Edgar Filing: WENDY'S/ARBY'S GROUP, INC.

form10q_050709.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2009

( )	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: 1-2207

WENDY’S/ARBY’S GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		38-0471180
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1155 Perimeter Center West, Atlanta, GA		30338
(Address of principal executive offices)		(Zip Code)

(678) 514-4100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the 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 [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ X ] Non-accelerated filer [ ] Smaller reporting company [ ]

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

Yes [ ] No [X]

There were 469,629,729 shares of the registrant’s Class A Common Stock outstanding as of April 30, 2009.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

	March 29,			December 28,
	2009				2008(A)
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	122,434		$	90,090
Restricted cash equivalents		15,050			20,792
Accounts and notes receivable		93,904			97,258
Inventories		24,282			24,646
Prepaid expenses and other current assets		46,669			28,990
Deferred income tax benefit		40,073			37,923
Advertising fund restricted assets		82,521			81,139
Total current assets		424,933			380,838
Restricted cash equivalents		28,888			34,032
Notes receivable		34,307			34,608
Investments		116,731			133,052
Properties		1,734,407			1,770,372
Goodwill		859,007			853,775
Other intangible assets		1,409,017			1,411,473
Deferred costs and other assets		35,388			27,470
Total assets	$	4,642,678		$	4,645,620

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current portion of long-term debt	$	30,732		$	30,426
Accounts payable		108,861			139,340
Accrued expenses and other current liabilities		258,650			247,334
Advertising fund restricted liabilities		82,521			81,139
Liabilities related to discontinued operations		4,225			4,250
Total current liabilities		484,989			502,489
Long-term debt		1,078,494			1,081,151
Deferred income		43,865			16,859
Deferred income taxes		478,401			475,243
Other liabilities		181,997			186,433
Commitments and contingencies
Stockholders’ equity:
Common stock		47,042			47,042
Additional paid-in capital		2,757,223			2,753,141
Retained deficit		(375,498	)		(357,541	)
Common stock held in treasury		(15,594	)		(15,944	)
Accumulated other comprehensive loss		(38,241	)		(43,253	)
		2,374,932			2,383,445
Total liabilities and stockholders’ equity	$	4,642,678		$	4,645,620

_________________________

(A) Derived from the audited consolidated financial statements as of December 28, 2008

See accompanying notes to unaudited condensed consolidated financial statements.

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)

	Three Months Ended
	March 29,			March 30,
	2009			2008
	(Unaudited)
Revenues:
Sales	$	773,243		$	281,579
Franchise revenues		90,741			21,275
		863,984			302,854
Costs and expenses:
Cost of sales		675,942			233,445
General and administrative		109,878			44,911
Depreciation and amortization		51,662			15,914
Impairment of long-lived assets`		6,880			79
Facilities relocation and corporate restructuring		4,161			935
Other operating expense (income), net		1,527			(487	)
		850,050			294,797
Operating profit		13,934			8,057
Interest expense		(22,149	)		(13,491	)
Investment (expense) income, net		(1,794	)		2,164
Other than temporary losses on investments		(3,127	)		(68,086	)
Other expense, net		(2,597	)		(4,579	)
Loss before income taxes benefit		(15,733	)		(75,935	)
Benefit from income taxes		4,809			8,464
Net loss	$	(10,924	)	$	(67,471	)

Basic and diluted net loss per share:
Class A common stock	$	(.02	)	$	(.73	)
Class B common stock (a)		N/A			(.73	)

Dividends declared per share:
Class A common stock	$	.015		$	.08
Class B common stock (a)		N/A			.09

____________

(a) In connection with the September 29, 2008 merger with Wendy’s International Inc. (“Wendy’s”), Wendy’s/Arby’s Group, Inc. stockholders approved a charter amendment to convert each of the then existing shares of Triarc Companies, Inc. Class B common stock into one share of Wendy’s/Arby’s Group, Inc. Class A common stock.

See accompanying notes to unaudited condensed consolidated financial statements.

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Three Months Ended
	March 29,			March 30,
	2009			2008
	(Unaudited)
Cash flows from continuing operating activities:
Net loss	$	(10,924	)	$	(67,471	)
Adjustments to reconcile net loss to net cash provided by continuing operating activities:
Depreciation and amortization		51,662			15,914
Net receipt of deferred vendor incentive		29,368			11,530
Impairment of long-lived assets		6,880			79
Non-cash rent expense (income)		5,196			(81	)
Write-off and amortization of deferred financing costs		5,069			5,637
Non-cash operating investment adjustments, net (see below)		4,741			66,413
Share-based compensation provision		4,371			1,586
Deferred income tax benefit		(4,809	)		(8,462	)
Other, net		8,819			(1,028	)
Changes in operating assets and liabilities:
Accounts and notes receivable		(3,667	)		(2,523	)
Inventories		348			964
Prepaid expenses and other current assets		(15,577	)		5,286
Accounts payable, accrued expenses and other current liabilities		(23,213	)		(10,911	)
Net cash provided by continuing operating activities		58,264			16,933
Cash flows from continuing investing activities:
Capital expenditures		(17,203	)		(16,770	)
Proceeds from dispositions		6,246			-
Investing investment activities, net (see below)		704			112
Cost of acquisitions, less cash acquired		-			(9,486	)
Cost of Wendy’s Merger		-			(1,650	)
Other, net		(1,390	)		49
Net cash used in continuing investing activities		(11,643	)		(27,745	)
Cash flows from continuing financing activities:
Deferred financing costs incurred		(11,148	)		-
Repayments of notes payable and long-term debt		(4,495	)		(4,358	)
Proceeds from long-term debt		1,451			4,129
Dividends paid (a)		-			(8,045	)
Other, net		52			-
Net cash used in continuing financing activities		(14,140	)		(8,274	)
Net cash provided by (used in) continuing operations before effect of exchange rate changes on cash		32,481			(19,086	)
Effect of exchange rate changes on cash		(112	)		-
Net cash provided by (used in) continuing operations		32,369			(19,086	)
Net cash used in operating activities of discontinued operations		(25	)		(4	)
Net increase (decrease) in cash and cash equivalents		32,344			(19,090	)
Cash and cash equivalents at beginning of period		90,090			78,116
Cash and cash equivalents at end of period	$	122,434		$	59,026

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Three Months Ended
	March 29,			March 30,
	2009			2008
	(Unaudited)
Detail of cash flows related to investments:
Operating investment adjustments, net:
Other than temporary losses on investments (b)	$	3,127		$	68,086
Other net recognized (gains) losses		1,614			(1,673	)
	$	4,741		$	66,413
Investing investment activities, net:
Proceeds from sales of available-for-sale securities and other investments	$	9,756		$	3,555
Decrease in restricted cash held for investment		5,149			27,218
Payments to cover short positions in securities and cost of available-for-sale securities and other investments purchased		(14,201	)		(30,661	)
	$	704		$	112
Supplemental disclosures of cash flow information:
Cash paid during the year from continuing operations for:
Interest	$	19,675		$	13,999
Income taxes, net of refunds	$	1,097		$	625
Supplemental schedule of noncash investing and financing activities:
Total capital expenditures	$	18,789		$	21,189
Capital expenditures paid in cash		(17,203	)		(16,770	)
Non-cash capitalized lease and certain sales-leaseback obligations	$	1,586		$	4,419

Non-cash additions to long-term debt from acquisitions	$	-		$	10,953

____________

(a) The dividend declared in the first quarter of 2009 was paid on March 30, 2009, the first day of the 2009 second quarter.

(b) The 2008 amount relates to our investment in Deerfield Capital Corp. (“DFR”) common stock as described in Note 8.

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “Financial Statements”) of Wendy’s/Arby’s Group, Inc. (“Wendy’s/Arby’s” and, together with its subsidiaries, the “Company”, “we”, “us” or “our”) have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”) and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In our opinion, however, the Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows as of and for the three-month periods as described in the following paragraph. The results of operations for the three months ended March 29, 2009 are not necessarily indicative of the results to be expected for the full 2009 fiscal year. The results of operations for the three months ended March 30, 2008 and prior to September 29, 2008 do not include the results of operations of Wendy’s International, Inc. (“Wendy’s”). These Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (the “Form 10-K”).

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31. Our 2009 and 2008 fiscal first quarters ended on March 29, 2009 and March 30, 2008, respectively. All quarters presented contain 13 weeks. Because our current 2009 fiscal year, ending on January 3, 2010, will contain 53 weeks, our fourth quarter of 2009 will contain 14 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods.

(2) Acquisitions and Dispositions

Merger with Wendy’s International, Inc.

On September 29, 2008, we completed the merger with Wendy’s (“Wendy’s Merger”) as described in the Form 10-K. Immediately prior to the Wendy’s Merger, our Class B Common Stock was converted into Class A Common Stock on a one for one basis (the “Conversion”). The results of operations and cash flows of Wendy’s® have been included in the accompanying unaudited condensed consolidated statements of operations and cash flows for the three months ended March 29, 2009, but were not included in the three months ended March 30, 2008.

The preliminary allocation of the Wendy’s merger consideration to the assets acquired and liabilities assumed, which remains subject to finalization, is as follows:

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

Value of shares of Wendy’s/Arby’s common stock issued in exchange for Wendy’s common shares	$	2,476,197

Value of Wendy’s stock options that have been converted into Wendy’s/Arby’s options		18,296
Estimated Wendy’s Merger costs		20,819
Total estimated merger consideration		2,515,312

Net book value of Wendy’s assets acquired and liabilities assumed		796,588
Less: Wendy’s historical goodwill acquired		(83,794	)
Net book value of Wendy’s assets acquired and liabilities assumed		712,794
Excess of merger consideration over book value of Wendy’s assets acquired and liabilities assumed		1,802,518
Change in fair values of assets and liabilities allocated to:
(Increase)/decrease in:
Current assets
Accounts and notes receivable		(694	)
Prepaid expenses and other current assets		985
Investments		(64,169	)
Properties		(45,920	)
Other intangible assets
Trademark		(900,109	)
Franchise agreements		(353,000	)
Favorable leases		(119,362	)
Computer software		9,566
Deferred costs and other assets		(377	)

Increase/(decrease) in:
Accrued expenses and other current liabilities		829
Long-term debt, including current portion of $228		(56,337	)
Other liabilities		(46,574	)
Unfavorable leases		64,673
Deferred income tax liability		556,599
Total adjustments		(953,890	)
Goodwill	$	848,628

Summarized below is the change in goodwill during the three months ended March 29, 2009 resulting from changes in the estimated merger consideration and in the allocation of the revised merger consideration to the estimated fair vales of assets acquired and liabilities assumed:

Goodwill as reported at December 28, 2008	$	845,631
Change in total estimated merger consideration:
Decrease in the value of Wendy’s stock options that have been converted into Wendy’s/Arby’s options		(199	)
Increase in Wendy’s Merger costs		116
Changes to fair values of assets and liabilities:
Increase in properties		(1,002	)
Increase in favorable leases		(2,094	)
Decrease in accrued expenses and other current liabilities		(4,712	)
Increase in unfavorable leases		620
Increase in deferred income tax liability		10,268
Goodwill as reported at March 29, 2009	$	848,628

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The following unaudited supplemental pro forma condensed consolidated summary operating data (the "As Adjusted” data) of the Company for the three months ended March 30, 2008 has been prepared by adjusting the historical data as set forth in the accompanying unaudited condensed consolidated statement of operations to give effect to the Wendy’s Merger and the Conversion as if they had been consummated as of December 31, 2007:

	Three months ended March 30, 2008
	As Reported			As Adjusted
Revenues:
Sales	$	281,579		$	794,596
Franchise revenues		21,275			91,184
Total revenues		302,854			885,780
Operating profit		8,057			19,410
Net loss		(67,471	)		(65,083	)
Basic and diluted (loss) income per share:
Class A Common Stock:		(.73	)		(.14	)
Class B Common Stock:		(.73	)		N/A

This As Adjusted data is presented for comparative purposes only and does not purport to be indicative of the Company's actual results of operations had the Wendy’s Merger and Conversion actually been consummated as of December 31, 2007 or of the Company's future results of operations.

Other acquisitions

We completed the acquisitions of the operating assets, and assumed liabilities, of 45 Arby’s® franchised restaurants during the quarter ended March 30, 2008. The total then estimated consideration for the acquisitions was $15,756 consisting of (1) $8,890 of cash (before consideration of $45 of cash acquired), (2) the assumption of $6,239 of debt and (3) $627 of related estimated expenses. The aggregate purchase price of $16,243 also included $693 of losses from the settlement of unfavorable franchise rights and a $1,180 gain on the termination of subleases both included in “Other operating expense (income), net” in the accompanying unaudited condensed consolidated statement of operations.

Dispositions

During the 2009 first quarter, the Company received proceeds from dispositions of $6,246 consisting of $3,384 from the sale of 10 Wendy’s units to a franchisee and $2,862 related to other dispositions. These sales resulted in a gain of $2,334 which is included in “Depreciation and amortization”.

(3) Fair Value Measurement of Financial Assets and Liabilities

Our financial assets and liabilities as of March 29, 2009 include available-for-sale investments, investment derivatives, and various investments in liability positions, which include those managed (the “Equities Account”) by a management company (the “Management Company”) formed by certain former executives who are also current directors. We determine fair value of our available-for-sale securities and investment derivatives principally using quoted market prices, broker/dealer prices or statements of account received from investment managers, which were principally based on quoted market or broker/dealer prices.

Valuation techniques under Statement of Financial Accounting Standard (‘SFAS”) No. 157, as amended, “Fair Value Measurements,” (“SFAS 157”) are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. SFAS 157 classifies these inputs 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

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

management judgment or estimation.

The fair values of our financial assets or liabilities and the hierarchy of the level of inputs are summarized below:

	March 29,		Fair Value Measurements
	2009		Level 1		Level 2		Level 3
Assets
Available-for-sale securities:
Short-term investments (included in “Prepaid expenses and other current assets”)	$	124	$	124	$	-	$	-
Investments – restricted (included in “Investments-other”)		18,755		18,755		-		-
Total assets	$	18,879	$	18,879	$	-	$	-

Liabilities
Securities sold with an obligation to purchase-restricted	$	3,923	$	3,923	$	-	$	-
Other derivatives in liability positions-restricted		3,984		3,984		-		-
Total liabilities (included in “Other liabilities”)	$	7,907	$	7,907	$	-	$	-

(4)

Impairment of Long-lived Assets

	Three Months Ended
	March 29,		March 30,
	2009		2008
Arby’s restaurant segment:
Impairment of Company-owned restaurants:
Properties	$	5,894	$	48
Favorable leases		232		-
Franchise agreements		318		-
Other		17		31
		6,461		79
Wendy’s restaurant segment:
Impairment of surplus properties:		419		-
Total impairment of long-lived assets	$	6,880	$	79

The Arby’s restaurant segment impairment losses reflect (1) the deterioration in operating performance of certain restaurants and (2) additional charges for restaurants impaired in a prior year which did not subsequently recover. The Wendy’s restaurant segment impairment losses reflect write-downs in the carrying value of surplus properties and properties held for sale.

Impairment losses represented the excess of the carrying value over the fair value of the affected assets and are included in “Impairment of long-lived assets” in the accompanying unaudited condensed consolidated statements of operations. The fair values (Level 3 Inputs as described in SFAS 157) of impaired assets discussed above for the Arby’s restaurants segment were estimated based upon the present values of the anticipated cash flows associated with each related Company-owned asset. The fair values (Level 2 Inputs as described in SFAS 157) of the impaired assets discussed above for the Wendy’s restaurants segment were estimated based upon their expected realizable value, which reflect market declines in the areas where the properties are located.

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(5)	Facilities Relocation and Corporate Restructuring

The facilities relocation and corporate restructuring charges in our Wendy’s restaurant segment for the first quarter of 2009 of $4,161 primarily related to severance costs in connection with the Wendy’s Merger. We expect to incur additional facilities relocation and corporate restructuring charges with respect to additional severance costs in connection with the Wendy’s Merger of $3,190 in the remainder of 2009.

The facilities relocation and corporate restructuring charge and an analysis of activity in the facilities relocation and corporate restructuring accrual during the three months ended March 29, 2009 is as follows:

	Three Months Ended
	March 29, 2009
	Balance December 28,							Balance March 29,		Total Expected to be		Total Incurred
	2008		Provision		Payments			2009		Incurred		to Date
Wendy’s restaurant segment:
Cash obligations:
Severance costs	$	3,101	$	4,161	$	(1,197	)	$	6,065	$	10,452	$	7,262
Total Wendy’s restaurant segment		3,101		4,161		(1,197	)		6,065		10,452		7,262

Arby’s restaurant segment:
Cash obligations:
Employee relocation costs		72		-		-			72		4,651		4,651
Other		-		-		-			-		7,471		7,471
		72		-		-			72		12,122		12,122
Non-cash charges		-		-		-			-		719		719
Total Arby’s restaurant segment		72		-		-			72		12,841		12,841

Corporate:
Cash obligations:
Severance and retention incentive compensation		962		-		(126	)		836		84,622		84,622
Non-cash charges		-		-		-			-		835		835
Total corporate		962		-		(126	)		836		85,457		85,457
	$	4,135	$	4,161	$	(1,323	)	$	6,973	$	108,750	$	105,560

(6)

Discontinued Operations

Prior to 2008, we sold the stock of the companies comprising our former premium beverage and soft drink concentrate business segments (collectively, the “Beverage Discontinued Operations”) and the stock or the principal assets of the companies comprising the former utility and municipal services and refrigeration business segments and closed two restaurants which were a component of the restaurant segment (jointly, “Other Discontinued Operations”). We have accounted for all of these operations as discontinued operations. There were no operating results or charges for discontinued operations during the three months ended March 29, 2009 or March 30, 2008.

Current liabilities related to discontinued operations at March 29, 2009 and December 28, 2008 consisted of the following:

	March 29,		December 28,
	2009		2008

Accrued expenses, including accrued income taxes, of the Beverage Discontinued Operations	$	3,805	$	3,805
Other		420		445
	$	4,225	$	4,250

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

(7) Retirement Benefit Plans

We maintain two defined benefit plans, the benefits under which were frozen in 1992 and for which we have no unrecognized prior service cost. The components of the net periodic pension cost incurred by us with respect to these plans are as follows:

	Three Months Ended
	March 29,			March 30,
	2009			2008

Service cost (consisting entirely of plan administrative expenses)	$	22		$	24
Interest cost		56			55
Expected return on the plans’ assets		(38	)		(55	)
Amortization of unrecognized net loss		21			6
Net periodic pension cost	$	61		$	30

(8)	Other Than Temporary Losses on Investments

	Three Months Ended
	March 29,		March 30,
	2009		2008

Cost method investments	$	2,326	$	-
Available-for-sale security		801		-
Deerfield Capital Corp. (“DFR”) common stock		-		68,086
	$	3,127	$	68,086

First Quarter 2009

We analyzed our unrealized losses as of March 29, 2009 and, due to current market conditions and other factors, we recorded other than temporary losses in the 2009 first quarter of $2,326 attributable to the decline in fair value of three of our cost investments. As described in the Form 10-K, prior to 2007 we invested $75,000 in our Equities Account being managed by the Management Company, formed by certain former executive officers who are also current directors, which generally co-invests on a parallel basis with the Management Company’s equity funds. We recorded charges of $801 related to other than temporary losses on an available-for-sale security in the Equities Account.

First Quarter 2008

As described in the Form 10-K, in December 2007 the Company sold its 63.6% capital interest in Deerfield, the Company’s former asset management business (the “Deerfield Sale”), to Deerfield Capital Corp. (“DFR”). Proceeds from this sale included, among other consideration, 9,629 preferred shares of a subsidiary of DFR which were converted to DFR common shares in the first quarter of 2008. These shares, along with 206 additional shares we owned in DFR, declined significantly in value in the first quarter of 2008. Based on this decline in the market price of DFR common stock, we concluded that the fair value and, therefore, the carrying value of our investment in the 9,835 common shares owned by us was impaired. As a result we recorded an other than temporary loss for the 2008 first quarter of $68,086 (without tax benefit) which included $11,074 of pre-tax unrealized holding losses recorded prior to 2008. As a result of the distribution of the DFR common stock, the income tax loss that resulted from the decline in value of our investment of $68,086 is not deductible for income tax purposes and no income tax benefit was recorded related to this loss.

(9)	Income Taxes

The effective tax benefit for the three months ended March 29, 2009 and March 28, 2008 on the loss before income taxes was 30.6% and 11.1%, respectively. These rates vary from the U.S. federal statutory rate of 35% due to the 2009 and 2008 first quarter effects of (1) the first quarter 2008 effect of the other than temporary loss on our investment in the common stock of DFR, which, as a result of its subsequent distribution to shareholders, is not deductible for income tax purposes and no tax

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

benefit was recorded related to this loss, (2) state income taxes, net of federal income tax benefit, (3) non-deductible expenses, (4) adjustments to our uncertain tax positions, and (5) tax credits.

In the first quarter of 2009 we increased our unrecognized tax benefits for prior periods by $1,172. In the 2008 first quarter, an examination of one state income tax return was settled for fiscal years 1998 through 2000. Since this tax position was settled for less than we previously anticipated, we recorded an income tax benefit of $1,516 in the first quarter of 2008. There were no other significant changes to unrecognized tax benefits in the 2009 and 2008 first quarters.

As a result of the completion in first quarter 2008 of the aforementioned state examination, a benefit was recorded for a reduction of interest expense related to unrecognized tax benefits of $1,071. There were no other significant changes to interest or penalties related to uncertain tax positions in the 2009 or 2008 first quarters.

We include unrecognized tax benefits and the related interest and penalties for discontinued operations in “Liabilities related to discontinued operations” in the accompanying unaudited condensed consolidated balance sheets. There were no changes in those amounts during the 2009 or 2008 first quarters.

The Internal Revenue Service (the “IRS”) is currently conducting an examination of our U.S. Federal income tax return for the tax period ended December 28, 2008 as part of the Compliance Assurance Program (“CAP”). Our December 28, 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. Prior to the Wendy’s Merger, Wendy’s was a participant in the CAP since the beginning of the 2006 tax year. CAP is a voluntary, real-time audit arrangement whereby taxpayers and the IRS address issues throughout the year as they emerge. Any matters relating to Wendy’s U.S. Federal income tax returns for 2007 and prior years have been settled.

Wendy’s/Arby’s U.S. Federal income tax returns for periods ending January 1, 2006 (fiscal 2005) to September 29, 2008 are not currently under examination by the IRS. Our foreign income tax returns and Wendy’s foreign income tax returns for periods prior to the Wendy’s Merger are open to examination primarily for periods ending on or after January 2, 2005. Certain of these foreign income tax returns are currently under examination. 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 $11,279. We dispute these notices and believe ultimate resolution will not have a material adverse impact on our consolidated financial position or results of operations.

(10)	Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. As described in the Form 10-K, in connection with the Wendy’s Merger, Wendy’/Arby’s stockholders approved the Conversion whereby each of the then existing shares of Triarc class B common stock (“Class B Common Stock”) were converted into one share of Wendy’s/Arby’s class A common stock (“Class A Common Stock”) and accordingly we now only have Class A Common Stock. Net loss for the three months ended March 30, 2008 of ($67,471) was allocated equally among each share of Class A Common Stock of ($21,059) and Class B Common Stock of ($46,412), resulting in the same loss per share for each class.

Diluted loss per share for the three months ended March 29, 2009 and March 28, 2008 was the same as basic loss per share for each share of the Class A Common Stock and Class B Common Stock, as applicable, since we reported a net loss and, therefore, the effect of all potentially dilutive securities on the net loss per share would have been antidilutive.

Our securities as of March 29, 2009 that could dilute basic income per share for periods subsequent to March 29, 2009 are (1) outstanding stock options which can be exercised into 26,803 shares of our Class A Common Stock, (2) 409 restricted shares of the Company’s Class A Common Stock which principally vest over three years and (3) $2,100 of Convertible Notes which are convertible into 160 shares of our Class A Common Stock.

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

The weighted average number of outstanding shares used to calculate basic and diluted loss per share is as follows:

	Three Months Ended
	March 29,		March 30,
	2009		2008

Class A Common Stock		469,237		28,884

Class B Common Stock		N/A		63,660

(11)	Stockholder’s Equity

The following is a summary of the changes in stockholder’s equity:

	Three Months Ended
	March 29,			March 30,
	2009			2008

Beginning balance	$	2,383,291		$	448,874
Effect of change in accounting for minority interests		154			972
Beginning balance, as adjusted		2,383,445			449,846
Comprehensive loss (1)		(5,912	)		(64,340	)
Dividend declared		(7,033	)		-
DFR stock dividend		-			(14,464	)
Dividend paid		-			(8,044	)
Share-based compensation expense		4,371			1,585
Other		61			(25	)
Ending balance	$	2,374,932		$	364,558

(1) The following is a summary of the components of comprehensive loss, net of income taxes:

	Three Months Ended
	March 29,			March 30,
	2009			2008

Net loss	$	(10,924	)	$	(67,471	)
Net change in currency translation adjustment (a)		5,752			(152	)
Net unrealized (losses) gains on available-for-sale securities (b)		(740	)		4,436
Net unrealized losses on cash flow hedges (c)		-			(1,153	)
Other comprehensive loss		5,012			3,131
Comprehensive loss	$	(5,912	)	$	(64,340	)
_______________________

(a)

The 2009 amount is primarily due to changes to the allocation of the Wendy’s merger consideration. See Note 2 for further information.

(b) Net unrealized (losses) gains on available-for-sale securities:	Three Months Ended
	March 29,			March 30,
	2009			2008

Unrealized holding losses arising during the period	$	(993	)	$	(3,920	)
Reclassifications of prior period unrealized holding (gains) losses into net loss		(178	)		11,074
Change in unrealized holding gains and losses arising during the period from investments under the equity method of accounting		-			(201	)
		(1,171	)		6,953
Income tax benefit (provision)		431			(2,517	)
	$	(740	)	$	4,436

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(c) Net unrealized losses on cash flow hedges:	Three Months Ended
	March 30,
	2008
Unrealized holding losses arising during the period	$	(1,916	)
Reclassifications of prior period unrealized holding losses into net loss		28
Change in unrealized holding gains and losses arising during the period from investments under the equity method of accounting		3
		(1,885	)
Income tax benefit		732
	$	(1,153	)

(12)	Business Segments

We manage and internally report our operations in two brand segments: (1) the operation and franchising of Wendy’s restaurants, including its wholesale bakery operations, 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 following is a summary of our segment information:

	Three months ended March 29, 2009

	Wendy’s		Arby’s
	restaurants		restaurants			Corporate			Total
Revenues:
Sales	$	507,003	$	266,240		$	-		$	773,243
Franchise revenues		71,238		19,503			-			90,741
		578,241		285,743			-			863,984
Depreciation and amortization		36,687		14,517			458			51,662
Operating profit (loss)		20,025		(2,047	)		(4,044	)		13,934
Interest expense										(22,149	)
Investment expense, net										(1,794	)
Other than temporary losses on investments										(3,127	)
Other expense, net										(2,597	)
Loss before income tax benefit										(15,733	)
Benefit from income taxes										4,809
Net loss									$	(10,924	)

Wendy’s is a partner in a Canadian restaurant real estate joint venture (“TimWen”). Income from our equity investments in TimWen of $1,658 during the 2009 first quarter is included in the operating profit of Wendy’s restaurants segment.

On December 29, 2008, Wendy’s/Arby’s began charging the restaurant segments for support services. Prior to that date, the restaurant segments had directly incurred such costs. For the three months ended March 29, 2009, Wendy’s/Arby’s allocated these costs to the restaurant segments based upon budgeted segment revenues.

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

	Three months ended March 30, 2008

	Arby’s
	restaurants		Corporate			Total
Revenues:
Sales	$	281,579	$	-		$	281,579
Franchise revenues		21,275					21,275
		302,854		-			302,854
Depreciation and amortization		14,838		1,076			15,914
Operating profit (loss)		17,349		(9,292	)		8,057
Interest expense							(13,491	)
Investment income, net							2,164
Other than temporary loss on investment							(68,086	)
Other expense, net							(4,579	)
Loss before income tax benefit							(75,935	)
Benefit from income taxes							8,464
Net loss						$	(67,471	)

	Wendy’s		Arby’s
	restaurants		restaurants		Corporate		Total
Three months ended March 29, 2009
Cash capital expenditures	$	8,743	$	7,825	$	635	$	17,203

Three months ended March 30, 2008
Cash capital expenditures			$	16,770	$	-	$	16,770

(13)	Legal and Environmental Matters

In the Form 10-K for the fiscal year ended December 28, 2008, the Company disclosed an environmental matter with Adams Packing Association, Inc., an inactive subsidiary of the Company, whereby Adams was listed by the United States Environmental Protection Agency on the Comprehensive Environmental Response, Compensation and Liability Information System list of known or suspected contaminated sites. As discussed in our Form 10-K, based on amounts spent prior to 2008 of approximately $1,667 and after taking into consideration various legal defenses available to us, including Adams, we expect that the final resolution of this matter will not have a material effect on our financial position or results of operations.

The Company also disclosed putative class action complaints in the Form 10-K for the fiscal year ended December 28, 2008 that had been filed against Wendy’s, its directors, and in two cases also the Company, between April 25 and June 13, 2008, alleging breach of fiduciary duties arising out of the Wendy’s board of directors’ search for a merger partner and out of its approval of the merger agreement on April 23, 2008, and failure to disclose material information related to the merger in Amendment No. 3 to the Form S-4 under the Securities Act of 1933 (the “Form S-4”). These cases were described in the Form 10-K as the Guiseppone, Henzel, Smith and Ravanis cases.

On April 1, 2009, the Common Pleas Court of Franklin County, Ohio entered an order preliminarily approving settlement of all claims and certifying a class for settlement purposes only, which provided for notice of settlement to the class and set a final settlement hearing date of July 1, 2009. On May 1, 2009, the Company mailed a notice of pendency of the class actions, the proposed settlement and the final hearing date.

The defendants believe that the Guiseppone, Henzel, Smith and Ravanis cases described above are without merit and intend to vigorously defend them in the event that court approval is not obtained. While we do not believe that these actions will have a material adverse effect on our financial condition or results of operations, unfavorable rulings could occur. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our financial position or results of operations for the period in which the ruling occurs or for future periods.

In addition to the matters described above, we are involved in other litigation and claims incidental to our current and prior businesses. We have reserves for all of our legal and environmental matters aggregating $2,755 as of March 29, 2009. Although

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WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands Except Per Share Amounts)

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.

(14)	Accounting Standards

Accounting Standards Adopted at the Beginning of 2009

In December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”), and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS 160”). These statements change the way companies account for business combinations and noncontrolling interests by, among other things, requiring (1) more assets and liabilities to be measured at fair value as of the acquisition date, including a valuation of the entire company being acquired where less than 100% of the company is acquired, (2) an acquirer in preacquisition periods to expense all acquisition-related costs, (3) changes in acquisition related deferred tax balances after the completion of the purchase price allocation be recognized in the statement of operations as opposed to through goodwill and (4) noncontrolling interests in subsidiaries initially to be measured at fair value and classified as a separate component of stockholders’ equity.

In addition, in April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). In determining the useful life of acquired intangible assets, FSP FAS 142-3 removes the requirement to consider whether an intangible asset can be renewed without substantial cost or material modifications to the existing terms and conditions and, instead, requires an entity to consider its own historical experience in renewing similar arrangements. FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives.

In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP FAS 141(R)-1”). FSP FAS 141(R)-1 requires acquirers to recognize an asset acquired or liability assumed in a business combination that arises from a contingency at fair value if the acquisition-date fair value of that asset or liability can be determined during the measurement period.

SFAS 141(R), which became effective in our fiscal 2009 first quarter, will not impact our recording of the Wendy’s Merger except for any potential adjustments to deferred taxes included in the allocation of the purchase price after such allocation has been finalized. The presentation and disclosure requirements of SFAS 160 have been applied retrospectively for all periods presented. The adoption of SFAS 160 resulted in a reclassification of our minority interests from a liability to “Additional paid in capital” in our unaudited condensed consolidated balance sheets and the income statement effect for our minority interests has been included in “Other expense, net”, as such amounts are insignificant. SFAS 141 (R), FSP FAS 142-3, FSP FAS 141(R)-1 and SFAS 160 will impact future acquisitions, if any, the effect of which will depend upon the nature and terms of such agreements. The application of FSP FAS 142-3 did not have a material effect on our unaudited condensed consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (“SFAS 133”) and how these items affect a company's financial position, results of operations and cash flows. SFAS 161 affects only these disclosures and does not change the accounting for derivatives. SFAS 161 has been applied prospectively beginning with the first quarter of our 2009 fiscal year. The application of SFAS 161 did not have any effect on disclosures in our unaudited condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In April 2009, the FASB issued FASB Staff Position No. FAS 107-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”). FSP FAS 107-1 requires expanded fair value disclosures for all financial instruments within the scope of FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments.” These disclosures will now be required for interim periods for publicly traded entities. In addition, entities will be required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim basis. This Staff Position will be effective commencing with our 2009 second quarter.

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Item 2. 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” or, together with its subsidiaries, the “Company” or “we”) should be read in conjunction with our accompanying unaudited condensed consolidated financial statements included elsewhere herein and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008 (the “Form 10-K”). There have been no significant changes as of March 29, 2009 to the application of our critical accounting policies, contractual obligations or guarantees and commitments as described in Item 7 of our Form 10-K. Certain statements we make under this Item 2 constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements and Projections” in “Part II – Other Information” preceding “Item 1.” You should consider our forward-looking statements in light of our unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this report, our Form 10-K and our other filings with the Securities and Exchange Commission.

Introduction and Executive Overview

Merger with Wendy’s International, Inc.

On September 29, 2008, we completed the merger (the “Wendy’s Merger”) with Wendy’s International, Inc. (“Wendy’s”) 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 share of Wendy’s common stock owned. Our consolidated results of operations commencing September 29, 2008 include Wendy’s results of operations.

Our Business

Wendy’s/Arby’s is the parent company of Wendy’s and Arby’s Restaurant Group, Inc. (“ARG”), which are the owners and franchisors of the Wendy’s® and Arby’s® restaurant systems, respectively. We currently manage and internally report our operations as two business segments: the operation and franchising of Wendy’s restaurants and the operation and franchising of Arby’s restaurants. As of March 29, 2009, the Wendy’s restaurant system was comprised of 6,623 restaurants, of which 1,399 were owned and operated by the Company. As of March 29, 2009, the Arby’s restaurant system was comprised of 3,741 restaurants, of which 1,171 were owned and operated by the Company. All 2,570 Wendy’s and Arby’s Company-owned restaurants are located principally in the United States and to a lesser extent in Canada (the “North America Restaurants”).

Restaurant business revenues for the 2009 first quarter include: (1) $745.7 million of revenues from Company-owned restaurants, (2) $27.5 million from the sale of bakery items and kid’s meal promotion items to our franchisees, (3) $83.7 million from royalty income from franchisees and (4) $7.1 million of other franchise related revenue. Our revenues increased significantly in the 2009 first quarter due to the Wendy’s Merger. The Wendy’s royalty rate was 4.0% for the quarter ended March 29, 2009. While over 80% of our existing Arby’s royalty agreements and substantially all of our new domestic royalty agreements provide for royalties of 4% of franchise revenues, our average Arby’s royalty rate was 3.6% for the three months ended March 29, 2009.

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

Revenues

Significant decreases in general consumer confidence in the economy as well as decreases in many consumers’ discretionary income caused by factors such as continuing deterioration in the financial markets and in economic conditions, including high unemployment levels and significant displacement in the real estate market, volatility in fuel costs, and high food costs;

Increasing price competition in the quick service restaurant (“QSR”) industry, as evidenced by (1) value menu concepts, which offer comparatively lower prices on some menu items, (2) the use of coupons and other price discounting, (3) many recent product promotions focused on lower prices of certain menu items and (4) combination meal concepts (“combos”), 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;

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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) products that tend to offer a variety of portion sizes and more ingredients; (3) beverage programs which offer a wider selection of premium non-carbonated beverages, including coffee and tea products; and (4) 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

Higher commodity prices which increased our food costs during 2008, with some moderation in recent months;

The recent volatility in fuel prices which, when at much higher than current levels, contributed to an increase in utility, distribution, and freight costs;

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

Dislocation and weakness in the overall credit markets and higher borrowing costs in the lending markets typically used to finance new unit development and remodels. These tightened credit conditions could negatively impact the renewal of franchisee licenses as well as the ability of a franchisee to meet their commitments under development, rental and franchise license agreements;

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 fees from franchisees. Franchisee related accounts receivable and estimated reserves for uncollectibility have increased, and may continue to increase, as a result of the deteriorating financial condition of some of our franchisees; and

Continued competition for development sites among QSR competitors and other businesses.

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

Our primary goal is to enhance the value of our Company by:

	·	improving the quality and affordability of our core menu items;
	·	increasing same store sales in the restaurants and revitalizing the Wendy’s and Arby’s brands with new marketing programs, menu development and an improved customer experience;

improving Company-owned restaurant margins;

achieving significant progress on synergies and efficiencies related to the Wendy’s Merger;

expanding the breakfast daypart at many Wendy’s and Arby’s locations over the next several years; and

possibily acquiring other restaurant brands.

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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’s North America Restaurants same-store sales commencing after a store has been open for fifteen continuous months. Wendy’s North America Restaurants same-store sales are reported after a store has been open for at least fifteen continuous months as of the beginning of the fiscal year. These methodologies are consistent with the metrics used by our management for internal reporting and analysis.

Restaurant Margin

We define restaurant margin as sales from Company-owned restaurants (excluding sales from bakery items and kid’s meal promotion items to franchisees) less cost of sales (excluding costs from bakery items and kid’s meal promotion items), divided by sales. 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.

Deerfield

On December 21, 2007, we completed the sale of our majority capital interest in Deerfield & Company LLC (“Deerfield”), our former subsidiary, to Deerfield Capital Corp. (“DFR”) resulting in non-cash proceeds aggregating $134.6 million, consisting of 9.6 million shares of convertible preferred stock of DFR (“the DFR Preferred Stock”) with a then estimated fair value of $88.4 million and $48.0 million principal amount of series A senior secured notes of DFR due in December 2012 (the “DFR Notes”) with a then estimated fair value of $46.2 million. As discussed in the Form 10-K, we recorded a valuation allowance of $21.2 million during the fourth quarter of 2008 for these DFR Notes. We also owned an additional 0.2 million common shares in DFR.

The DFR Notes bear interest at the three-month LIBOR (1.22% at March 29, 2009) plus a factor, initially 5% through December 31, 2009, increasing 0.5% each quarter from January 1, 2010 through June 30, 2011 and 0.25% each quarter from July 1, 2011 through their maturity. The DFR Notes are secured by certain equity interests of DFR and certain of its subsidiaries.

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 9.6 million preferred shares we held into a like number of shares of common stock. During the first quarter of 2008, our Board of Directors approved the distribution of our 9.8 million shares of DFR common stock, which also included the 0.2 million common shares of DFR discussed above, to our stockholders. The dividend, which was valued at $14.5 million, was paid on April 4, 2008 to holders of record of our Class A common stock (the “Class A Common Stock”) and our then outstanding Class B common stock (the “Class B Common Stock”).

In the first quarter of 2008, in response to unanticipated credit and liquidity events in the first quarter of 2008, DFR announced changes to its business model and significant losses. Based on these events 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 9.8 million common shares was impaired. As a result, we recorded an other than temporary loss which is included in “Other than temporary losses on investments,” of $68.1 million (without tax benefit as described below). As a result of the distribution of the DFR common stock, the income tax loss that resulted from the decline in value of our investment of $68.1 million is not deductible for income tax purposes and no income tax benefit was recorded related to this loss.

Other

We maintain an investment portfolio principally from the investment of our excess cash with the objective of generating investment income, including in an account (the “Equities Account”) which is managed by a management company (the “Management Company”) formed by our Chairman, who is our former Chief Executive Officer, and our Vice Chairman, who is our former President and Chief Operating Officer, (collectively, the “Former Executives”) and a director, who is also our former Vice Chairman (together with the Former Executives, the “Principals”). The Equities Account is invested principally in equity securities, including derivative instruments, of a limited number of publicly-traded companies. In addition, the Equities Account sells securities short and invests in market put options in order to lessen the impact of significant market downturns. Investment income (loss) from this account includes realized investment gains (losses) from

- 18 -

marketable security transactions, realized and unrealized gains (losses) on derivative instruments and securities sold with an obligation to purchase, other than temporary losses, interest and dividends. The Equities Account, including restricted cash equivalents and equity derivatives, had a fair value of $33.7 million as of March 29, 2009. The fair value of the Equities Account as of March 29, 2009 excludes $47.0 million of restricted cash released from the Equities Account to Wendy’s/Arby’s in 2008. We obtained permission from the Management Company to release this amount from the Equities Account and we are obligated to return this amount to the Equities Account by January 29, 2010.

Presentation of Financial Information

We report on a fiscal year consisting of 52 or 53 weeks ending on the Sunday closest to December 31. All quarters presented contain 13 weeks. Because our 2009 fiscal year ending on January 3, 2010 will contain 53 weeks, our fourth quarter of 2009 will contain 14 weeks. All references to years and quarters relate to fiscal periods rather than calendar periods.

Results of Operations

Presented below is a table that summarizes our results, same-store sales and restaurant margins for the 2009 first quarter and the 2008 first quarter. Due to the Wendy’s Merger, the percentage change between these three month periods is not meaningful.

	Three Months Ended
	March 29,			March 30,			Change
	2009			2008			Amount
	(In Millions Except Restaurant Count and Percents)
Revenues:
Sales	$	773.2		$	281.6		$	491.6
Franchise revenues		90.8			21.3			69.5
		864.0			302.9			561.1
Costs and expenses:
Cost of sales		676.0			233.5			442.5
General and administrative		109.8			44.9			64.9
Depreciation and amortization		51.7			15.9			35.8
Impairment of long-lived assets		6.9			0.1			6.8
Facilities relocation and corporate restructuring		4.2			0.9			3.3
Other operating expense (income), net		1.5			(0.5	)		2.0
		850.1			294.8			555.3
Operating profit		13.9			8.1			5.8
Interest expense		(22.1	)		(13.5	)		(8.6	)
Investment (expense) income, net		(1.8	)		2.2			(4.0	)
Other than temporary losses on investments		(3.1	)		(68.1	)		65.0
Other expense, net