Corrections to Prior Years’ Income Taxes and Depreciation of Properties

Our consolidated financial statements for the year ended and as of December 30, 2012, include adjustments which reflect corrections to prior years’ income taxes and depreciation of properties. A description of the nature of those adjustments and a tabular presentation of their effect on the prior years’ consolidated financial statements included herein is presented below.

Correction to Prior Years’ Income Taxes

In connection with the transition of the Company’s Atlanta restaurant support center to Ohio during 2012 as further described in Note 2, the Company reviewed its accounting for income taxes and determined that there were certain errors which were corrected in the consolidated financial statements for the year ended and as of December 30, 2012.

State Bonus Depreciation

The Company’s review determined that, as a result of certain states not following the federal tax deduction for bonus depreciation, the Company’s cumulative deferred tax liability was overstated by $3,300. As a result, an increase to deferred tax benefit and a decrease in deferred tax liabilities was recorded in 2012.

2011 Income Tax Provision - Hiring Incentives to Restore Employment Credit Omission

The Company’s review also determined that the Hiring Incentives to Restore Employment (HIRE) credit had been omitted from the fiscal year 2011 year-end provision. A tax benefit of approximately $2,800 (of which $580 related to Arby’s which was sold by Wendy’s Restaurants in July 2011 and has been included in discontinued operations) was recorded in 2012 in order to correct for this error.

2008-2011 Canada Income Tax Provision - Corrections Discovered in Deferred Tax Process

The Company’s review further determined that there were discrepancies between the required and actual deferred tax balances at the end of 2011. While the Company believed the differences originated in the purchase accounting for the Wendy’s merger on September 29, 2008, it was unable to definitively conclude that the differences related to purchase accounting and/or to what prior period the errors were attributable. As a result, an increase to deferred tax benefit and a decrease in deferred tax liabilities of $2,100 was recorded in 2012.

Correction to Prior Years’ Depreciation of Properties

During 2012, the Company identified two accounting issues in its depreciable assets, relating to (1) the depreciation of certain properties and (2) the accelerated depreciation for Image Activation restaurants.

Depreciation of Properties

Properties, primarily construction related assets, which had been placed in service in 2010 and 2011 had not been depreciating until 2012. Depreciation of $1,900 which should have been recorded in 2010 and 2011 was recorded in 2012.

Accelerated Depreciation of Properties

During the preliminary stages of our Image Activation program in 2011, Wendy’s remodeled 10 restaurants. The Company accelerated depreciation for certain properties which were anticipated to be disposed of as a result of the remodel process. In connection with a further review of properties added as part of the Image Activation remodel process, the Company determined it had not recorded accelerated depreciation on certain properties at the remodeled restaurants which were disposed of in 2011. Accelerated depreciation of $2,100 which should have been recorded in 2011 was recorded in 2012.

The effect of the corrections on the consolidated statements of operations for 2012 and 2011 is summarized in the following table:



	Year Ended
	2012									2011
	Previously Reported			Adjustments Excluded			Effect of Change			Previously Reported			If Adjustments Included			Effect of Change
Costs and expenses:
Depreciation and amortization	$	146,976		$	142,976		$	(4,000	)	$	122,992		$	126,458		$	3,466
Total costs and expenses	2,382,495			2,378,495			(4,000		)	2,294,237			2,297,703			3,466
Operating profit	122,747			126,747			4,000			137,121			133,655			(3,466		)

(Loss) income from continuing operations before income taxes and noncontrolling interests	(13,125		)	(9,125		)	4,000			24,440			20,974			(3,466		)
Benefit from (provision for) income taxes	21,083			11,943			(9,140		)	(6,528		)	(1,897		)	4,631
Income from continuing operations	7,958			2,818			(5,140		)	17,912			19,077			1,165
Discontinued operations:
Loss on disposal of discontinued operations, net of income taxes	(442		)	(1,022		)	(580		)	(8,799		)	(8,219		)	580
Net income (loss) from discontinued operations	1,509			929			(580		)	(8,037		)	(7,457		)	580
Net income	9,467			3,747			(5,720		)	9,875			11,620			1,745
Net income attributable to The Wendy’s Company	$	7,083		$	1,363		$	(5,720	)	$	9,875		$	11,620		$	1,745

Basic and diluted income per share attributable to The Wendy’s Company:
Continuing operations	$	0.02		$	—		$	(0.01	)	$	0.04		$	0.05		$	—
Net income	$	0.02		$	—		$	(0.01	)	$	0.02		$	0.03		$	—

The effect of the corrections on the consolidated statements of comprehensive income for 2012 and 2011 is summarized in the following table:



	Year Ended
	2012							2011
	Previously Reported		Adjustments Excluded		Effect of Change			Previously Reported		If Adjustments Included		Effect of Change
Net income	$	9,467	$	3,747	$	(5,720	)	$	9,875	$	11,620	$	1,745
Comprehensive income	15,346		9,626		(5,720		)	2,960		4,705		1,745
Comprehensive income attributable to The Wendy’s Company	$	12,962	$	7,242	$	(5,720	)	$	2,960	$	4,705	$	1,745

The effect of the corrections on the consolidated statements of stockholders’ equity for 2012 and 2011 is summarized in the following table:



	Previously Reported					If Adjusted					Effect of Change
	Accumulated Deficit			Total		Accumulated Deficit			Total		Accumulated Deficit			Total
Balance at January 2, 2011	$	(412,464	)	$	2,163,174	$	(412,464	)	$	2,163,174	$	—		$	—
Cumulative effect of corrections to prior years’ income taxes and depreciation of properties	—			—		1,875			1,875		1,875			1,875
Balance, as adjusted, at January 2, 2011	(412,464		)	2,163,174		(410,589		)	2,165,049		1,875			1,875
Net income	9,875			9,875		11,620			11,620		1,745			1,745
Balance at January 1, 2012	(434,999		)	1,996,069		(431,379		)	1,999,689		3,620			3,620
Net income	7,083			9,467		1,363			3,747		(5,720		)	(5,720		)
Balance at December 30, 2012	$	(467,007	)	$	1,985,855	$	(469,107	)	$	1,983,755	$	(2,100	)	$	(2,100	)

As more fully described above, we are unable to definitively conclude to which period to attribute the $2,100 correction related to the Canada income tax provision.

The effect of the corrections on the consolidated statements of cash flows for 2012 and 2011 is summarized in the following table:



	Year Ended
	2012									2011
	Previously Reported			Adjustments Excluded			Effect of Change			Previously Reported		If Adjustments Included			Effect of Change
Net income	$	9,467		$	3,747		$	(5,720	)	$	9,875	$	11,620		$	1,745
Depreciation and amortization	154,174			150,174			(4,000		)	145,302		148,768			3,466
Deferred income tax	(31,598		)	(21,878		)	9,720			1,624		(3,587		)	(5,211		)
Loss on disposal of Arby’s	$	442		$	1,022		$	580		$	8,799	$	8,219		$	(580	)