Wendy's 2009 Annual Report Download - page 129

Arby’s are 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.
Wendy’s provided loan guarantees to various lenders on behalf of franchisees entering into pooled debt
facility arrangements for new store development and equipment financing. Wendy’s has accrued a liability for
the fair value of these guarantees, the calculation for which was based upon a weighed average risk percentage
established at the inception of each program. Wendy’s potential recourse for the aggregate amount of these
loans amounted to $25,771 as of January 3, 2010. During 2009, Wendy’s recourse obligation associated with
defaulted loans was not material, and Wendy’s has not entered into any new loan guarantees since the Merger
Date. There remains an unamortized carrying amount of $592 included in “Other liabilities” as of January 3,
2010 with respect to the loan guarantees.
Wendy’s/Arby’s, Wendy’s/Arby’s Restaurants and Wendy’s individually have outstanding letters of credit
of $851, $33,587 and $287, respectively, with various parties as of January 3, 2010; however, our management
does not expect any material loss to result from these letters of credit because we do not believe performance
will be required.
Purchase and Capital Commitments
Beverage Agreements
Wendy’s and Arby’s have entered into beverage agreements with certain beverage vendors to provide
fountain beverage products and certain marketing support funding to the Company and its franchisees. These
agreements require minimum purchases of fountain beverage syrup (“Syrup”), by the Company and its
franchisees at certain preferred prices until the total contractual gallon volume usage has been reached. In
connection with these contracts, the Company and its national advertising funds (on behalf of the Company’s
franchisees) received certain upfront fees at the inception of the contract which are being amortized based on
Syrup usage over the contract term. In addition, these agreements provide various annual fees paid to us, based
on the vendor’s expectation of annual Company Syrup usage, which are amortized over annual usage as a
reduction of “Cost of Sales” costs. Any unamortized amounts are included in “Deferred income” and usage that
exceeds estimated amounts are included in “Accounts and notes receivable.”
Beverage purchases made by the Company under these various agreements during 2009, 2008 and 2007
were approximately $27,932, $13,908 and $7,524 respectively. Future purchases by the Company under these
beverage purchase requirements are estimated to be approximately $28,614 per year over the next five years.
Based on current preferred prices and the current ratio of sales at Company-owned restaurants to franchised
restaurants, the total remaining Company beverage requirement is approximately $249,739 over the remaining
life of the contracts. As of January 3, 2010, $1,081, net, is due to beverage vendors and included in “Accounts
payable” for the decline in Syrup usage in 2009 over originally estimated annual usage amounts, and $1,777
included in “Deferred income” relating to the remaining unamortized upfront fees.
Advertising Commitments
Arby’s had purchase commitments of approximately $2,029 related to execution of advertising strategy,
including agency fees and media buy obligations for 2010. Because most media purchase commitments can be
canceled within 90 days of scheduled broadcast, the Company does not believe that termination of these
agreements would have a significant impact on the Company’s operations. All of Wendy’s advertising
commitments at January 3, 2010 were incurred by the Wendy’s National Advertising Program, Inc.
Capital Expenditures Commitments
As of January 3, 2010, the Company has $18,638 of outstanding commitments for capital expenditures,
of which $14,038 is expected to be paid in 2010.
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Wendy’s/Arby’s Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)