(2) Discontinued Operations

9 Months Ended

Oct. 02, 2011

Discontinued Operations [Abstract]

Discontinued Operations

Discontinued Operations

On July 4, 2011, Wendy’s Restaurants completed the sale of 100% of the common stock of Arby’s, its wholly owned subsidiary, to ARG IH Corporation (“Buyer”), a wholly owned subsidiary of ARG Holding Corporation (“Buyer Parent”), for $130,000 in cash (subject to customary purchase price adjustments) and 18.5% of the common stock of Buyer Parent (through which Wendy’s Restaurants indirectly retained an 18.5% interest in Arby’s) with a fair value of $19,000. Buyer and Buyer Parent were formed for purposes of this transaction. The Buyer also assumed approximately $190,000 of Arby’s debt, consisting primarily of capital lease and sale-leaseback obligations. The sale occurred pursuant to the terms of a Purchase and Sale Agreement by and among Wendy’s Restaurants, Buyer Parent and Buyer dated as of June 13, 2011. In accordance with the Purchase and Sale Agreement, The Wendy’s Company made an election under §338(h)(10) of the Internal Revenue Code, which has the effect of treating the transaction as a sale of assets and results in an approximate $240,000 ordinary loss for income tax purposes. Had this election not been made, the sale of Arby’s common stock would have resulted in a capital loss for income tax purposes.

Wendy’s Restaurants also entered into a Stockholders Agreement with Buyer Parent and ARG Investment Corporation, an entity affiliated with Buyer Parent, which sets forth certain agreements among the parties thereto concerning, among other things, the governance of Buyer Parent and transfer rights, information rights and registration rights with respect to the equity securities of Buyer Parent. In addition, Wendy’s Restaurants entered into a Transition Services Agreement with Buyer, pursuant to which it is providing and being reimbursed for continuing corporate and shared services to Buyer for a limited period of time; such services are currently anticipated to be completed by the end of 2011.

Information related to Arby’s has been reflected in the accompanying condensed consolidated financial statements as follows:

• Balance sheets - As a result of our sale of Arby’s on July 4, 2011, there are no remaining Arby’s assets and liabilities as of October 2, 2011. Arby’s assets and liabilities were included in our condensed consolidated balance sheet as of January 2, 2011; however, they were not reclassified to discontinued operations.

• Statements of operations - Arby’s (loss) income from operations for the period from January 3, 2011 through July 3, 2011 and the three months and nine months ended October 3, 2010 has been classified as discontinued operations. Loss from discontinued operations for the three months and nine months ended October 2, 2011 also includes additional Arby’s expenses which were incurred as a result of the sale and the loss on Arby’s disposal, as further described below.

• Statements of cash flows - Arby’s cash flows prior to its sale (for the period from January 3, 2011 through July 3, 2011 and for the nine months ended October 3, 2010) have been included in, and not separately reported from, all our cash flows. The statement of cash flows for the nine months ended October 2, 2011 also includes the effects of the sale of Arby’s in the third quarter of 2011.

Our condensed consolidated statements of operations for periods through July 3, 2011 (prior to the Arby’s sale) include certain indirect corporate overhead costs in “General and administrative,” which for segment reporting purposes had previously been allocated to Arby’s. These indirect corporate overhead costs do not qualify for classification within discontinued operations, and therefore are included in “General and administrative” in continuing operations. Interest expense on Arby’s debt that was assumed by Buyer has been included in discontinued operations; interest expense on Wendy’s Restaurants’ credit agreement, which was not required to be repaid as a result of the sale, continues to be included in “Interest expense” in continuing operations.

The following table details Arby’s revenues and (loss) income from operations which have been reported in discontinued operations:

	Three Months Ended						Nine Months Ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
Revenues	$	—		$	260,506		$	546,453		$	782,826
Loss from discontinued operations, net of      income taxes:
(Loss) income from discontinued operations before      income taxes	$	(2,287	)	$	(4,549	)	$	1,992		$	(11,492	)
Benefit from (provision for) income taxes	846			4,397			(874		)	5,929
	(1,441		)	(152		)	1,118			(5,563		)
Loss on disposal, net of income taxes	(5,069		)	—			(8,849		)	—
Loss from discontinued operations	$	(6,510	)	$	(152	)	$	(7,731	)	$	(5,563	)

Included in loss from discontinued operations for the three months ended October 2, 2011 are (1) $2,112 for certain sales and use tax liabilities pursuant to the indemnification provisions of the Purchase and Sale Agreement, (2) incentive compensation of $704 as a result of the completion of the Arby’s sale, and (3) the reversal of previously recognized compensation costs of $529 due to the modification of the terms of stock awards which had been issued to Arby’s employees.

The Companies recorded a pre-tax loss on disposal of Arby’s of $5,277 during the nine months ended October 2, 2011 which included the effect of the valuation of our indirect retained interest ($19,000), transaction closing costs ($11,500), and post closing purchase price adjustments primarily related to working capital ($14,800). During the three months ended October 2, 2011, the Companies recorded favorable adjustments of $723 which reduced the estimated loss on disposal recorded in the second quarter of 2011. The Companies recognized income tax expense associated with the loss on disposal of $3,572 during the nine months ended October 2, 2011. This income tax expense was comprised of (1) an income tax benefit (expense) of $2,220 and $(268) recorded in the second and third quarter of 2011, respectively, on the pre-tax loss on disposal and (2) income tax expense of $5,524 recorded in the third quarter of 2011 upon completion of the Arby’s sale due to a permanent difference between the book and tax basis of Arby’s goodwill.

The following table sets forth the effect of the sale of Arby’s on certain information of Wendy’s Restaurants as of January 2, 2011 as disclosed in the combined notes to our consolidated financial statements included in the Form 10-K:

	Applicable to
	Discontinued Operations		Continuing Operations
Total future operating lease commitments:
Rental payments	$	729,940	$	958,872
Rental receipts	33,016		52,516
Future rental receipts on owned properties	24,985		53,907
Pledged assets	325,774		2,557,456
Future purchase and capital commitments:
Beverage agreements	52,301		175,249
Capital expenditures	5,316		12,879

In addition and as a result of the sale, Arby’s guarantees and other commitments as of January 2, 2011 that are separately disclosed in the combined notes to our consolidated financial statements included in the Form 10-K are no longer obligations of the Companies.