Wendy's 2013 Annual Report Download - page 36

Sale of Arby’s
On July 4, 2011, Wendy’s Restaurants completed the sale of 100% of the common stock of Arby’s to ARG IH
Corporation (“Buyer”), a wholly-owned subsidiary of ARG Holding Corporation (“Buyer Parent”), for
$130.0 million in cash (subject to customary purchase price adjustments) and 18.5% of the common stock of Buyer
Parent (through which Wendy’s Restaurants indirectly retained an 18.5% interest in Arby’s) with a fair value of
$19.0 million.
We received a $40.1 million dividend from our investment in Arby’s in 2013, of which $21.1 million was
recognized in “Investment income, net” with the remainder recorded as a reduction to the carrying value of our
investment in Arby’s. During 2012, we received a $4.6 million dividend from our investment in Arby’s, which was
included in “Investment income, net.”
Joint Venture in Japan
A wholly-owned subsidiary of Wendy’s entered into a joint venture for the operation of Wendy’s restaurants in
Japan (the “Japan JV”) with Ernest M. Higa and Higa Industries, Ltd., a corporation organized under the laws of
Japan (collectively, the “Higa Partners”) during the second quarter of 2011. Our initial investment in the Japan JV of
$1.2 million was included in “Investment in joint venture” in our consolidated statement of cash flows for the year
ended January 1, 2012. Through the first quarter of 2013 as described below, our 49% share of the Japan JV was
accounted for as an equity method investment. Our share of the Japan JV’s net losses of $1.1 million, $1.8 million,
and $1.1 million during the years ended December 29, 2013, December 30, 2012 and January 2, 2012, respectively
are included in “Other operating expense, net” in our consolidated statements of operations.
In January 2013, Wendy’s and the Higa Partners agreed to fund future anticipated cash requirements of the
Japan JV up to a maximum amount per partner. In conjunction with the first contributions in April 2013 of
$1.0 million and $0.2 million by Wendy’s and the Higa Partners, respectively, the partners executed an amendment
to the original joint venture agreement which included revised rights and obligations of the partners and changes to
the ownership and profit distribution percentages. As a result of the changes in the ownership rights and obligations
of the partners in April 2013, Wendy’s consolidated the Japan JV beginning in the second quarter of 2013. Beginning
in the second quarter of 2013, we reported the Japan JV’s results of operations in the appropriate line items in our
consolidated statements of operations and the net loss attributable to the Higa Partners’ ownership percentage in “Net
loss (income) attributable to noncontrolling interests.” The consolidation of the Japan JV’s three restaurants did not
have a material impact on our consolidated financial statements. In August 2013, additional contributions of
$1.0 million and $0.2 million were made by Wendy’s and the Higa Partners, respectively.
In December 2013, Wendy’s and the Higa Partners agreed to terminate Wendy’s investment in the joint
venture and repay their respective portions of the Japan JV’s outstanding financing debt and liabilities related to
restaurant closure costs (the “Obligations”). In connection with that agreement, Wendy’s (1) made a contribution to
the Japan JV of $2.8 million to pay the Obligations attributable to Wendy’s interest and (2) loaned $2.8 million to
the Japan JV to pay the Obligations attributable to the Higa Partners interest. Wendy’s also loaned $0.2 million to
the Japan JV to help support the future working capital needs of that entity. On December 27, 2013, Wendy’s
transferred its interest in the Japan JV to Higa Industries, Ltd. for nominal consideration, terminating the joint
venture, and establishing the Japan JV as a wholly-owned entity of the Higa Partners (“Wendy’s Japan”). Wendy’s
Japan and the Higa Partners issued a promissory note to Wendy’s evidencing the commitment to repay both amounts
described above in full by December 27, 2018 (see Note 5 for additional information regarding this receivable). We
have included our capital contributions totaling $4.8 million, net of cash acquired of $0.2 million, for the year ended
December 29, 2013 in “Acquisitions” in our consolidated statement of cash flows. Therefore, Wendy’s
deconsolidated the Japan JV and recognized a loss of $1.7 million, which was included in “Other operating expense,
net” in our consolidated statements of operations for the year ended December 29, 2013.
Certain of the Obligations were supported by guarantees by Wendy’s and the Higa Partners, and such
guarantees were subject to a cross-indemnification arrangement between Wendy’s and the Higa Partners. With the
repayment of the Japan JV’s financing debt, the applicable guarantees were also terminated, and both Wendy’s and
the Higa Partners terminated the cross-indemnification arrangement related thereto. As a result, as of December 29,
2013, Wendy’s had no remaining funding requirements for, or exposure under guarantees to lenders to, the Japan JV.
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