Wendy's 2013 Annual Report Download - page 77

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
Management makes certain estimates and assumptions regarding each new lease agreement, lease renewal and
lease amendment, including, but not limited to, property values, market rents, property lives, discount rates and
probable term, all of which can impact (1) the classification and accounting for a lease as capital or operating, (2) the
Rent Holiday and escalations in payment that are taken into consideration when calculating Straight-Line Rent,
(3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of
favorable and unfavorable leases. The amount of depreciation and amortization, interest and rent expense reported
would vary if different estimates and assumptions were used.
Concentration of Risk
Wendy’s had no customers which accounted for 10% or more of consolidated revenues in 2013, 2012 or 2011.
As of December 29, 2013, Wendy’s had one main in-line distributor of food, packaging and beverage products,
excluding produce and breads, that serviced approximately 56% of its company-owned and franchised restaurants and
three additional in-line distributors that, in the aggregate, serviced approximately 36% of its company-owned and
franchised restaurants. We believe that our vulnerability to risk concentrations related to significant vendors and
sources of its raw materials is mitigated as we believe that there are other vendors who would be able to service our
requirements. However, if a disruption of service from any of our main in-line distributors was to occur, we could
experience short-term increases in our costs while distribution channels were adjusted.
Wendy’s restaurants are principally located throughout the U.S. and to a lesser extent, in 28 foreign countries
and U.S. territories with the largest number in Canada. Wendy’s restaurants are located in 50 states and the District
of Columbia, with the largest number in Florida, Ohio, Texas, Georgia, Michigan, California, Pennsylvania and
North Carolina. Because our restaurant operations are generally located throughout the U.S. and to a much lesser
extent, Canada and other foreign countries and U. S. territories, we believe the risk of geographic concentration is not
significant. We could be adversely affected by changing consumer preferences resulting from concerns over nutritional
or safety aspects of beef, poultry, french fries or other products we sell or the effects of food safety events or disease
outbreaks. Our exposure to foreign exchange risk is primarily related to fluctuations in the Canadian dollar relative to
the U.S. dollar for our Canadian operations. However, our exposure to Canadian dollar foreign currency risk is
mitigated by the fact that less than 10% of Wendy’s restaurants are in Canada.
New Accounting Standards
In July 2013, the Financial Accounting Standards Board (the “FASB”) issued an amendment that requires
companies to present unrecognized tax benefits as a reduction to deferred tax assets when a net operating loss
carryforward, a similar tax loss or a tax credit carryforward exists, with limited exceptions. The amendment is effective
commencing with our 2014 fiscal year. The Company does not expect the adoption to have a material impact on the
consolidated financial statements.
In February 2013, the FASB issued an amendment adding new disclosure requirements for items reclassified
out of accumulated other comprehensive income (“AOCI”). The amendment requires presentation of changes in
AOCI balances by component and significant items reclassified out of AOCI by component either (1) on the face of
the statement of operations or (2) as a separate disclosure in the notes to the financial statements. The Company
adopted this amendment during the first quarter of 2013; however, no amounts have been reclassified out of AOCI
during the periods presented in our consolidated financial statements.
(2) Facilities Action Charges, Net
Year Ended
2013 2012 2011
System optimization initiative ............................... $ 4,901 $ — $ —
Facilities relocation and other transition costs ................... 4,574 28,990 5,527
Breakfast discontinuation .................................. 1,118 10,569 —
Arby’s transaction related costs .............................. 263 1,472 40,184
$10,856 $41,031 $45,711
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