Share-Based Compensation

The Wendy’s Company maintains several equity plans (the “Equity Plans”) which collectively provide or provided for the grant of stock options, restricted shares, tandem stock appreciation rights, restricted share units and performance shares (collectively, the “Grants”) to certain officers, other key employees, non-employee directors and consultants. The Wendy’s Company has not granted any tandem stock appreciation rights. Since the establishment of Wendy’s Restaurants in 2008, substantially all Grants have been made to employees of Wendy’s Restaurants. The Equity Plans also provide for the grant of shares of The Wendy’s Company common stock to non-employee directors. During 2010, The Wendy’s Company implemented the 2010 Omnibus Award Plan (the “2010 Plan”) for the issuance of equity instruments as described above. All equity grants during 2011 and 2010 were issued from the 2010 Plan and it is the only equity plan from which future equity instruments may be granted. As of January 1, 2012 there were approximately 59,246 shares of common stock available for future grants under the 2010 Plan.

Stock Options

The table below summarizes 2011 activity and includes certain additional information for The Wendy’s Company stock options.



	Common Stock Options
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at January 2, 2011	28,074		$	6.45
Granted	5,715		$	5.00
Exercised	(1,477	)	$	4.25
Forfeited / expired	(2,053	)	$	8.22
Outstanding at January 1, 2012	30,259		$	6.16	5.0	$	15,707
Vested or expected to vest at January 1, 2012	29,700		$	6.19	4.9	$	15,291
Exercisable at January 1, 2012	21,655		$	6.77	3.4	$	9,291

The Companies’ current outstanding stock options have maximum contractual terms of ten years and, with certain exceptions, vest ratably over three years. We settle employee stock option exercises with treasury shares. The total intrinsic value of options exercised during 2011, 2010 and 2009 was $1,138, $488 and $784, respectively.

The weighted average fair value per share as of the grant date as calculated under the Black-Scholes Model for stock options granted during 2011, 2010 and 2009 (which were all granted at exercise prices equal to the market price of The Wendy’s Company Common Stock) were $1.88, $1.47 and $1.83, respectively.

The fair value of stock options on the date of grant was calculated utilizing the following weighted average assumptions:



	2011		2010		2009
Risk-free interest rate	1.74	%	2.01	%	2.46	%
Expected option life in years	5.6		5.4		5.1
Expected volatility	45.2	%	45.2	%	49.6	%
Expected dividend yield	1.59	%	1.53	%	1.35	%

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 historical exercise trends for similar grants. The expected volatility is based on the historical market price volatility of common stock for the related options granted during the years. The expected dividend yield represents The Wendy’s Company 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. Employee stock option awards have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimates.

Restricted Shares

The Wendy’s Company issues restricted share awards (“RSAs”) and restricted share units (“RSUs”). For the purposes of our disclosures, the term “Restricted Shares” applies to RSAs and RSUs collectively unless otherwise noted.

The following table summarizes the activity of The Wendy’s Company non-vested restricted shares for 2011:



	Common Stock
	Shares		Weighted Average Fair Value
Non-vested at January 2, 2011	1,053		$	4.59
Granted	721		$	5.01
Vested	(691	)	$	4.69
Forfeited	(40	)	$	4.50
Non-vested at January 1, 2012	1,043		$	4.82

The total fair value of restricted shares that vested in 2011, 2010 and 2009 was $3,223, $3,348 and $1,373, respectively.

Performance Shares

The Wendy’s Company 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 granted in 2010 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. As a result of the sale of Arby’s and related announcements that the Companies’ Atlanta headquarters and restaurant support center would be relocated to Ohio, as further discussed in Note 17, the Companies recorded compensation costs of $820 for the accelerated vesting of performance condition awards in accordance with the termination provisions of the employment agreements for two senior executives. There was no other compensation cost recorded during 2011 and 2010 for the performance condition awards as The Wendy’s Company believed the achievement of the defined operational goal was not probable.

The fair value of market condition awards granted in 2011 and 2010 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 table below:



	2011		2010
Risk-free interest rate	0.61	%	0.93	%
Expected life in years	3.02		2.98
Expected volatility	52.0	%	55.0	%
Expected dividend yield (a)	0.00	%	0.00	%

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(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. As a result of the sale of Arby’s discussed above, the Companies recorded compensation costs of $2,347 for the accelerated vesting of market condition awards in accordance with the termination provisions of the employment agreements for two senior executives.

The following table summarizes the activity of The Wendy’s Company non-vested performance shares for 2011:



	Performance Condition Awards				Market Condition Awards
	Shares		Weighted Average Fair Value		Shares		Weighted Average Fair Value
Non-vested at January 2, 2011	1,207		$	3.91	832		$	5.56
Granted	—		$	—	1,292		$	6.91
Dividend equivalent units issued (a)	17		$	—	21		$	—
Vested	(215	)	$	3.91	(431	)	$	6.56
Forfeited	(354	)	$	3.91	(273	)	$	5.72
Non-vested at January 1, 2012	655		$	3.91	1,441		$	6.46

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(a)	Dividend equivalent units are issued in lieu of cash dividends for non-vested performance shares. There is no weighted average fair value associated with dividend equivalent units.

The total fair value of awards that were accelerated to vest during 2011 was $3,615.

Modifications of Share-Based Awards

During 2011, the Company modified the terms of awards granted to 168 employees in connection with the sale of Arby’s and the relocation of the Companies’ Atlanta headquarters and restaurant support center to Ohio. These modifications resulted in (1) the accelerated vesting of stock options and restricted share units upon the termination of such employees and (2) a reduction in share-based compensation expense of $614. Of this amount, $253 is included in discontinued operations and $361 is included in “Transaction related and other costs.”

Share-Based Compensation Expense

(The Wendy’s Company)

Total share-based compensation expense and related income tax benefit recognized in The Wendy’s Company consolidated statements of operations were as follows:



	2011			2010			2009
Stock options	$	9,898		$	7,700		$	10,515
Restricted Shares	1,943			2,311			1,567
Performance Shares:
Performance Condition Shares	820			—			—
Market Condition Shares (a)	4,688			478			—
Compensation adjustments (b)	(361		)	—			—
Compensation expense credited to “Stockholders’ Equity” (c)	16,988			10,489			12,082
Dividends and related interest on the Restricted Shares	2			3			13
Total share-based compensation expense	16,990			10,492			12,095
Less: Income tax benefit	(6,338		)	(3,773		)	(4,380		)
Share-based compensation expense, net of income tax benefit	$	10,652		$	6,719		$	7,715

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(a)	Includes expense of $2,347 for the accelerated vesting of awards partially offset by a credit of $384 for awards that were canceled in conjunction with the sale of Arby’s and the relocation of the Companies’ Atlanta headquarters and restaurant support center to Ohio.


(b)	Adjustments related to modifications of share-based compensation awards.


(c)	Excludes $700, $3,215 and $3,212 for 2011, 2010 and 2009, respectively, which is included in discontinued operations.

As of January 1, 2012, there was $14,229 of total unrecognized compensation cost related to non-vested share-based compensation grants for The Wendy’s Company. The unrecognized expense for The Wendy’s Company will be recognized over a weighted average period of 2.4 years.

(Wendy’s Restaurants)

Total share-based compensation expense and related income tax benefit recognized in Wendy’s Restaurants consolidated statements of operations were as follows:



	2011			2010			2009
The Wendy’s Company stock options	$	9,733		$	7,566		$	9,157
Restricted Shares	1,087			1,540			1,201
Performance Shares:
Performance Condition Shares	820			—			—
Market Condition Shares (a)	4,688			469			—
Compensation adjustments (b)	(361		)	—			—
Total share-based compensation expense (c)	15,967			9,575			10,358
Less: Income tax benefit	(5,949		)	(3,424		)	(3,720		)
Share-based compensation expense, net of income tax benefit	$	10,018		$	6,151		$	6,638

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(a)	Includes expense of $2,347 for the accelerated vesting of awards partially offset by a credit of $384 for awards that were canceled in conjunction with the sale of Arby’s and the relocation of the Companies’ Atlanta headquarters and the restaurant support center to Ohio.


(b)	Adjustments related to modifications of share-based compensation awards.


(c)	Excludes $700, $3,215 and $3,212 for 2011, 2010 and 2009, respectively, which is included in discontinued operations.

As of January 1, 2012, there was $13,404 of total unrecognized compensation cost related to non-vested share-based compensation grants for Wendy’s Restaurants. The unrecognized expense for Wendy’s Restaurants will be recognized over a weighted average period of 2.2 years.