Wendy's 2013 Annual Report Download - page 58

Download and view the complete annual report

Please find page 58 of the 2013 Wendy's annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 156

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156

• Federal and state income tax uncertainties:
We measure income tax uncertainties in accordance with a two-step process of evaluating a tax position.
We first determine if it is more likely than not that a tax position will be sustained upon examination
based on the technical merits of the position. A tax position that meets the more-likely-than-not
recognition threshold is then measured, for purposes of financial statement recognition, as the largest
amount that has a greater than fifty percent likelihood of being realized upon effective settlement. We have
unrecognized tax benefits of $23.9 million, which if resolved favorably would reduce our tax expense by
$17.7 million at December 29, 2013.
We recognize interest accrued related to uncertain tax positions in “Interest expense” and penalties in
“General and administrative.” At December 29, 2013, we had $2.6 million accrued for interest and
$1.0 million accrued for penalties.
The Company participates in the Internal Revenue Service (the “IRS”) Compliance Assurance Process
(“CAP”). As part of CAP, tax years are examined on a contemporaneous basis so that all or most issues are
resolved prior to the filing of the tax return. As such, our December 30, 2012, January 1, 2012, January 2,
2011 and January 3, 2010 tax returns have been settled. Certain of the Company’s state income tax returns
from its 2001 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.
• Legal and environmental accruals:
We are involved in litigation and claims incidental to our current and prior businesses. We provide
accruals for such litigation and claims when payment is probable and reasonably estimable. Most
proceedings are in preliminary stages, with various motions either yet to be submitted or pending,
discovery yet to occur and significant factual matters unresolved. In addition, most cases seek an
indeterminate amount of damages and many involve multiple parties. Predicting the outcomes of
settlement discussions or judicial or arbitral decisions are thus inherently difficult. We review our
assumptions and estimates each quarter based on new developments, changes in applicable law and other
relevant factors and revise our accruals accordingly.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Certain statements the Company makes under this Item 7A constitute “forward-looking statements” under the
Private Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements and
Projections” in “Part I” preceding “Item 1.”
We are exposed to the impact of interest rate changes, changes in commodity prices and foreign currency
fluctuations primarily related to the Canadian dollar. In the normal course of business, we employ established policies
and procedures to manage our exposure to these changes using financial instruments we deem appropriate.
Interest Rate Risk
Our objective in managing our exposure to interest rate changes is to limit the impact on our earnings and cash
flows. Our practice is to maintain a target, over time and subject to market conditions, of between 35% and 75% of
long-term debt including the current portion as fixed, or effectively fixed, rate debt. As of December 29, 2013, our
long-term debt, including current portion, aggregated $1,463.8 million. Long-term debt consisted of $85.0 million of
fixed-rate debt, $1,338.1 million of variable interest rate debt and $40.7 million of capital lease obligations. The
Company’s variable interest rate debt consists of $570.6 million of Term A Loans and $767.5 million of Term B
Loans. The interest rate on the Term A Loans is based on the Eurodollar Rate as defined in the Restated Credit
Agreement plus 2.25%. The interest rate on the Term B Loans is based on the Eurodollar Rate as defined in the
Restated Credit Agreement (but not less than 0.75%), plus 2.50%. The interest rate was 2.42% on the Term A Loans
and 3.25% on the Term B Loans of as of December 29, 2013.
54