Wendy's 2013 Annual Report Download - page 112

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
Franchisee Image Activation Financing Program
In addition to the Image Activation incentive programs described above, Wendy’s has executed an agreement to
partner with a third-party lender to establish a financing program for franchisees that participate in our Image
Activation program. Under the program, the lender is providing loans to franchisees to be used for the reimaging of
restaurants according to the guidelines and specifications under the Image Activation program. To support the
program, Wendy’s has provided to the lender a $6,000 irrevocable stand-by letter of credit, which was issued on
July 1, 2013.
Other Loan Guarantees
Wendy’s provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt facility
arrangements for new restaurant development and equipment financing to promote systemwide initiatives. Wendy’s
has accrued a liability for the fair value of these guarantees, the calculation for which was based upon a weighted
average risk percentage established at the inception of each program which has been adjusted for a history of defaults.
Wendy’s potential recourse for the aggregate amount of these loans amounted to $9,665 as of December 29, 2013. As
of December 29, 2013, the fair value of these guarantees totaled $682 and was included in “Other liabilities.”
During 2012, Wendy’s provided a $2,000 guarantee to a lender for a franchisee, in connection with the
refinancing of the franchisee’s debt which originated in 2007. Pursuant to the agreement, the guarantee is subject to
an annual reduction over a five year period. As of December 29, 2013, the guarantee totaled $1,842. Wendy’s also
received a $3,000 prepayment on the note receivable owed by the franchisee as part of the refinancing. As of
December 29, 2013, Wendy’s has accrued a liability for the fair value of this guarantee of $202, the calculation for
which was based upon a weighted average risk percentage established at the inception of the guarantee.
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 $42,620 as of December 29, 2013.
These leases extend through 2050. We have not received any notice of default related to these leases as of
December 29, 2013. 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 $5,094 as of December 29, 2013. 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 December 29, 2013, the Canadian subsidiary had guaranteed $84
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 a $500 per occurrence retention or deductible limit. 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 December 29, 2013, the Company had outstanding letters of credit with various parties totaling $18,829,
of which $18,593 were cash collateralized. The related cash collateral is classified as restricted cash and included in
“Prepaid expenses and other current assets” in the consolidated balance sheet. See Note 5 and Note 10 for further
information. We do not expect any material loss to result from these letters of credit.
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