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(14) Income Taxes | 12 Months Ended
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Jan. 01, 2012
Income Taxes [Abstract] |
Income Taxes | Income Taxes Income (loss) from continuing operations before income taxes is set forth below:
|  | The Wendy’s Company
|  | 2011 |  | 2010 |  | 2009
Domestic |  | $ | 11,967 |  |  | $ | (2,244 | ) |  | $ | (30,492 | )
Foreign, principally Canada |  | 12,473 |  |  | 15,800 |  |  | 14,230 |
|  | $ | 24,440 |  |  | $ | 13,556 |  |  | $ | (16,262 | )
|  | Wendy’s Restaurants
|  | 2011 |  | 2010 |  | 2009
Domestic |  | $ | 25,119 |  |  | $ | 2,328 |  |  | $ | (8,772 | )
Foreign, principally Canada |  | 12,473 |  |  | 15,800 |  |  | 14,230 |
|  | $ | 37,592 |  |  | $ | 18,128 |  |  | $ | 5,458 |
The (provision for) benefit from income taxes from continuing operations is set forth below:
|  | The Wendy’s Company
|  | 2011 |  | 2010 |  | 2009
Current: |  |  |  |  |  |
U.S. Federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  | (675 | ) |  | (5,774 | ) |  | (12,687 | )
Foreign, principally Canada |  | (5,540 | ) |  | (7,076 | ) |  | (5,779 | )
Current tax provision |  | (6,215 | ) |  | (12,850 | ) |  | (18,466 | )
Deferred: |  |  |  |  |  |
U.S. Federal |  | 1,367 |  |  | 10,982 |  |  | 12,634 |
State |  | (2,788 | ) |  | 4,356 |  |  | 24,493 |
Foreign, principally Canada |  | 1,108 |  |  | 2,067 |  |  | 2,979 |
Deferred tax (provision) benefit |  | (313 | ) |  | 17,405 |  |  | 40,106 |
Income tax (provision) benefit |  | $ | (6,528 | ) |  | $ | 4,555 |  |  | $ | 21,640 |
|  | Wendy’s Restaurants
|  | 2011 |  | 2010 |  | 2009
Current: |  |  |  |  |  |
U.S. Federal |  | $ | — |  |  | $ | 3,382 |  |  | $ | (60,588 | )
State |  | (675 | ) |  | (8,014 | ) |  | (10,697 | )
Foreign, principally Canada |  | (5,540 | ) |  | (7,076 | ) |  | (5,779 | )
Current tax provision |  | (6,215 | ) |  | (11,708 | ) |  | (77,064 | )
Deferred: |  |  |  |  |  |
U.S. Federal |  | (2,610 | ) |  | 5,875 |  |  | 63,287 |
State |  | (8,905 | ) |  | 5,436 |  |  | 16,851 |
Foreign, principally Canada |  | 1,108 |  |  | 2,067 |  |  | 2,979 |
Deferred tax (provision) benefit |  | (10,407 | ) |  | 13,378 |  |  | 83,117 |
Income tax (provision) benefit |  | $ | (16,622 | ) |  | $ | 1,670 |  |  | $ | 6,053 |
Deferred tax assets (liabilities) are set forth below:
|  | The Wendy’s Company |  | Wendy’s Restaurants
|  | Year End |  | Year End
|  | 2011 |  | 2010 |  | 2011 |  | 2010
Deferred tax assets: |  |  |  |  |  |  |  |
Operating and capital loss carryforwards |  | $ | 98,173 |  |  | $ | 99,354 |  |  | $ | 97,152 |  |  | $ | 105,818 |
Tax credit carryforwards |  | 83,708 |  |  | 62,518 |  |  | 31,018 |  |  | 13,951 |
Accrued compensation and related benefits |  | 38,198 |  |  | 37,512 |  |  | 37,458 |  |  | 35,333 |
Unfavorable leases |  | 18,731 |  |  | 31,009 |  |  | 18,731 |  |  | 31,009 |
Other |  | 56,017 |  |  | 71,664 |  |  | 47,665 |  |  | 63,679 |
Valuation allowances |  | (17,397 | ) |  | (88,363 | ) |  | (21,059 | ) |  | (95,850 | )
Total deferred tax assets |  | 277,430 |  |  | 213,694 |  |  | 210,965 |  |  | 153,940 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  | (502,570 | ) |  | (462,627 | ) |  | (502,570 | ) |  | (462,627 | )
Owned and leased fixed assets net of related obligations |  | (125,788 | ) |  | (100,198 | ) |  | (121,610 | ) |  | (95,588 | )
Other |  | (26,209 | ) |  | (28,773 | ) |  | (29,511 | ) |  | (29,130 | )
Total deferred tax liabilities |  | (654,567 | ) |  | (591,598 | ) |  | (653,691 | ) |  | (587,345 | )
|  | $ | (377,137 | ) |  | $ | (377,904 | ) |  | $ | (442,726 | ) |  | $ | (433,405 | )
Changes in the Companies’ deferred tax asset and liability balances were primarily the result of the sale of Arby’s described in Note 2 and the recognition of a capital gain resulting from a reorganization of our business entity structure outside of the U.S. during the fourth quarter of 2011. This reorganization related capital gain of approximately $186,000 for U.S. income tax purposes was offset by existing capital loss carryforwards. This capital gain was eliminated in our consolidation of the Companies’ financial statements. The Wendy’s Company’s net operating loss and credit carryforwards have limited carryforward periods and will expire if unused. U.S. Federal net operating loss carryforwards of approximately $282,736 at January 1, 2012, which included $119,073 of share-based compensation deductions not yet recognized as discussed below, expire beginning in 2024. The utilization of these losses is limited, but the 2011 limitation exceeded the remaining net operating loss carryforward. Tax credits of $83,708 at January 1, 2012, principally consisting of foreign tax credits and jobs credits, expire beginning in 2015. State net operating loss carryforwards are subject to various limitations including carryforward periods and begin expiring in 2012. As of January 1, 2012, the Company has a deferred tax asset, net of U.S. Federal taxes, of $42,244 related to state net operating losses. Wendy’s Restaurants’ carryforwards at January 1, 2012 consist of U.S. Federal net operating loss carryforwards of approximately $164,770 which will expire in 2031, a capital loss carryforward of $15,406 which will expire in 2014, tax credits of $31,018 principally consisting of foreign tax credits which expire beginning in 2018 and state net operating loss carryforwards subject to various limitations including carryforward periods which begin expiring in 2012. As of January 1, 2012, Wendy’s Restaurants has a deferred tax asset, net of U.S. Federal taxes, of $33,871 related to state net operating losses. The Wendy’s Company’s valuation allowances of $17,397 and $88,363 as of January 1, 2012 and January 2, 2011, respectively, relate to state net operating loss and capital loss carryforwards. Valuation allowances decreased $70,966 in 2011 substantially as a result of a $65,105 reduction related to capital losses utilized to offset 2011 capital gains, primarily as a result of the reorganization described above, and a $4,565 reduction related to expiring capital losses. Wendy’s Restaurants valuation allowances of $21,059, and $95,850 as of January 1, 2012 and January 2, 2011, respectively, relate to capital loss and state net operating loss carryforwards. Valuation allowances decreased $74,791 in 2011 principally as a result of a $65,105 reduction related to capital losses utilized to offset 2011 capital gains, primarily as a result of the reorganization described above, and a $7,794 reduction related to expiring capital losses. In 2011 and prior years, we deducted $119,073 relating to the exercise of stock options and vesting of restricted stock. The Company has not recognized the $43,092 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, the Company will recognize them in future periods as a reduction of current income taxes payable with an equal offsetting increase in “Additional paid-in capital.” The unremitted earnings of foreign subsidiaries, primarily Canadian, are not essentially permanent in duration. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. As of January 1, 2012, the Companies’ tax basis in its only significant foreign subsidiary (Canada) exceeded its financial reporting basis and no deferred tax liability was required. The reconciliation of income tax computed at the U.S. Federal statutory rate to reported income tax is set forth below:
|  | The Wendy’s Company
|  | 2011 |  | 2010 |  | 2009
Income tax (provision) benefit at the U.S. Federal statutory rate |  | $ | (8,554 | ) |  | $ | (4,745 | ) |  | $ | 5,692 |
State income tax (provision) benefit, net of U.S. Federal income tax effect |  | (2,251 | ) |  | (1,122 | ) |  | 2,177 |
Previously unrecognized state net operating losses, net of related valuation allowance (a) |  | — |  |  | — |  |  | 9,629 |
Foreign and U.S. tax effects of foreign operations (b) |  | 1,147 |  |  | 7,693 |  |  | (188 | )
Canadian tax rate changes |  | — |  |  | — |  |  | 2,000 |
Jobs tax credits, net |  | 1,914 |  |  | 2,044 |  |  | 2,591 |
Valuation allowance changes |  | — |  |  | — |  |  | 1,165 |
Non-deductible expenses |  | (622 | ) |  | (439 | ) |  | (1,006 | )
Adjustments related to prior year tax matters |  | 1,881 |  |  | 983 |  |  | (65 | )
Other, net |  | (43 | ) |  | 141 |  |  | (355 | )
|  | $ | (6,528 | ) |  | $ | 4,555 |  |  | $ | 21,640 |
_____________________
(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, an $18,152 deferred tax asset and related $8,523 partial valuation allowance was recognized.
(b) | Includes previously unrecognized benefit in 2010 of foreign tax credits, net of foreign income and withholding taxes on the repatriation of foreign earnings.
|  | Wendy’s Restaurants
|  | 2011 |  | 2010 |  | 2009
Income tax provision at the U.S. Federal statutory rate |  | $ | (13,157 | ) |  | $ | (6,345 | ) |  | $ | (1,910 | )
State income tax provision, net of U.S. Federal income tax effect |  | (6,227 | ) |  | (1,168 | ) |  | (3,474 | )
Previously unrecognized state net operating losses, net of related valuation allowance (a) |  | — |  |  | — |  |  | 9,629 |
Foreign and U.S. tax effects of foreign operations (b) |  | 1,147 |  |  | 7,693 |  |  | (188 | )
Canadian tax rate changes |  | — |  |  | — |  |  | 2,000 |
Jobs tax credits, net |  | 1,914 |  |  | 2,044 |  |  | 2,591 |
Valuation allowance changes |  | — |  |  | — |  |  | (516 | )
Non-deductible expenses |  | (58 | ) |  | (517 | ) |  | (444 | )
Adjustments related to prior year tax matters |  | (263 | ) |  | (178 | ) |  | (1,741 | )
Other, net |  | 22 |  |  | 141 |  |  | 106 |
|  | $ | (16,622 | ) |  | $ | 1,670 |  |  | $ | 6,053 |
_____________________
(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, an $18,152 deferred tax asset and related $8,523 partial valuation allowance was recognized.
(b) | Includes previously unrecognized benefit in 2010 of foreign tax credits, net of foreign income and withholding taxes on the repatriation of foreign earnings.
The Wendy’s Company participates in the Internal Revenue Service (the “IRS”) 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 have been settled. Our September 29, 2008 U.S. Federal income tax return (the period prior to the merger with Wendy’s) is not currently under examination. Certain of the Companies’ state income tax returns from its 1998 fiscal year and forward remain subject to 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. Wendy’s Restaurants is included in the consolidated Federal and certain state income tax returns of The Wendy’s Company. However, Wendy’s Restaurants provides for Federal and state income taxes on the same basis as if consolidated returns were filed separate from The Wendy’s Company. Amounts payable for Federal and certain state income taxes are settled by Wendy’s Restaurants to The Wendy’s Company under a tax sharing agreement. During 2011, 2010 and 2009, Wendy’s Restaurants made tax sharing payments to The Wendy’s Company of $13,078, $0, and $10,417, respectively. As of January 1, 2012 and January 2, 2011, the net amount due to The Wendy’s Company for Federal and state income taxes was $26,556 and $37,977, respectively. Uncertain Tax Positions As of January 1, 2012, The Wendy’s Company and Wendy’s Restaurants had unrecognized tax benefits of $30,614 and $20,429, respectively, which, if resolved favorably would reduce income tax expense by $21,604 and $13,475, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:
|  | The Wendy’s Company
|  | 2011 |  | 2010 |  | 2009
Beginning balance |  | $ | 36,434 |  |  | $ | 39,118 |  |  | $ | 38,421 |
Additions: |  |  |  |  |  |
Tax positions related to the current year |  | — |  |  | 19 |  |  | 6,627 |
Tax positions of prior years |  | 948 |  |  | 4,921 |  |  | 1,857 |
Reductions: |  |  |  |  |  |
Tax positions of prior years |  | (3,410 | ) |  | (4,419 | ) |  | (4,241 | )
Settlements |  | (1,922 | ) |  | (416 | ) |  | (1,407 | )
Lapse of statute of limitations |  | (1,436 | ) |  | (2,789 | ) |  | (2,139 | )
Ending balance |  | $ | 30,614 |  |  | $ | 36,434 |  |  | $ | 39,118 |
|  | Wendy’s Restaurants
|  | 2011 |  | 2010 |  | 2009
Beginning balance |  | $ | 26,249 |  |  | $ | 28,414 |  |  | $ | 31,717 |
Additions: |  |  |  |  |  |
Tax positions related to the current year |  | — |  |  | 19 |  |  | 613 |
Tax positions of prior years |  | 948 |  |  | 4,921 |  |  | 1,651 |
Reductions: |  |  |  |  |  |
Tax positions of prior years |  | (3,410 | ) |  | (3,900 | ) |  | (2,383 | )
Settlements |  | (1,922 | ) |  | (416 | ) |  | (1,045 | )
Lapse of statute of limitations |  | (1,436 | ) |  | (2,789 | ) |  | (2,139 | )
Ending balance |  | $ | 20,429 |  |  | $ | 26,249 |  |  | $ | 28,414 |
During 2012, we believe it is reasonably possible the Companies will reduce unrecognized tax benefits by up to $3,889, primarily as a result of the completion of certain state tax audits. During 2011, 2010 and 2009, The Wendy’s Company recognized $501, $1,004 and $(414) of interest (reductions) expense and $337, $425 and $(888) of penalty (reductions) expense, respectively, related to uncertain tax positions. The Wendy’s Company has approximately $4,923 and $5,005 accrued for interest and $1,912 and $1,451 accrued for penalties as of January 1, 2012 and January 2, 2011, respectively. During 2011, 2010 and 2009, Wendy’s Restaurants recognized $426, $940 and $(315) of interest (reductions) expense and $(46), $425 and $(535) of penalty (reductions) expense, respectively, related to uncertain tax positions. Wendy’s Restaurants has approximately $4,583 and $4,741 accrued for interest and $1,283 and $1,204 accrued for penalties as of January 1, 2012 and January 2, 2011, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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