Wendy's 2011 Annual Report Download - page 121

THE WENDY’S COMPANY AND SUBSIDIARIES
WENDY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
Japan Joint Venture Guarantee
In 2012, Wendy’s Restaurants (1) provided a guarantee to a lender to the Japan joint venture for which our
joint venture partner has agreed to reimburse and otherwise indemnify us for his 51% share of the guarantee and
(2) has agreed to reimburse and otherwise indemnify our joint venture partner for our 49% share of the guarantee by
our joint venture partner of a line of credit granted by a different lender to the Japan joint venture to fund working
capital requirements. Our portion of these contingent obligations totals approximately $2,900 (¥220,800) based upon
current rates of exchange. The fair value of our guarantees is immaterial. The Companies anticipate that additional
guarantees of up to $5,000 may be necessary in 2012.
North America Incentive Program
In order to promote new unit development, Wendy’s has established a franchisee assistance program for its
North American franchisees that provides for reduced technical assistance fees and a sliding scale of royalties for the
first two years of operation for qualifying locations opened between April 1, 2011 and December 31, 2013. While we
are unable to project the number of locations to be opened under this program, we do not expect the effect on current
or future franchise revenues to be material.
Lease Guarantees
Wendy’s has guaranteed the performance of certain leases and other obligations primarily from former
company-owned restaurant locations now operated by franchisees amounting to $46,502 as of January 1, 2012. These
leases extend through 2048. We have not received any notice of default related to these leases as of January 1, 2012.
In the event of default by a franchise owner, Wendy’s generally retains the right to acquire possession of the related
restaurant locations.
Wendy’s is contingently liable for certain other leases which have been assigned to unrelated third parties who
have indemnified Wendy’s against future liabilities amounting to $8,029 as of January 1, 2012. These leases expire on
various dates, through 2021.
Wendy’s Canadian subsidiary has established a lease guarantee program to promote new franchisee unit
development for up to an aggregate of C$5,000 for periods of up to five years. Franchisees pay the Canadian
subsidiary a nominal fee for the guarantee. As of January 1, 2012, the Canadian subsidiary had guaranteed C$249
under this program.
Insurance
Wendy’s is self-insured for most workers’ compensation losses and purchases insurance for general liability and
automotive liability losses all subject to $500 per occurrence self-retention limits. Wendy’s determines its liability for
claims incurred but not reported for the insurance liabilities on an actuarial basis. Wendy’s is self-insured for health
care claims for eligible participating employees subject to certain deductibles and limitations, and determines its
liability for health care claims incurred but not reported based on historical claims runoff data.
Letters of Credit
As of January 1, 2012, Wendy’s Restaurants has outstanding letters of credit with various parties of $20,657,
which are included in The Wendy’s Company’s outstanding letters of credit of $21,326. We do not expect any
material loss to result from these letters of credit.
Purchase and Capital Commitments
Beverage Agreements
Wendy’s has entered into a beverage agreement with a beverage vendor to provide fountain beverage products
and certain marketing support funding to the Companies and their franchisees. This agreement requires minimum
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