,140   -   886,296 
Investments  -   4,664   97,476   -   102,140 
Notes receivable  -   13,599   -   -   13,599 
Deferred costs and other assets  19,966   35,098   686   -   55,750 
Net investment in subsidiaries  2,371,674   236,447   -   (2,608,121)  - 
Deferred income tax benefit  79,325   -   92   (79,417)  - 
Due from affiliates  45,415   -   15,188   (60,603)  -   45,415   -   15,188   (60,603)  - 
Restricted cash equivalents  -   5,352   -   -   5,352 
Investments  -   4,664   97,476   -   102,140 
Properties  10,621   1,533,663   63,574   -   1,607,858 
Goodwill   -   841,156   45,140   -   886,296 
Other intangible assets  18,026   1,346,725   28,132   -   1,392,883 
Deferred income tax benefit  79,325   -   92   (79,417)  - 
Net investment in subsidiaries  2,371,674   236,447   -   (2,608,121)  - 
Deferred costs and other assets  19,966   43,345   686   -   63,997 
Total assets $2,801,741  $4,441,799  $368,491  $(2,748,141)    $4,863,890  $2,801,741  $4,441,799  $368,491  $(2,748,141)    $4,863,890 
                                        
LIABILITIES AND INVESTED EQUITYLIABILITIES AND INVESTED EQUITY                 LIABILITIES AND INVESTED EQUITY                 
Current liabilities:                                        
Current portion of long-term debt $216  $15,761  $201  $-  $16,178  $216  $15,761  $201  $-  $16,178 
Accounts payable  5,665   83,762   6,412   -   95,839   5,665   83,762   6,412   -   95,839 
Accrued expenses and other current liabilities  40,459   217,281   10,441   -   268,181   40,459   217,281   10,441   -   268,181 
Advertising funds restricted liabilities  -   -   80,476   -   80,476   -   -   80,476   -   80,476 
Total current liabilities  46,340   316,804   97,530   -   460,674   46,340   316,804   97,530   -   460,674 
Long-term debt  552,146   930,776   2,810   -   1,485,732   552,146   930,776   2,810   -   1,485,732 
Due to affiliates  -   103,518   -   (60,603)  42,915   -   103,518   -   (60,603)  42,915 
Deferred income  -   12,494   701   -   13,195   -   12,494   701   -   13,195 
Deferred income taxes  -   561,237   21,159   (79,417)  502,979   -   561,237   21,159   (79,417)  502,979 
Other liabilities  5,348   145,296   9,844   -   160,488   5,348   145,296   9,844   -   160,488 
Invested equity:                                        
Member interest, $0.01 par value; 1,000 shares authorized, one share issued and outstanding  -   -   -   -   -   -   -   -   -   - 
Other capital  2,854,775   3,091,081   210,230   (3,301,311)  2,854,775   2,854,775   3,091,081   210,230   (3,301,311)  2,854,775 
(Accumulated deficit) retained earnings  (496,862)  (559,401)  30,913   528,488   (496,862)  (496,862)  (559,401)  30,913   528,488   (496,862)
Advances to Wendy’s/Arby’s  (155,000)  (155,000)  -   155,000   (155,000)  (155,000)  (155,000)  -   155,000   (155,000)
Accumulated other comprehensive (loss) income  (5,006)  (5,006)  (4,696)  9,702   (5,006)
Accumulated other comprehensive loss  (5,006)  (5,006)  (4,696)  9,702   (5,006)
Total invested equity  2,197,907   2,371,674   236,447   (2,608,121)  2,197,907   2,197,907   2,371,674   236,447   (2,608,121)  2,197,907 
Total liabilities and invested equity $2,801,741  $4,441,799  $368,491  $(2,748,141)     $4,863,890  $2,801,741  $4,441,799  $368,491  $(2,748,141) $4,863,890 

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


 
CONDENSED CONSOLIDATING BALANCE SHEETSTATEMENT OF OPERATIONS
 
December 28, 2008For the year ended January 2, 2011

     Guarantor  Non-guarantor       
  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
ASSETS               
Current assets:               
Cash and cash equivalents $-  $54,527  $8,553  $-  $63,080 
Restricted cash equivalents  -   20,792   -   -   20,792 
Accounts and notes receivable  -   88,439   2,908   -   91,347 
Inventories  -   23,632   1,015   -   24,647 
Prepaid expenses and other current assets  -   22,931   719   -   23,650 
Deferred income tax benefit  -   28,337   -   -   28,337 
Advertising funds restricted assets  -   -   81,139   -   81,139 
Total current assets  -   238,658   94,334   -   332,992 
Due from affiliates  -   -   16,286   (16,286)  - 
Restricted cash equivalents  -   6,462   -   -   6,462 
Investments  -   6,751   89,772   -   96,523 
Properties  -   1,705,204   49,716   -   1,754,920 
Goodwill    -   807,052   52,000   -   859,052 
Other intangible assets  -   1,336,666   74,754   -   1,411,420 
Net investment in subsidiaries  2,254,775   238,400   -   (2,493,175)  - 
Deferred costs and other assets  -   40,488   481   -   40,969 
                Total assets $2,254,775  $4,379,681  $377,343  $(2,509,461) $4,502,338 
                     
LIABILITIES AND INVESTED EQUITY                 
Current liabilities:                    
Current portion of long-term debt $-  $29,349  $188  $-  $29,537 
Accounts payable  -   128,394   6,851   -   135,245 
Accrued expenses and other current liabilities  -   219,900   10,863   -   230,763 
Advertising funds restricted liabilities  -   -   81,139   -   81,139 
Total current liabilities  -   377,643   99,041   -   476,684 
Long-term debt  -   1,058,120   2,030   -   1,060,150 
Due to affiliates  -   28,071   -   (16,286)  11,785 
Deferred income  -   16,128   732   -   16,860 
Deferred income taxes  -   494,256   32,402   -   526,658 
Other liabilities  -   150,688   4,738   -   155,426 
Invested equity:                    
Member interest, $0.01 par value; 1,000 shares authorized, one share issued and outstanding  -   -   -   -   - 
Other capital  2,958,921   2,958,921   266,013   (3,224,934)  2,958,921 
(Accumulated deficit) retained earnings  (506,511)  (506,511)  14,700   491,811   (506,511)
Advances to Wendy’s/Arby’s  (155,000)  (155,000)  -   155,000   (155,000)
Accumulated other comprehensive (loss) income  (42,635)  (42,635)  (42,313)  84,948   (42,635)
Total invested equity  2,254,775   2,254,775   238,400   (2,493,175)  2,254,775 
Total liabilities and invested equity $2,254,775  $4,379,681  $377,343  $(2,509,461) $4,502,338 

     Guarantor  Non-guarantor       
  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
Revenues:               
Sales $-  $2,819,480  $225,837  $-  $3,045,317 
Franchise revenues  -   349,189   21,908   -   371,097 
   -   3,168,669   247,745   -   3,416,414 
Costs and expenses:                    
Cost of sales  -   2,415,948   194,813   -   2,610,761 
General and administrative  -   395,069   13,350   -   408,419 
Depreciation and amortization  11,920   157,463   10,927   -   180,310 
Impairment of long-lived assets  -   65,609   3,868   -   69,477 
Other operating expense (income), net  -   12,540   (7,393)  -   5,147 
   11,920   3,046,629   215,565   -   3,274,114 
Operating (loss) profit  (11,920)  122,040   32,180   -   142,300 
Interest expense  (78,737)  (57,098)  (358)  -   (136,193)
Loss on early extinguishment of debt  -   (26,197)  -   -   (26,197)
Other income (expense), net  158   17,393   (14,884)  -   2,667 
Equity in income of subsidiaries  19,446   11,864   -   (31,310)  - 
(Loss) income before income taxes  (71,053)  68,002   16,938   (31,310)  (17,423)
Benefit from (provision for) income taxes  68,415   (48,556)  (5,074)  -   14,785 
Net (loss) income $(2,638)       $19,446  $11,864  $(31,310)     $(2,638)     
99
WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 
For the year ended January 3, 2010

    Guarantor  Non-guarantor           Guarantor  Non-guarantor       
 Parent  Subsidiaries  Subsidiaries  Eliminations  Total  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
Revenues:                              
Sales $-  $2,982,887  $215,461  $-  $3,198,348  $-  $2,982,887  $215,461  $-  $3,198,348 
Franchise revenues  -   361,716   20,771       382,487   -   361,716   20,771    -   382,487 
  -   3,344,603   236,232   -   3,580,835   -   3,344,603   236,232   -   3,580,835 
Costs and expenses:                                        
Cost of sales  -   2,538,821   189,659   -   2,728,480   -   2,538,821   189,659   -   2,728,480 
General and administrative  -   433,115   9,571   -   442,686   -   433,115   9,571   -   442,686 
Depreciation and amortization  4,270   174,001   10,235   -   188,506   4,270   174,001   10,235   -   188,506 
Impairment of other long-lived assets  -   79,956   -   -   79,956   -   79,956   -   -   79,956 
Facilities relocation and restructuring  4,282   3,331   403   -   8,016   4,283   3,330   403   -   8,016 
Other operating expense (income), net  -   10,987   (7,748)      3,239   -   10,987   (7,748)  -   3,239 
  8,552   3,240,211   202,120   -   3,450,883   8,553   3,240,210   202,120   -   3,450,883 
Operating (loss) profit  (8,552)  104,392   34,112   -   129,952   (8,553)  104,393   34,112   -   129,952 
Interest expense  (32,064)  (93,193)  (135)  -   (125,392)  (32,064)  (93,193)  (135)  -   (125,392)
Other income (expense), net  23   12,040   (15,036)  -   (2,973)  24   12,039   (15,036)  -   (2,973)
Equity in (loss) income of subsidiaries  (52,890)  16,213   -   36,677   -   (52,890)  16,213   -   36,677   - 
(Loss) income before income taxes  (93,483)  39,452   18,941   36,677   1,587   (93,483)  39,452   18,941   36,677   1,587 
Benefit from (provision for) income taxes  103,132   (92,342)  (2,728)  -   8,062   103,132   (92,342)  (2,728)  -   8,062 
Net income (loss) $9,649  $(52,890) $16,213  $36,677  $9,649  $9,649  $(52,890) $16,213  $36,677  $9,649 


132
WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Per Share Amounts)


 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 
For the year ended December 28, 2008

    Guarantor  Non-guarantor           Guarantor  Non-guarantor       
 Parent  Subsidiaries  Subsidiaries  Eliminations  Total  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
Revenues:                              
Sales $-  $1,612,915  $49,376  $-  $1,662,291  $-  $1,612,915  $49,376  $-  $1,662,291 
Franchise revenues  -   153,143   7,327   -   160,470   -   153,143   7,327   -   160,470 
  -   1,766,058   56,703   -   1,822,761   -   1,766,058   56,703   -   1,822,761 
Costs and expenses:                                        
Cost of sales  -   1,369,927   45,603   -   1,415,530   -   1,369,927   45,603   -   1,415,530 
General and administrative  -   210,777   2,384   -   213,161   -   210,777   2,384   -   213,161 
Depreciation and amortization  -   82,979   2,079   -   85,058   -   82,979   2,079   -   85,058 
Goodwill impairment  -   460,075   -   -   460,075   -   460,075   -   -   460,075 
Impairment of other long-lived assets  -   9,580   -   -   9,580   -   9,580   -   -   9,580 
Facilities relocation and restructuring  -   3,221   -   -   3,221   -   3,221   -   -   3,221 
Other operating expense (income), net  -   2,455   (1,803)  -   652   -   2,455   (1,803)  -   652 
  -   2,139,014   48,263   -   2,187,277   -   2,139,014   48,263   -   2,187,277 
Operating (loss) profit  -   (372,956)  8,440   -   (364,516)  -   (372,956)  8,440   -   (364,516)
Interest expense  -   (66,839)  (86)  -   (66,925)  -   (66,839)  (86)  -   (66,925)
Other income (expense), net  -   6,809   (3,575)  -   3,234   -   6,809   (3,575)  -   3,234 
Equity in (loss) income of subsidiaries  (365,086)  2,962   -   362,164   -   (365,086)  2,962   -   362,124   - 
(Loss) income before income taxes  (365,086)  (430,024)  4,779   362,164   (428,207)  (365,086)  (430,024)  4,779   362,124   (428,207)
Benefit from (provision for) income taxes  -   64,938   (1,817)  -   63,121   -   64,938   (1,817)  -   63,121 
Net (loss) income $(365,086) $(365,086) $2,962  $362,164  $(365,086) $(365,086) $(365,086) $2,962  $362,124  $(365,086)

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


 
CONDENSED CONSOLIDATING STATEMENTSTATEMENTS OF OPERATIONSCASH FLOWS
 
For the year ended December 30, 2007January 2, 2011

     Guarantor  Non-guarantor       
  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
Revenues:               
Sales $-  $1,113,436  $-  $-  $1,113,436 
Franchise revenues  -   83,407   3,574   -   86,981 
   -   1,196,843   3,574   -   1,200,417 
Costs and expenses:                    
Cost of sales  -   892,821   1,629   -   894,450 
General and administrative  -   135,743   1,105   -   136,848 
Depreciation and amortization  -   56,904   5   -   56,909 
Impairment of other long-lived assets  -   2,623   -   -   2,623 
Facilities relocation and restructuring  -   652   -   -   652 
Other operating expense, net  -   263   -   -   263 
   -   1,089,006   2,739   -   1,091,745 
Operating profit  -   107,837   835   -   108,672 
Interest expense  -   (59,223)  (1)  -   (59,224)
Other income, net  -   3,317   63   -   3,380 
Equity in income (loss) of subsidiaries  32,694   (87)  -   (32,607)  - 
Income (loss) from continuing operations before income taxes  32,694   51,844   897   (32,607)  52,828 
Provision for income taxes  -   (19,001)  (984)  -   (19,985)
Income (loss) from continuing operations  32,694   32,843   (87)  (32,607)  32,843 
Loss from discontinued operations, net of income taxes  -   (149)  -   -   (149)
Net income (loss) $32,694  $32,694  $(87) $(32,607) $32,694 
     Guarantor  Non-guarantor       
  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
Cash flows from operating activities:               
Net (loss) income $(2,638)   $19,446  $11,864  $(31,310)     $(2,638)      
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                    
Equity in income from operations of subsidiaries  (19,446)  (11,864)  -   31,310   - 
Depreciation and amortization  11,920   157,463   10,927   -   180,310 
Impairment of long-lived assets  -   65,609   3,868   -   69,477 
Accretion of long-term debt  1,705   13,311   -   -   15,016 
Distributions received from joint venture  -   -   13,980   -   13,980 
Share-based compensation provision  3,951   8,839   -   -   12,790 
Write-off and amortization of deferred financing costs  4,518   7,245   -   -   11,763 
Provision for doubtful accounts  -   9,932   (238)  -   9,694 
Non-cash rent expense (credit)  -   9,839   (505)  -   9,334 
Tax sharing (receivable from) payable to affiliate, net  (49,736)  50,788   -   -   1,052 
Tax sharing receipts from (payments to) affiliate, net  56,000   (56,000)  -   -   - 
Net recognition of deferred vendor incentive  -   (587)  -   -   (587)
Other operating transactions with affiliates  (20,370)  15,140   (2,802)  -   (8,032)
Equity in earnings in joint venture  -   -   (9,459)  -   (9,459)
Deferred income tax benefit, net  (18,351)  (5,300)  (2,101)  -   (25,752)
Other, net  2,406   (1,035)  (1,875)  -   (504)
Changes in operating assets and liabilities:                    
Accounts and notes receivable  (61)  (4,190)  58   -   (4,193)
Inventories  -   311   83   -   394 
Prepaid expenses and other current assets  1,017   (213)  (49)  -   755 
Accounts payable  2,341   (15,268)  (1,257)  -   (14,184)
Accrued expenses and other current liabilities  (3,808)  (23,418)  (736)  -   (27,962)
Net cash (used in) provided by
operating activities
  (30,552)  240,048   21,758   -   231,254 
Cash flows from investing activities:                    
Capital expenditures  (17,075)  (124,395)  (6,499)  -   (147,969)
Proceeds from dispositions  -   5,660   -   -   5,660 
Cost of acquisitions, less cash acquired  -   (3,123)  -   -   (3,123)
Other, net  -   147   1,116   -   1,263 
Net cash used in investing activities  (17,075)  (121,711)  (5,383)  -   (144,169)
Cash flows from financing activities:                    
Proceeds from long-term debt  497,500   161   -   -   497,661 
Repayments of long-term debt  (2,716)  (463,536)  (209)  -   (466,461)
Deferred financing costs  (16,353)  -   -   -   (16,353)
Capital contributions from Parent  (520,335)  520,335   -   -   - 
Dividends paid to Parent  375,000   (375,000)  -   -   - 
Dividends paid to Wendy's/Arby's  (443,700)   -    -   -    (443,700) 
Redemption of preferred stock  -   19,877   (19,877)  -   - 
Other, net  (21)  -   -   -   (21)
Net cash used in financing activities  (110,625)  (298,163)  (20,086)  -   (428,874)
Net cash used before effect of exchange rate changes on cash  (158,252)  (179,826)  (3,711)  -   (341,789)
Effect of exchange rate changes on cash  -   -   1,611   -   1,611 
Net decrease in cash and cash equivalents  (158,252)  (179,826)  (2,100)  -   (340,178)
Cash and cash equivalents at beginning of year  237,607   268,762   32,495   -   538,864 
Cash and cash equivalents at end of year $79,355  $88,936  $30,395  $-  $198,686 

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the year ended January 3, 2010

    Guarantor  Non-guarantor           Guarantor  Non-guarantor       
 Parent  Subsidiaries  Subsidiaries  Eliminations  Total  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
Cash flows from continuing operating activities:                              
Net income (loss) $9,649  $(52,890)  $16,213  $36,677  $9,649  $9,649  $(52,890) $16,213  $36,677  $9,649 
Adjustments to reconcile net income (loss) to net cash provided by continuing operating activities:                                        
Equity in loss (income) from continuing operations of subsidiaries  52,890   (16,213)  -   (36,677)  -   52,890   (16,213)  -   (36,677)  - 
Depreciation and amortization  4,270   174,001   10,235   -   188,506   4,270   174,001   10,235   -   188,506 
Impairment of other long-lived assets  -   79,956   -   -   79,956   -   79,956   -   -   79,956 
Tax sharing (receivable) payable to Wendy’s/Arby’s, net  (9,648)  50,061   -   -   40,413 
Tax sharing (receivable from) payable to Wendy’s/Arby’s, net  (9,648)  50,061   -   -   40,413 
Tax sharing payments to Wendy’s/Arby’s  -   (10,417)  -   -   (10,417)  -   (10,417)  -   -   (10,417)
Write-off and amortization of deferred financing costs  1,632   14,164   -   -   15,796   1,632   14,164   -   -   15,796 
Distributions received from joint venture  -   -   14,583   -   14,583   -   -   14,583   -   14,583 
Share-based compensation provision  3,550   10,020   -   -   13,570   3,550   10,020   -   -   13,570 
Non-cash rent expense  -   12,618   -   -   12,618   -   12,618   -   -   12,618 
Accretion of long-term debt  718   9,682   -   -   10,400   718   9,682   -   -   10,400 
Provision for doubtful accounts  -   8,279   (110)  -   8,169   -   8,279   (110)  -   8,169 
Deferred income tax (benefit) provision, net  (94,686)  28,906   (2,761)  -   (68,541)  (94,686)  28,906   (2,761)  -   (68,541)
Other operating transactions with affiliates  (33,506)  48,279   (659)  -   14,114   (33,506)  48,279   (659)  -   14,114 
Equity in earnings in joint venture  -   -   (8,499)  -   (8,499)  -   -   (8,499)  -   (8,499)
Net recognition of vendor incentive  -   (791)  -   -   (791)  -   (791)  -   -   (791)
Other, net  (559)  11,429   (5,317)  -   5,553   (559)  11,429   (5,317)  -   5,553 
Changes in operating assets and liabilities:                                        
Accounts and notes receivable  (29)  (7,770)  120   -   (7,679)  (29)  (7,770)  120   -   (7,679)
Inventories  -   1,859   20   -   1,879   -   1,859   20   -   1,879 
Prepaid expenses and other current assets  (4,917)  5,306   732   -   1,121   (4,918)  5,307   732   -   1,121 
Accounts payable, accrued expenses and other current liabilities  43,095   (42,353)  539   -   1,281   43,095   (42,353)  539   -   1,281 
Net cash (used in) provided by continuing operating activities  (27,541)  324,126   25,096   -   321,681   (27,542)  324,127   25,096   -   321,681 
Cash flows from continuing investing activities:                                        
Capital expenditures  (17,113)  (80,458)  (4,343)  -   (101,914)  (17,113)  (80,458)  (4,343)  -   (101,914)
Proceeds from dispositions  -   10,472   410   -   10,882   -   10,472   410   -   10,882 
Cost of acquisitions, less cash acquired  -   (2,357)  -   -   (2,357)  -   (2,357)  -   -   (2,357)
Other, net  -   192   -   -   192   -   192   -   -   192 
Net cash used in continuing investing activities  (17,113)  (72,151)  (3,933)  -   (93,197)  (17,113)  (72,151)  (3,933)  -   (93,197)
Cash flows from continuing financing activities:                                        
Proceeds from long-term debt  551,061   56,160   286   -   607,507   551,061   56,160   286   -   607,507 
Repayments of notes payable and long-term debt  (52)  (209,198)  (232)  -   (209,482)
Repayments of long-term debt  (52)  (209,198)  (232)  -   (209,482)
Deferred financing costs  (21,247)  (17,152)  -   -   (38,399)  (21,247)  (17,152)  -   -   (38,399)
Capital contributions to affiliates  (132,500)  132,500   -   -   - 
Capital contributions from Parent  (132,500)  132,500   -   -   - 
Dividends paid to Wendy’s/Arby’s  (115,000)  -   -   -   (115,000)  (115,000)  -   -   -   (115,000)
Net cash provided by (used in) continuing financing activities  282,262   (37,690)  54   -   244,626   282,262   (37,690)  54   -   244,626 
Net cash provided by continuing operations  237,608   214,285   21,217   -   473,110   237,607   214,286   21,217   -   473,110 
Effect of exchange rate changes on cash  -       2,725   -   2,725   -       2,725   -   2,725 
Net cash provided by continuing operations  237,608   214,285   23,942       475,835   237,607   214,286   23,942       475,835 
Net cash used in operating activities of discontinued operations  -   (51)  -   -   (51)  -   (51)  -   -   (51)
Net increase in cash and cash equivalents  237,608   214,234   23,942   -   475,784   237,607   214,235   23,942   -   475,784 
Cash and cash equivalents at beginning of year  -   54,527   8,553   -   63,080   -   54,527   8,553   -   63,080 
Cash and cash equivalents at end of year $237,608  $268,761  $32,495  $-  $538,864  $237,607  $268,762  $32,495  $-  $538,864 


WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANT,RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)Thousands Except Per Share Amounts)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the year ended December 28, 2008

     Guarantor  Non-guarantor       
  Parent  Subsidiaries  Subsidiaries  Eliminations  Total 
Cash flows from continuing operating activities:               
Net (loss) income $(365,086) $(365,086) $2,962  $362,124  $(365,086)
Adjustments to reconcile net (loss) income to net cash provided by continuing operating activities:                    
Equity in loss (income) from continuing operations of subsidiaries  365,086   (2,962)  -   (362,124)  - 
Depreciation and amortization  -   82,979   2,079   -   85,058 
Impairment of other long-lived assets  -   9,580   -   -   9,580 
Tax sharing payments to Wendy’s/Arby’s  -   (17,000)  -   -   (17,000)
Write-off and amortization of deferred financing costs  -   3,753   -   -   3,753 
Distributions received from joint venture  -   -   2,864   -   2,864 
Share-based compensation provision  -   8,770   -   -   8,770 
Non-cash rent expense  -   3,103   -   -   3,103 
Accretion of long-term debt  -   2,452   -   -   2,452 
Provision for doubtful accounts  -   556   114   -   670 
Deferred income tax benefit, net  -   (62,519)  (204)  -   (62,723)
Other operating transactions with affiliates  -   10,859   (5,596)  -   5,263 
Equity in earnings in joint venture  -   -   (1,974)  -   (1,974)
Net recognition of vendor incentive  -   (6,459)  -   -   (6,459)
Goodwill impairment  -   460,075   -   -   460,075 
Other, net  -   17,163   (12,811)  -   4,352 
Changes in operating assets and liabilities:                    
Accounts and notes receivable  -   (2,670)  1,303   -   (1,367)
Inventories  -   (70)  (70)  -   (140)
Prepaid expenses and other current assets  -   14,135   5,665   -   19,800 
Accounts payable, accrued expenses and other current liabilities  -   (40,780)  (9,246)  -   (50,026)
Net cash provided by (used in) continuing operating activities  -   115,879   (14,914)  -   100,965 
Cash flows from continuing investing activities:                    
Capital expenditures  -   (102,904)  (3,020)  -   (105,924)
Proceeds from dispositions  -   1,322   -   -   1,322 
Cost of acquisitions, less cash acquired  -   (9,622)  -   -   (9,622)
Increase in cash from the Wendy’s merger  -   171,421   28,364   -   199,785 
Other, net  -   (129)  -   -   (129)
Net cash provided by continuing investing activities  -   60,088   25,344   -   85,432 
Cash flows from continuing financing activities:                    
Proceeds from long-term debt  -   17,753   -   -   17,753 
Repayments of notes payable and long-term debt  -   (175,521)  -   -   (175,521)
Capital contributions from Wendy’s/Arby’s  -   150,177   -   -   150,177 
Advances to Wendy’s/Arby’s  -   (155,000)  -   -   (155,000)
Other, net  -   (659)  -   -   (659)
Net cash used in continuing financing activities  -   (163,250)  -   -   (163,250)
Net cash provided by continuing operations before effect of exchange rate changes on cash  -   12,717   10,430   -   23,147 
Effect of exchange rate changes on cash  -   -   (4,123)  -   (4,123)
Net increase in cash and cash equivalents  -   12,717   6,307   -   19,024 
Cash and cash equivalents at beginning of year  -   41,810   2,246   -   44,056 
Cash and cash equivalents at end of year $-  $54,527  $8,553  $-  $63,080 

WENDY’S/ARBY’S RESTAURANT, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In Thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the year ended December 30, 2007

      Guarantor  Non-guarantor       
  Parent   Subsidiaries  Subsidiaries  Eliminations  Total 
Cash flows from continuing operating activities:                
Net income (loss) $32,694   $32,694  $(87) $(32,607) $32,694 
Adjustments to reconcile net income (loss) to net cash provided by continuing operating activities:                     
Equity in (income) loss from continuing operations of subsidiaries  (32,694)   87   -   32,607   - 
Depreciation and amortization  -    56,904   5   -   56,909 
Impairment of other long-lived assets  -    2,623   -   -   2,623 
Amortization of deferred financing costs  -    1,999   -   -   1,999 
Share-based compensation provision  -    5,054   -   -   5,054 
Non-cash rent expense  -    599   -   -   599 
Accretion of long-term debt  -    179   -   -   179 
Provision for doubtful accounts  -    631   -   -   631 
Deferred income tax benefit, net  -    (8,681)  -   -   (8,681)
Other operating transactions with affiliates  -    26,252   (1,295)  -   24,957 
Net recognition of vendor incentive  -    (990)  -   -   (990)
Other, net  -    (4,412)  566   -   (3,846)
Changes in operating assets and liabilities:                     
Accounts and notes receivable  -    (242)  (114)  -   (356)
Inventories  -    (987)  -   -   (987)
Prepaid expenses and other current assets  -    (14,471)  -   -   (14,471)
Accounts payable, accrued expenses and other current liabilities  -    11,144   1,474   -   12,618 
Net cash provided by continuing operating activities  -    108,383   549   -   108,932 
Cash flows from continuing investing activities:                     
Capital expenditures  -    (72,702)  (181)  -   (72,883)
Proceeds from dispositions  -    878   -   -   878 
Cost of acquisitions, less cash acquired  -    (4,094)  -   -   (4,094)
Other, net  -    48   -   -   48 
Net cash used in continuing investing activities  -    (75,870)  (181)  -   (76,051)
Cash flows from continuing financing activities:                     
Proceeds from long-term debt  -    23,060   -   -   23,060 
Repayments of notes payable and long-term debt  -    (14,292)  -   -   (14,292)
Deferred financing costs  -    (4,517)  -   -   (4,517)
Dividends to Wendy’s/Arby’s  -    (37,000)  -   -   (37,000)
Net cash used in continuing financing activities  -    (32,749)  -   -   (32,749)
Net cash (used in) provided by continuing operations  -    (236)  368   -   132 
Net cash used in discontinued operations  -    (285)  -   -   (285)
Net (decrease) increase in cash and cash equivalents  -    (521)  368   -   (153)
Cash and cash equivalents at beginning of year  -    42,331   1,878   -   44,209 
Cash and cash equivalents at end of year  $-   $41,810  $2,246  $-  $44,056 




Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A(T).9A.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

OurThe management of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, under the supervision and with the participation of ourtheir Chief Executive Officer and  Chief Financial Officer, evaluated the effectiveness of the design and operation of ourtheir disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of January 3, 2010.2, 2011. Based on such evaluation, ourevaluations, the Chief Executive Officer and Chief Financial Officer concluded that as of January 3, 2010, our2, 2011, the disclosure controls and procedures of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants were effective in (1) recording, processing, summarizing and reporting, on a timely basis,ba sis, information required to be disclosed by useach company in the reports that we fileit files or submitsubmits under the Exchange Act and (2) ensuring that information required to be disclosed by useach company in such reports is accumulated and co mmunicatedcommunicated to our management, including ourthe Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

This annual report does not include a report
The management of management's assessment regarding the effectiveness ofWendy’s/Arby’s and Wendy’s/Arby’s Restaurants is responsible for establishing and maintaining adequate internal control over financial reporting or an attestation report(as defined in Rule 13a-15(f) of the Company'sExchange Act).  The management of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an assessment of the effectiveness of our internal control over financial reporting for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants as of January 2, 2011. The assessment was performed using the criteria for effective internal control reflected in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on the assessment of the system of internal control for Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, the management of each company believes that as of January 2, 2011, internal control over financial reporting of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants were effective.

(Wendy’s/Arby’s)

Our independent registered public accounting firm, due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.Deloitte & Touche LLP, has issued an attestation report dated March 2, 2011 on Wendy’s/Arby’s internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

On September 29, 2008, Wendy’s/Arby’s Group, Inc. acquired Wendy’s. As part of the integration activities, Wendy’s/Arby’s Group, Inc. financial reporting controls and procedures, which include substantially all of our financial reporting controls and procedures, are being incorporated into this acquired business. During the fourth quarter of 2009, an additional phase of the integration of Wendy’s accounting systems was successfully completed. The integrated accounting system was used for the preparation of financial statements and other information presented in this Annual Report on Form 10-K. We expect further integration of Wendy's processes and systems during 2010.
There were no other changes in ourthe internal control over financial reporting of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants made during the quarter that materially affected, or are reasonably likely to materially affect, ourtheir internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

There are inherent limitations in the effectiveness of any control system, including the potential for human error and the circumvention or overriding of the controls and procedures.  Additionally, judgments in decision-making can be faulty and breakdowns can occur because of simple error or mistake.  An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met.  Accordingly, ourthe management of Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants, including ourtheir Chief Executive Officer and Chief Financial Officer, does not expect that ourthe control system can prevent or detect all error or fraud.  Finally, projections of any evaluation or assessmenta ssessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.




 Item 9B.Other Information.

None.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PART III
Items 10, 11, 12
To the Board of Directors and 13Stockholders of

Wendy’s/Arby’s Group, Inc.
Omitted pursuant to General Instruction I of Form 10-KAtlanta, Georgia

Item 14. Principal Accounting FeesWe have audited the internal control over financial reporting of Wendy’s/Arby’s Group, Inc. and Services.subsidiaries (the "Company") as of January 2, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
 
Deloitte & Touche LLP performsWe conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other services (the “Services”)personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the Companymaintenance of records that, in reasonable detail, accurately and Wendy’s/Arby’s. The Services performed by Deloitte & Touche LLP are substantiallyfairly reflect the same for both the Companytransactions and Wendy’s/Arby’s, except for audit-related work for the offering and registrationdispositions of the Company’s Senior Notes, the Wendy’s merger and the sale of Deerfield Capital Corp. (a former Wendy’s/Arby’s subsidiary that was not a subsidiaryassets of the Company).  Therefore, wecompany; (2) provide reasonable assurance that transactions are unablerecorded as nec essary to reasonably separatepermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the fees attributablecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to each company, except forerror or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the audit-related fees described below. The Company believeseffectiveness of the internal control over financial reporting to future periods are subject to the risk that the fees billed by Deloitte & Touche LLP to Wendy’s/Arby’s duringcontrols may become inadequate because of changes in conditions, or that the fiscal years ended January 3, 2010 and December 28, 2008 al so reflectdegree of compliance with the cost of its audit and other services as follows:policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2011, based on the criteria established in Audit Fees:Internal Control — Integrated Framework Audit fees paidissued by Wendy’s/Arby’s to Deloitte & Touche LLP in connection with Deloitte & Touche LLP’s review and auditthe Committee of Sponsoring Organizations of the Wendy’s/Arby’s and the Company’s annual financial statements, Deloitte & Touche LLP’s review of the Wendy’s/Arby’s and the Company’s interim financial statements included in the Wendy’s/Arby’s and the Company’s Quarterly Reports on Form 10-Q and for services that are provided by Deloitte & Touche LLP in connection with other statutory and regulatory filings or engagements totaled approximately $3,035,000 for fiscal 2009 and $3,500,000 for fiscal 2008.Treadway Commission.
 
Audit-Related Fees: The aggregate fees billed by Deloitte & Touche LLP for assurance and related services that are related toWe have also audited, in accordance with the performancestandards of the audit or review of the Wendy’s/Arby’s and the Company’s financial statements and are not reported under the “Audit Fees” above were $610,400 for fiscal 2009 (of which $516,500 was related to the offering and registration of the Company’s Senior Notes) and $1,028,100 for fiscal 2008 (of which $788,100 was related to the Wendy’s merger and $180,000 was related to the sale of Deerfield Capital Corp.).
Tax Fees: The aggregate fees billed by Deloitte & Touche LLP for professional services rendered by Deloitte & Touche LLP for tax compliance, tax advice and tax planning to Wendy’s/Arby’s were $59,000 for fiscal 2009 and $167,265 for fiscal 2008 (principally for income tax services and research, advice and consultation regarding tax-related matters in both fiscal years).
All Other Fees: Fees billed to Wendy’s/Arby’s by Deloitte & Touche LLP for all other products and services provided to Wendy’s/Arby’s and not reported under the three prior headings were $0 for both fiscal 2009 and fiscal 2008.
The Company’s Audit Committee has considered whether the provision of services by Deloitte & Touche LLP that were not related to the audit ofPublic Company Accounting Oversight Board (United States), the Company’s consolidated financial statements referred to above and tofinancial statement schedule as of and for the reviews of the interimyear ended January 2, 2011 and our report dated March 2, 2011 expressed an unqualified opinion on those financial statements included in the Company’s Form 10-Q is compatible with maintainingand financial statement schedule.

/s/ Deloitte & Touche LLP’s independence.LLP
Atlanta, Georgia
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee of Wendy’s/Arby’s Group, Inc., the parent company of Wendy’s Arby’s Restaurant’s, LLC, has adopted a policy regarding pre-approval of services provided by its independent registered public accounting firm.   The Audit Committee must also pre-approve any services provided to the Company or any subsidiary by any separate firm that audits the financial statements of any subsidiary if the Company’s independent registered public accounting firm expressly relies on the audit report of such separate firm in its own report on the Company’s financial statements. In general, predictable and recurring covered services may be approved by the Audit Committee (and not any delegate of the committee) on an annual basis. P re-approval in such circumstances will generally be by reference to classes of covered service, provided that the pre-approval is sufficiently detailed to identify the scope of service to be provided. The policy includes a list of covered services that may be pre-approved, by class, on an annual basis.  Any engagement of the independent registered public accounting firm to perform a pre-approved non-audit service is to be reported by management to the Audit Committee at its next scheduled meeting following the engagement of the independent registered public accounting firm for such service.
Services proposed to be provided by the independent registered public accounting firm that have not been pre-approved, by class, and the fees for such proposed services must be pre-approved on an individual basis by the Audit Committee or its delegate. The total payments that may be made with respect to covered services that constitute “Tax Fees” and “All Other Fees” (as shown above) that have been pre-approved by class may not exceed $200,000 per year. Once such amount has been expended in any year, any additional services (including any additional payments for services in a pre-approved class of “Tax” or “Other” services) that constitute “Tax” or “Other” services must be pre-approved on an individual basis unless otherwise authorized by the Audit Committee (or i ts delegate(s)).
The Audit Committee may delegate to one or more of its members the authority to grant specific pre-approvals under its policy with respect to audit, review, attest and permitted non-audit services (subject to the limitation on “Tax” and “Other” services noted above), provided that the aggregate estimated fees for the current and all future periods in which the service is to be rendered will not exceed $100,000 for any applicable fiscal year and that the aggregate estimated fees of all covered services approved by the delegate(s) during any fiscal year may not exceed $1,000,000 for any applicable fiscal year. Any pre-approval granted by a delegate(s) is to be reported to the full Audit Committee no later than its next scheduled meeting.March 2, 2011


Item 9B.Other Information.

None
In January 2011, Wendy’s/Arby’s announced that it is exploring strategic alternatives for the Arby’s brand, including a sale of the non-audit services provided by Deloitte & Touche LLP in 2009 were approvedbrand.  To incent key members of senior management to remain with Wendy’s/Arby’s while strategic alternatives are under consideration, to provide an orderly transition if the Arby’s brand is sold and, with respect to Stephen E. Hare, Senior Vice President and Chief Financial Officer, to incentivize Mr. Hare to remain employed for at least three years if Arby’s is sold and the headquarters is moved to Ohio, the Wendy’s/Arby’s Compensation Committee has authorized Wendy’s/Arby’s to enter into retention agreements with Mr. Hare and Nils H. Okeson, Senior Vic e President, General Counsel and Secretary.

The retention agreement with Mr. Hare would provide that if Arby’s is sold, Mr. Hare would consent under the Securitiesterms of the December 18, 2008 letter agreement between Wendy’s/Arby’s and Exchange Commission’s de minimis exceptionMr. Hare to audit committee approval.relocate to Ohio and that he would not assert that a “triggering event” had occurred under such letter agreement due to his being required to relocate to Ohio or due to the sale of Arby’s.

Within 30 days following a sale of Arby’s, Mr. Hare would receive $750,000.  If within three years of receiving this cash award Mr. Hare voluntarily terminates his employment or his employment is terminated without cause (as defined in the December 18, 2008 letter agreement) by Wendy’s/Arby’s, he would be required to pay back a pro rata portion of the net amount received.  If Wendy’s/Arby’s does not renew Mr. Hare’s employment under the December 18, 2008 letter agreement (which is subject to one year renewable terms) or if he remains employed by Wendy’s/Arby’s for three years after receiving the cash award, he would not have to pay back any of the cash award.

Within 30 days following a sale of Arby’s, Mr. Hare would be awarded restricted stock with a value of $750,000.  The restricted stock would vest three years after it is awarded (the “Stated Vesting Date”).  However, if Mr. Hare’s employment is involuntarily terminated by Wendy’s/Arby’s without cause prior to the Stated Vesting Date, the restricted stock would vest on a prorated basis.   If Wendy’s/Arby’s does not renew Mr. Hare’s employment under the December 18, 2008 letter agreement, all of the restricted stock would vest on his last day of employment.

If Arby’s is sold, Mr. Hare would receive a cash deal success bonus of $100,000 plus 0.15% of the consideration received by Wendy’s/Arby’s.  Consideration would exclude all liabilities for indebtedness of Arby’s assumed by the buyer.  Payment of the deal success fee would be made when consideration for the Arby’s sale is paid to the seller.

Wendy’s/Arby’s would also provide for Mr. Hare’s relocation from Atlanta in accordance with Wendy’s/Arby’s standard relocation policy (which does not include loss protection on the sale of an executive’s home), as well as a $130,000 moving bonus payable within 30 days of a sale of Arby’s.  If Mr. Hare voluntarily terminates his employment within 12 months of starting the relocation process he would be required to pay back benefits received under the relocation policy.

If Arby’s is not sold, Mr. Hare would not be required to relocate to Ohio and no benefits would be payable under the retention agreement.  The December 18, 2008 letter agreement with Mr. Hare will remain in effect and the provisions of the retention agreement are in addition to any other separation payments or benefits for which Mr. Hare would be eligible in the event that Wendy’s/Arby’s terminated his employment without cause or elected not to renew the letter agreement.

The retention agreement with Mr. Okeson would provide that Mr. Okeson agrees to remain employed with Wendy’s/Arby’s for a period of 6 months after a sale of Arby’s, and that he would be paid a retention bonus in cash of $500,000, one-third of which would be payable within 7 days of the sale of Arby’s with the remainder payable 6 months thereafter.  If Mr. Okeson voluntarily terminates employment with Wendy’s/Arby’s or is terminated with cause (as defined in the December 18, 2008 letter agreement between Wendy’s/Arby’s and Mr. Okeson) prior to 6 months after the sale of Arby’s, he would not receive any further retention bonus payments under the retention agreement.  If Mr. Okeson’s employment is involuntarily terminated without cause before either payment date, he would receive the remaining payments.

If Arby’s is sold and Mr. Okeson remains employed through the date 6 months after such sale, or if his employment is terminated without cause prior to that date, he would receive the compensation described in the December 18, 2008 letter agreement and any currently outstanding stock options or time based restricted stock awards would vest and Mr. Okeson would have 18 months to exercise vested stock options.

The December 18, 2008 letter agreement with Mr. Okeson will remain in effect and the provisions of the retention agreement are in addition to any other separation payments or benefits for which Mr. Okeson would be eligible in the event that Wendy’s/Arby’s terminated his employment without cause.

PART III
Items 10, 11, 12, 13 and 14.

The information for Wendy's/Arby's required by Items 10, 11, 12 and 13 and for the Companies by Item 14 will be furnished on or prior to May 2, 2011 (and is hereby incorporated by reference) by an amendment hereto or pursuant to a definitive proxy statement involving
 
the election of directors pursuant to Regulation 14A that will contain such information.  Notwithstanding the foregoing, information appearing in the section “Audit Committee Report” shall not be deemed to be incorporated by reference in this Form 10-K.

PART IV
Item 15.Exhibits and Financial Statement Schedules.

(a) 1.  Financial1.Financial Statements:

See Index to Financial Statements (Item 8).

2.   Financial Statement Schedules:

Schedule I – Condensed Balance Sheets (Parent Company Only) – as of January 3, 2010 and December 28, 2008; Condensed Statements of Operations (Parent Company Only) – for the fiscal years ended January 3, 2010, December 28, 2008 and December 30, 2007; Condensed Statements of Cash Flows (Parent Company Only) – for the fiscal years ended January 3, 2010, December 28, 2008 and December 30, 2007.

All other schedules have been omitted since they are either not applicable or the information is contained elsewhere in “Item  8. Financial Statements and Supplementary Data.”

2.  Exhibits:3.Exhibits:

Copies of the following exhibits are available at a charge of $.25 per page upon written request to the Secretary of the registrantWendy’s/Arby’s Group, Inc. at 1155 Perimeter Center West, Atlanta, Georgia 30338.  Exhibits that are incorporated by reference to documents filed previously by the registrantWendy’s/Arby’s under the Securities Exchange Act of 1934, as amended, are filed with the Securities and Exchange Commission under File No. 333-161613.  Exhibits that are incorporated by reference to documents filed previously under the Securities Exchange Act of 1934, as amended, are filed with the Securities and Exchange Commission under001-02207, File No. 1-02207333-161613 for documents filed by Wendy’s/Arby’s Group, Inc. (or its predecessor company Triarc Companies, Inc.)Restaurants or File No. 1-8116001-08116 for documents filed by Wendy’s International, Inc. Exhibits listed below are exhibits of both Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants unless otherwise noted.



EXHIBIT NO.DESCRIPTION
2.1Agreement and Plan of Merger, dated as of April 23, 2008, by and among Triarc Companies, Inc., Green Merger Sub Inc. and Wendy’s International, Inc., incorporated herein by reference to Exhibit 2.1 to Triarc’s Current Report on Form 8-K datedfiled on April 29, 2008 (SEC file no. 001-02207).
2.2Side Letter Agreement, dated August 14, 2008, by and among Triarc Companies, Inc., Green Merger Sub, Inc. and Wendy’s International, Inc., incorporated herein by reference to Exhibit 2.3 to Triarc’s Registration Statement on Form S-4, Amendment No.3, filed on August 15, 2008 (Reg. no. 333-151336).
2.3Agreement and Plan of Merger, dated as of December 17, 2007, by and among Deerfield Triarc Capital Corp., DFR Merger Company, LLC, Deerfield & Company LLC and, solely for the purposes set forth therein, Triarc Companies, Inc. (in such capacity, the Sellers’ Representative), incorporated herein by reference to Exhibit 2.1 to Triarc’s Current Report on Form 8-K filed on December 21, 2007 (SEC file no. 001-02207).(Wendy’s/Arby’s only).
3.1Amended and Restated Certificate of Incorporation of Wendy’s/Arby’s Group, Inc., as filed with the Secretary of State of the State of Delaware on May 28, 2009, incorporated herein by reference to Exhibit 3.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on June 1, 2009 (SEC file no. 001-02207).
3.2Amended and Restated By-Laws of Wendy’s/Arby’s Group, Inc., as amended and restated as of May 28, 2009, incorporated herein by reference to Exhibit 3.2 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on June 1, 2009 (SEC file no. 001-02207).
3.3Certificate of Formation of Wendy’s/Arby’s Restaurants, LLC, as amended to date, incorporated by reference to Exhibit 3.1 to Wendy’s/Arby’s Restaurants’ Registration Statement on Form S-4 filed on August 28, 2009 (Reg. no.No. 333-161613).  (Wendy’s/Arby’s Restaurants only.)
3.23.4Third Amended and Restated Limited Liability Company Operating Agreement of Wendy’s/Arby’s Restaurants, LLC, incorporated by reference to Exhibit 3.2 to Wendy’s/Arby’s Restaurants’ Registration Statement on Form S-4 filed on August 28, 2009 (Reg. no. 333-161613).  (Wendy’s/Arby’s Restaurants only.)
4.1Indenture, dated as of November 13, 2001, between Wendy’s International, Inc. and Bank One, National Association, pertaining to 6.25% Senior Notes due November 15, 2011 and 6.20% Senior Notes due June 15, 2014, incorporated herein by reference to Exhibit 4(i) of the Wendy’s International, Inc. Form 10-K for the year ended December 30, 2001 (SEC file no. 001-08116).
4.2Indenture, dated as of June 23, 2009, among Wendy’s/Arby’s Restaurants, LLC, the guarantors named therein and U.S. Bank National Association, as Trustee, incorporated herein by reference to Exhibit 4.1 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended June 28, 2009 (SEC file no. 001-02207).
4.3Registration Rights Agreement, dated asForm of June 23, 2009, among Wendy’s/Arby’s Restaurants, LLC, the guarantors named therein and the initial purchasers named therein,Exchange Note, incorporated herein by reference to Exhibit 4.2A of Exhibit 4.1 to Wendy’s/Arby’s Group’sRestaurants’ Registration Statement on Form 10-Q for the quarter ended JuneS-4 filed on August 28, 2009 (SEC file(Reg. no. 001-02207)333-161613).
4.4Supplemental Indenture, dated as of July 8, 2009, among Wendy’s/Arby’s Restaurants, LLC, the guarantors named therein and U.S. Bank National Association, as Trustee, incorporated herein by reference to Exhibit 4.3 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended June 28, 2009 (SEC file no. 001-02207).
4.5Form of Exchange Note, incorporated by reference to Exhibit A of Exhibit 4.1 to Wendy’s/Arby’s Restaurants’ Registration Statement on Form S-4 filed on August 28, 2009 (Reg. no. 333-161613).
4.6
Supplemental Indenture, dated as of December 21, 2009, among Wendy’s/Arby’s Restaurants, LLC, the guarantorsguarantor named therein and U.S. Bank National Association, as Trustee, incorporated herein by reference to Exhibit 4.1 to Wendy’s/Arby’s Restaurants Form 10-Q for the quarter ended April 4, 2010 (SEC file no. 333-161613).
4.6
Supplemental Indenture, dated as of December 3, 2010, among Wendy’s/Arby’s Restaurants, LLC, the guarantor named therein and U.S. Bank National Association, as Trustee.*
10.1
Triarc Companies, Inc. Amended and Restated 1997 Equity Participation Plan, incorporated herein by reference to Exhibit 10.2 to Triarc’s Current Report on Form 8-K datedfiled on May 19, 2005 (SEC file no. 001-02207).**
10.2
Form of Non-Incentive Stock Option Agreement under the Triarc Companies, Inc. Amended and Restated 1997 Equity Participation Plan, incorporated herein by reference to Exhibit 10.6 to Triarc’s Current Report on Form 8-K datedfiled on March 16, 1998 (SEC file no. 001-02207).**
10.3Triarc Companies, Inc. Amended and Restated 1998 Equity Participation Plan, incorporated herein by reference to Exhibit 10.3 to Triarc’s Current Report on Form 8-K datedfiled on May 19, 2005 (SEC file no. 001-02207).**
10.4
Form of Non-Incentive Stock Option Agreement under the Triarc Companies, Inc. Amended and Restated 1998 Equity Participation Plan, incorporated herein by reference to Exhibit 10.2 to Triarc’s Current Report on Form 8-K datedfiled on May 13, 1998 (SEC file no. 001-02207).**
10.5Wendy’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 year ended December 28, 2008 (SEC file no. 001-02207).**
10.6
Form of Non-Incentive Stock Option Agreement under the Wendy’s/Arby’s Group, Inc. Amended and Restated 2002 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 99.6 to Wendy’s/Arby’s Group’s Current Report on Form 8-K datedfiled on December 22, 2008 (SEC file no. 001-02207).**
10.7Form of Restricted Stock Agreement under the Wendy’s/Arby’s Group, Inc. Amended and Restated 2002 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 10.7 to Wendy’s/Arby’s Group’s Form 10-K for the year ended December 28, 2008 (SEC file no. 001-02207).**
10.8Form of Non-Employee Director Restricted Stock Award Agreement under the Wendy’s/Arby’s Group, Inc. Amended and Restated 2002 Equity Participation Plan, incorporated herein by reference to Exhibit 10.7 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended June 28, 2009 (SEC file no. 001-02207).**
10.9Form of Non-Incentive Stock Option Agreement under the Wendy’s/Arby’s Group, Inc. Amended and Restated 2002 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended September 27, 2009 (SEC file no. 001-02207).**
10.10Form of Restricted Share Unit Award Agreement under the Wendy’s Wendy’s/Arby’s Group, Inc. Amended and Restated 2002 Equity Participation Plan, as amended, incorporated herein by reference to Exhibit 10.2 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended September 27, 2009 (SEC file no. 001-02207).**
10.11Wendy’s/Arby’s Group, Inc. 2010 Omnibus Award Plan, incorporated by reference to Annex A of the Wendy’s/Arby’s Group, Inc. Definitive 2010 Proxy Statement (SEC file no. 001-02207).**
10.12Form of Non-Incentive Stock Option Award Agreement under the Wendy’s/Arby’s Group, Inc. 2010 Omnibus Award Plan, incorporated by reference to Exhibit 10.5 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended July 4, 2010 (SEC file no. 001-02207).**
10.13
Form of Long Term Performance Unit Award Agreement under the Wendy’s/Arby’s Group, Inc. 2010 Omnibus Award Plan, incorporated by reference to Exhibit 10.6 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended July 4, 2010 (SEC file no. 001-02207).**
10.14
Form of Non-Employee Director Restricted Stock Award Agreement under the Wendy’s/Arby’s Group, Inc. 2010 Omnibus Award Plan, incorporated by reference to Exhibit 10.7 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended July 4, 2010 (SEC file no. 001-02207).**
10.151999 Executive Bonus Plan, incorporated herein by reference to Exhibit A to Triarc’s 1999 Proxy Statement (SEC file no. 001-02207).**
10.1210.16
Amendment to the Triarc Companies, Inc. 1999 Executive Bonus Plan, dated as of June 22, 2004, incorporated herein by reference to Exhibit 10.1 to Triarc’s Current Report on Form 8-K datedfiled on June 1, 2005 (SEC file no. 001-02207).**
10.1310.17
Amendment to the Triarc Companies, Inc. 1999 Executive Bonus Plan effective as of March 26, 2007, incorporated herein by reference to Exhibit 10.2 to Triarc’s Current Report on Form 8-K datedfiled on June 6, 2007 (SEC file no. 001-02207).**
10.1410.18Wendy’s International, Inc. 2003 Stock Incentive Plan, incorporated herein by reference to Exhibit 10(f) of the Wendy’s International, Inc. Form 10-Q for the quarter ended April 2, 2006 (SEC file no. 001-08116).**
10.1510.19Amendments to the Wendy’s International, Inc. 2003 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.12 to Wendy’s/Arby’s Group’s Form 10-K for the year ended December 28, 2008 (SEC file no. 001-02207).**
10.1610.20Wendy’s International, Inc. 2007 Stock Incentive Plan, incorporated herein by reference to Annex C to the Wendy’s International, Inc. Definitive 2007 Proxy Statement, dated March 12, 2007 (SEC file no. 001-08116).**
10.1710.21First Amendment to the Wendy’s International, Inc. 2007 Stock Incentive Plan, incorporated herein by reference to Exhibit 10(d) of the Wendy’s International, Inc. Form 10-Q for the quarter ended September 30, 2007 (SEC file no. 001-08116).**
10.1810.22Amendments to the Wendy’s International, Inc. 2007 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.15 to Wendy’s/Arby’s Group’s Form 10-K for the year ended December 28, 2008 (SEC file no. 001-02207).**
10.1910.23Form of Stock Option Award Letter for U.S. Grantees under the Wendy’s International, Inc. 2007 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended September 27, 2009 (SEC file no. 001-02207).**
10.2010.24Form of Stock Unit Award Agreement under the Wendy’s International, Inc. 2007 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.4 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended September 27, 2009 (SEC file no. 001-02207).**
10.2110.25Form of letter amending non-qualified stock options granted under the Wendy’s International, Inc. 2007 Stock Incentive Plan on May 1, 2007 and May 1, 2008 to certain former directors of Wendy’s International, Inc. incorporated herein by reference to Exhibit 10.5 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended September 27, 2009 (SEC file no. 001-02207).**
10.2210.26Wendy’s International, Inc. Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10(f) of the Wendy’s International, Inc. Form 10-K for the year ended December 29, 2002 (SEC file no. 001-08116).**
10.2310.27First Amendment to the Wendy’s International, Inc. Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10(f) of the Wendy’s International, Inc. Form 10-K for the year ended December 31, 2006 (SEC file no. 001-08116).**
10.2410.28Amended and Restated Wendy’s International, Inc. Supplemental Executive Retirement Plan No. 2, incorporated herein by reference to Exhibit 10.24 to Wendy’s/Arby’s Group’s Form 10-K for the year ended January 3, 2010 (SEC file no. 001-02207). **
10.2510.29Amended and Restated Wendy’s International, Inc. Supplemental Executive Retirement Plan No. 3, incorporated herein by reference to Exhibit 10.25 to Wendy’s/Arby’s Group’s Form 10-K for the year ended January 3, 2010 (SEC file no. 001-02207). **
10.2610.30Wendy’s/Arby’s Group, Inc. 2009 Directors’ Deferred Compensation Plan, effective as of May 28, 2009, incorporated herein by reference to Exhibit 10.6 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended June 28, 2009 (SEC file no. 001-02207).**
10.2710.31Amended and Restated
Amendment No. 1 to the Wendy’s/Arby’s Group, Inc. 2009 Directors’ Deferred Compensation Plan, effective as of May 27, 2010, incorporated by reference to Exhibit 10.9 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended July 4, 2010 (SEC file no. 001-02207).**
10.32Credit Agreement, dated as of July 25, 2005, amended and restatedMay 24, 2010, among Wendy’s/Arby’s Restaurants, LLC, as borrower, Bank of March 11, 2009, among Wendy’s International, Inc.America, N.A., Wendy’s International Holdings, LLC, Arby’s Restaurant Group, Inc., Arby’s Restaurant Holdings, LLC, Triarc Restaurant Holdings, LLC, the Lenders and Issuers party thereto,as administrative agent, Citicorp North America, Inc., as administrativesyndication agent, and collateral agent, Bank of America, N.A. and Credit Suisse, Cayman Islands Branch, as co-syndication agents, WachoviaWells Fargo Bank, National Association, SunTrust Bankas documentation agent, and GE Capital Franchise Finance Corporation, as co-documentation agents, Citigroup Global Markets Inc., Banc of America Securities LLCthe lenders and Credit Suisse, Cayman Islands Branch, as joint lead arrangers and joint book-running managers,issuers party thereto, incorporated herein by reference to Exhibit 10.1 to We ndy’s/Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on March 12, 2009May 25, 2010 (SEC file no. 001-02207).
10.2810.33Amended and Restated Pledge and SecurityAmendment No. 1, dated as of July 12, 2010, to the Credit Agreement, dated March 11, 2009, by and between Wendy’s International, Inc.as of May 24, 2010, among Wendy’s/Arby’s Restaurants, LLC, as borrower, Bank of America, N.A., Wendy’s International Holdings, LLC, Arby’s Restaurant Group, Inc., and Arby’s Restaurant Holdings, LLC, andas administrative agent, Citicorp North America, Inc., as collateralsyndication agent, Wells Fargo Bank, National Association, as documentation agent, and the lenders and issuers party thereto, incorporated herein by reference to Exhibit 10.3 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended July 4, 2010 (SEC file no. 001-02207).
10.34Security Agreement, dated as of May 24, 2010, among Wendy’s/Arby’s Restaurants, LLC, the guarantors from time to time party thereto, as pledgors, and Bank of America, N.A., as administrative agent, incorporated herein by reference to Exhibit 10.2 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on March 12, 2009May 25, 2010 (SEC file no. 001-02207).
10.29Amendment No. 1 to Amended and Restated Credit Agreement and Amended and Restated Pledge and Security Agreement, dated as of June 10, 2009, incorporated herein by reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K dated June 10, 2009 (SEC file no. 001-02207).
10.30Form of Increase Joinder dated as of March 17, 2009 among Arby’s Restaurant Group, Inc., Wendy’s International Holdings, Inc., Arby’s Restaurant Holdings, LLC, Wendy’s International, Inc., Citicorp North America, Inc., The Huntington National Bank, Fifth Third Bank, Wells Fargo Bank, National Association and Bank of America, N.A., incorporated herein by reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on March 20, 2009 (SEC file no. 001-02207).
10.3110.35Assignment of Rights Agreement between Wendy’s International, Inc. and Mr. R. David Thomas, incorporated herein by reference to Exhibit 10(c) of the Wendy’s International, Inc. Form 10-K for the year ended December 31, 2000 (SEC file no. 001-08116).
10.3210.36Form of Guaranty Agreement dated as of March 23, 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). (Wendy’s/Arby’s only.)
10.37Indemnity Agreement, dated as of October 25, 2000 between Cadbury Schweppes plc and Triarc Companies, Inc., incorporated herein by reference to Exhibit 10.1 to Triarc’s Current Report on Form 8-K filed on November 8, 2000 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.38Amended and Restated Investment Management Agreement, dated as of April 30, 2007, between TCMG-MA, LLC and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.2 to Triarc’s Current Report on Form 8-K filed on April 30, 2007 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.39Withdrawal Agreement dated June 10, 2009 between TCMG-MA, LLC and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.3 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on June 11, 2009 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.40Separation Agreement, dated as of April 30, 2007, between Triarc Companies, Inc. and Nelson Peltz, incorporated herein by reference to Exhibit 10.3 to Triarc’s Current Report on Form 8-K filed on April 30, 2007 (SEC file no. 001-02207).**
10.41Letter Agreement dated as of December 28, 2007, between Triarc Companies, Inc. and Nelson Peltz., incorporated herein by reference to Exhibit 10.2 to Triarc’s Current Report on Form 8-K datedfiled on January 4, 2008 (SEC file no. 001-02207).**
10.3310.42Separation Agreement, dated as of April 30, 2007, between Triarc Companies, Inc. and Peter W. May, incorporated herein by reference to Exhibit 10.4 to Triarc’s Current Report on Form 8-K datedfiled on April 30, 2007 (SEC file no. 001-02207).**
10.3410.43Letter Agreement dated as of December 28, 2007, between Triarc Companies, Inc. and Peter W. May, incorporated herein by reference to Exhibit 10.3 to Triarc’s Current Report on Form 8-K datedfiled on January 4, 2008 (SEC file no. 001-02207).**
10.3510.44Agreement dated June 10, 2009 between Wendy’s/Arby’s Group, Inc. and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K datedfiled on June 11, 2009 (SEC file no. 001-02207).  (Wendy’s/Arby’s only.)
10.45Liquidation Services Agreement dated June 10, 2009 between Wendy’s/Arby’s Group, Inc. and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.2 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on June 11, 2009 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.46Letter Agreement dated as of December 28, 2007, between Triarc Companies, Inc. and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.1 to Triarc’s Current Report on Form 8-K filed on January 4, 2008 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.47Assignment 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 Report on Form 8-K filed on August 10, 2007 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.48Bill of Sale dated July 31, 2007, by Triarc Companies, Inc. to Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.2 to Triarc’s Current Report on Form 8-K filed on August 10, 2007 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.49Agreement of Sublease between Triarc Companies, Inc. and Trian Fund Management, L.P., incorporated herein by reference to Exhibit 10.4 to Triarc’s Current Report on Form 8-K filed on August 10, 2007 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.50First Amendment to Agreement of Sublease 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). (Wendy’s/Arby’s only.)
10.51Form of Aircraft Time Sharing Agreement between Triarc Companies, Inc. and each of Trian Fund Management, L.P., Nelson Peltz, Peter W. May and Edward P. Garden, incorporated herein by reference to Exhibit 10.5 to Triarc’s Current Report on Form 8-K filed on August 10, 2007 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.52Aircraft Lease Agreement dated June 10, 2009 between Wendy’s/Arby’s Group, Inc. and TASCO, LLC., incorporated herein by reference to Exhibit 10.4 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on June 11, 2009 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.53
Amendment No. 1 to Aircraft Lease Agreement dated June 10, 2009 between Wendy’s/Arby’s Group, Inc. and TASCO, LLC., incorporated herein by reference to Exhibit 10.11 to Wendy’s/Arby’s Group’s Form 10-Q for the quarter ended July 4, 2010 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.54Registration Rights Agreement dated as of April 23, 1993, between DWG Corporation and DWG Acquisition Group, L.P., incorporated herein by reference to Exhibit 10.36 to Wendy’s/Arby’s Group’s Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.55Letter 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 on Form 8-K filed on August 10, 2007 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.56Agreement dated November 5, 2008 by and between Wendy’s/Arby’s Group, Inc. and Trian Partners, L.P., Trian Partners Master Fund, L.P., Trian Partners Parallel Fund I, L.P., Trian Partners Parallel Fund II, L.P., Trian Fund Management, L.P., Nelson Peltz, Peter W. May and Edward P. Garden, incorporated herein by reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on November 12, 2008 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.57Amendment No. 1 to Agreement, dated as of April 1, 2009, among Wendy's/Arby's Group, Inc., Trian Partners, L.P., Trian Partners Master Fund, L.P., Trian Partners Parallel Fund I, L.P., Trian Partners Parallel Fund II, L.P., Trian Fund Management, L.P., Trian Fund Management GP, LLC, Nelson Peltz, Peter W. May and Edward P. Garden, incorporated herein by reference to Exhibit 10.2 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on April 2, 2009 (SEC file no. 001-02207). (Wendy’s/Arby’s only.)
10.58Consulting and Employment Agreement dated July 25, 2008 between Triarc Companies, Inc. and J. David Karam, incorporated herein by reference to Exhibit 99.1 to Triarc’s Current Report on Form 8-K datedfiled on July 25, 2008 (SEC file no. 001-02207).**
10.3710.59Amended and Restated Letter Agreement dated as of December 18, 2008 between Thomas A. Garrett and Arby’s Restaurant Group, Inc., incorporated herein by reference to Exhibit 99.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on December 22, 2008 (SEC file no. 001-02207).**
10.60Amended and Restated Letter Agreement dated as of December 18, 2008 between Sharron Barton and Wendy’s/Arby’s Group, Inc., incorporated herein by reference to Exhibit 99.2 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on December 22, 2008 (SEC file no. 001-02207).**
10.3810.61Amended and Restated Letter Agreement dated as of December 18, 2008 between Nils H. Okeson and Wendy’s/Arby’s Group, Inc., incorporated herein by reference to Exhibit 99.3 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on December 22, 2008 (SEC file no. 001-02207).**
10.3910.62Amended and Restated Letter Agreement dated as of December 18, 2008 between Stephen E. Hare and Wendy’s/Arby’s Group, Inc., incorporated herein by reference to Exhibit 99.4 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on December 22, 2008 (SEC file no. 001-02207).**
10.4010.63Amended and Restated Letter Agreement dated as of December 18, 2008 between Roland C. Smith and Wendy’s/Arby’s Group, Inc., incorporated herein by reference to Exhibit 99.5 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on December 28, 2008 (SEC file no. 001-02207).**
10.4110.64Letter Agreement dated as of May 11, 2010 between Hala Moddelmog and Wendy’s/Arby’s Group, Inc., incorporated by reference to Exhibit 10.1 to Wendy’s/Arby’s Group’s Current Report on Form 8-K filed on May 14, 2010 (SEC file no. 001-02207).**
10.65Form 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 on Form 10-K for the fiscal year ended December 28, 2008 (SEC file no. 001-02207).**
10.4210.66Form of Indemnification Agreement between Arby’s Restaurant Group, Inc. and certain directors, officers and employees thereof, incorporated herein by reference to Exhibit 10.40 to Triarc’s Annual Report on Form 10-K for the fiscal year ended December 30, 2007 (SEC file no. 001-02207).**
10.4310.67Form of Indemnification Agreement for officers and employees of Wendy’s International, Inc. and its subsidiaries, incorporated herein by reference to Exhibit 10 of the Wendy’s International, Inc. Current Report on Form 8-K filed on July 12, 2005 (SEC file no. 001-08116).**
10.4410.68Form of First Amendment to Indemnification Agreement between Wendy’s International, Inc. and its directors and certain officers and employees, incorporated herein by reference to Exhibit 10(b) of the Wendy’s International, Inc. Form 10-Q for the quarter ended June 29, 2008 (SEC file no. 001-08116).**
10.4510.69Tax Sharing Agreement, dated as of May 26, 2009, among Wendy’s/Arby’s Group, Inc. and certain of its subsidiaries party thereto, incorporated by reference to Exhibit 10.40 to Wendy’s/Arby’s Restaurants’ Registration Statement on Form S-4 filed on August 28, 2009 (Reg. no. 333-161613). (Wendy’s/Arby’s Restaurants only.)
21.1
31.1Subsidiaries of the Registrant.*
23.1
Consent of Deloitte & Touche LLP.*
23.2
Consent of PricewaterhouseCoopers, LLP.*
31.1
Certification of the Chief Executive Officer of Wendy’s/Arby’s pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
31.2
Certification of the Chief Financial Officer of Wendy’s/Arby’s pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.3
32.1Certification of the Chief Executive Officer of Wendy’s/Arby’s Restaurants pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.4
Certification of the Chief Financial Officer of Wendy’s/Arby’s Restaurants pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1
Certification of the Chief Executive Officer and Chief Financial Officer of Wendy’s/Arby’s pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an exhibit to this Form 10-K.2002.*
99.1
99.1
Audited Financial Statements of TimWen Partnership*Partnership.*
______________________
144
101.INS
XBRL Instance Document***
101.SCHXBRL Taxonomy Extension Schema Document***
101.CALXBRL Taxonomy Extension Calculation Linkbase Document***
101.LABXBRL Taxonomy Extension Label Linkbase Document***
101.PREXBRL Taxonomy Extension Presentation Linkbase Document***
101.DEFXBRL Taxonomy Extension Definition Linkbase Document***
  *Filed herewith.
  **Identifies a management contract or compensatory plan or arrangement.
  *** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be "furnished" and not "filed."
Instruments defining the rights of holders of certain issues of long-term debt of the CompanyCompanies and itstheir consolidated subsidiaries have not been filed as exhibits to this Form 10-K because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of the CompanyCompanies and itstheir subsidiaries on a consolidated basis. The Company agreesCompanies agree to furnish a copy of each of such instruments to the Commission upon request.


110
145
 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
WENDY’S/ARBY’S RESTAURANTS, LLCGROUP, INC.
(Registrant)
Dated: March 19, 20103, 2011
 
By:  /s/ Roland C. Smith                              
 Roland C. Smith
 President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 19, 20103, 2011 by the following persons on behalf of the registrant in the capacities indicated.


SignatureTitles
/s/ Roland C. Smith
President, Chief Executive Officer and Director
(Roland C. Smith)(Principal Executive Officer)
/s/ Stephen E. Hare
Senior Vice President and Chief Financial Officer
(Stephen E. Hare)(Principal Financial Officer)
/s/ Steven B. Graham
Senior Vice President and Chief Accounting Officer
(Steven B. Graham)(Principal Accounting Officer)
/s/ Nelson Peltz
Chairman and Director
(Nelson Peltz)
/s/ Peter W. May
Vice Chairman and Director
(Peter W. May)
/s/ Clive Chajet
Director
(Clive Chajet)
/s/ Edward P. Garden
Director
(Edward P. Garden)
/s/ Janet Hill
Director
(Janet Hill)
/s/ Joseph A. Levato
Director
(Joseph A. Levato)
/s/ J. Randolph Lewis
Director
(J. Randolph Lewis)
/s/ Peter H. Rothschild
Director
(Peter H. Rothschild)
/s/ David E. Schwab II
Director
(David E. Schwab II)
/s/ Raymond S. Troubh
Director
(Raymond S. Troubh)
/s/ Jack G. Wasserman
Director
(Jack G. Wasserman)


WENDY’S/ARBY’S RESTAURANTS, LLC
(Registrant)
Dated: March 3, 2011
By:  /s/ Roland C. Smith
Roland C. Smith
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 3, 2011 by the following persons on behalf of the registrant in the capacities indicated.

SignatureTitles
 
/s/ Roland C. Smith
President, Chief Executive Officer, and Manager
(Roland C. Smith)(Principal Executive Officer)
 
/s/ Stephen E. Hare
Senior Vice President and Chief Financial Officer, and Manager
(Stephen E. Hare)(Principal Financial Officer)
 
/s/ Steven B. Graham
Senior Vice President and Chief Accounting Officer
(Steven B. Graham)(Principal Accounting Officer)
 
/s/ Nils H. Okeson
Manager
(Nils H. Okeson)
 
/s/ Joseph A. Levato
Manager
(Joseph A. Levato)
 
/s/ David E. Schwab II
Manager
(David E.e. Schwab II)
 
/s/ Raymond S. Troubh
Manager
(Raymond S.s. Troubh) 
 
/s/ Jack G. Wasserman
Manager
(Jack G. Wasserman) 


SCHEDULE I
Wendy’s/Arby’s Group, Inc. (Parent Company Only)
CONDENSED BALANCE SHEETS

  
January 2,
2011
  
January 3,
2010
 
ASSETS      
Current assets:      
Cash and cash equivalents $313,622  $51,973 
Amounts due from subsidiaries  75,456   40,525 
Deferred income tax benefit and other  1,250   21,705 
Total current assets  390,328   114,203 
Note receivable, related party, net  -   25,696 
Investments in consolidated subsidiaries  1,791,475   2,379,976 
Amounts due from subsidiary  -   26,773 
Properties  9,408   11,391 
Deferred income tax benefit and other  64,985   24,802 
Total assets $2 ,256,196  $2,582,841 
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Intercompany demand note payable $-  $50,000 
Amounts due to subsidiaries  63,019   158,879 
Current portion of long-term debt (a)  1,368   5,949 
Deferred income taxes and other current liabilities  11,813   10,429 
Total current liabilities  76,200   225,257 
Long-term debt (a)  11,303   15,052 
Other liabilities  5,519   6,193 
Stockholders' equity:        
Common stock, $0.10 par value; 1,500,000 shares authorized; 470,424shares issued  47,042   47,042 
Additional paid-in capital  2,771,126   2,761,433 
Accumulated deficit  (412,464)  (380,480)
Common stock held in treasury, at cost  (249,547)  (85,971)
Accumulated other comprehensive income (loss)  7,017   (5,685)
Total stockholders' equity  2,163,174   2,336,339 
Total liabilities and stockholders’ equity $2,256,196  $2,582,841 


(a)  
Consists of a 6.54% term loan on our owned aircraft in the amount of $12,671 and $18,901 at January 2, 2011 and January 3, 2010 respectively, and 5% convertible notes in the amount of $2,100 as of January 3, 2010, which were repaid during 2010. 







SCHEDULE I (Continued)
Wendy’s/Arby’s Group, Inc. (Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
(In Thousands)


  Year Ended 
  
January 2,
2011
  
January 3,
2010
  
December 28,
2008
 
Income:         
Equity in (loss) income from continuing operations of subsidiaries $(2,175) $8,970  $(451,158)
Investment income (loss)  4,913   61   (21,565)
   (2,738)  9,031   (472,723)
Costs and expenses:            
General and administrative  8,087   11,568   38,674 
Depreciation and amortization  1,863   1,745   2,212 
Impairment of long-lived assets  -   -   2,671 
Facilities relocation and restructuring  -   3,008   692 
Intercompany interest expense  -   420   1,392 
Other (income) expense, net  (517)  (1,141)  1,789 
   (9,433)  15,600   47,430 
Loss from continuing operations before benefit from income taxes  (6,695)  (6,569)  (520,153)
Benefit from income taxes  2,370   10,085   38,195 
(Loss) income from continuing operations  (4,325)  3,516   (481,958)
Equity in income from discontinued operations of subsidiaries  -   1,546   2,217 
Net (loss) income $(4,325) $5,062  $(479,741)




SCHEDULE I (Continued)
Wendy’s/Arby’s Group, Inc. (Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
  Year Ended 
  
January 2,
2011
  
January 3, 
2010
  
December 28,
2008
 
Cash flows from continuing operating activities:         
Net (loss) income $(4,325) $5,062  $(479,741)
Adjustments to reconcile net (loss) income to net cash provided by
    (used in) continuing operating activities:
            
Dividends from subsidiaries  443,700   115,000   - 
Equity in loss (income) from continuing operations of subsidiaries  2,175   (8,970)  451,158 
Other operating transactions with Wendy’s/Arby’s Restaurants, LLC  8,032   (14,114)  - 
Tax sharing payments received from subsidiaries  -   10,417   17,000 
Depreciation and amortization  1,863   1,745   2,212 
Share-based compensation provision  914   1,555   358 
Write-off and amortization of deferred financing costs  16   25   5,132 
Cancellation of intercompany debts, net  (23,212)  -   - 
Operating investment adjustments, net (see below)  (4,909)  -   22,838 
Deferred income tax benefit, net  (4,027)  67,241   (21,359)
Tax sharing receivable from subsidiaries, net  (1,052)  (65,366)  - 
Equity in income from discontinued operations of subsidiaries  -   (1,546)  (2,217)
Impairment of long-lived assets  -   -   2,671 
Other, net  (8)  (2,200)  (5,772)
Changes in assets and liabilities:            
Other current assets  231   1,467   797 
Other current liabilities  (4,033)  (5,381)  (20,355)
     Net cash provided by (used in) continuing operating activities  438,577   104,935   (27,278)
Cash flows from continuing investing activities:            
Net repayments from subsidiaries  987   31,901   10,577 
Investment activities (see below)  30,752   -   - 
Cost of merger with Wendy’s  -   (608)  (18,403)
Capital expenditures  -   -   (1,065)
Other, net  205   165   884 
  Net cash provided by (used in) continuing investing activities  31,944   31,458   (8,007)
Cash flows from continuing financing activities:            
Repurchases of common stock  (173,537)  (72,927)  - 
Dividends paid  (27,621)  (27,976)  (30,538)
Repayments of long-term debt  (8,330)  (889)  (2,361)
Proceeds from long-term debt  -   -   20,000 
Advances from Wendy’s/Arby’s Restaurants, LLC  -   -   155,000 
Capital contribution to Wendy’s/Arby’s Restaurants, LLC  -   -   (150,177)
Proceeds from intercompany loan  -   -   47,000 
Other  616   (5,918)  (152)
Net cash (used in) provided by continuing financing activities  (208,872)  (107,710)  38,772 
Net cash provided by continuing operations  261,649   28,683   3,487 
Net cash used in operating activities of discontinued operations  -   (3,570)  (1,318)
Net increase in cash and cash equivalents  261,649   25,113   2,169 
Cash and cash equivalents at beginning of year  51,973   26,860   24,691 
Cash and cash equivalents at end of year $ 313,622  $51,973  $26,860 



SCHEDULE I (Continued)
Wendy’s/Arby’s Group, Inc. (Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS – (Continued)

  Year Ended 
  
January 2,
2011
  
January 3,
2010
  
December 28,
2008
 
Detail of cash flows related to investments:         
Operating investment adjustments:         
Income on collection of notes receivable $(4,909) $-  $- 
Net recognized losses, including other than temporary losses  -   -  $22,838 
  $(4,909) $-  $23,838 
Investing investment activities, net:            
Proceeds from repayment of notes receivable $30,752  $-  $- 
  $30,752  $-  $-