Wendy's 2010 Annual Report Download - page 134

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
(23) Guarantees and Other Commitments and Contingencies
Guarantees and Contingent Liabilities
Wendy’s has guaranteed the performance of certain leases and other obligations primarily from company-
owned restaurant locations now operated by franchisees amounting to $67,284. These leases extend through
2030. We have not received any notice of default related to these leases as of January 2, 2011. 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
amounting to $9,804. These leases expire on various dates, which extend through 2021.
RTM Restaurant Group (“RTM”), a subsidiary of the Companies, guarantees the performance of the lease
obligations of eight RTM restaurants formerly operated by affiliates of RTM as of January 2, 2011, (the “Affiliate
Lease Guarantees”). The former RTM stockholders have indemnified us with respect to the guarantee of the
remaining lease obligations. In addition, RTM remains contingently liable for 10 leases for restaurants sold by RTM
prior to our acquisition of RTM in 2005 (the “RTM Acquisition”) if the respective purchasers do not make the
required lease payments (collectively with the Affiliate Lease Guarantees, the “Lease Guarantees”). The Lease
Guarantees, which extend through 2020, could aggregate a maximum of approximately $4,169 as of January 2, 2011
including approximately $2,716 under the Affiliate Lease Guarantees, assuming all scheduled lease payments have
been made by the respective tenants through January 2, 2011. The estimated fair value of the Lease Guarantees as of
the date of the RTM Acquisition was recorded as a liability and is being amortized to “Other income (expense), net”
based on the decline in the net present value of those probability adjusted payments in excess of any actual payments
made over time. There remains an unamortized carrying amount of $294 included in “Other liabilities” as of
January 2, 2011 with respect to the Lease Guarantees.
Wendy’s is self-insured for most workers’ compensation losses and purchases insurance for general liability and
automotive liability losses all subject to $500 per occurrence self-retention limits. Arby’s purchases insurance for most
workers’ compensation, general liability and automotive liability losses subject to $500, $100, and $0 self-retention
limits, respectively. Both Wendy’s and Arby’s determine their liabilities for claims incurred but not reported for the
insurance liabilities on an actuarial basis. Wendy’s and 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 $12,998
as of January 2, 2011. During 2010, Wendy’s recourse obligation associated with defaulted loans was $450, and
Wendy’s has not entered into any new loan guarantees since the Merger Date. There remains an unamortized carrying
amount of $373 included in “Other liabilities” as of January 2, 2011 with respect to the loan guarantees.
The following letters of credit with various parties were outstanding as of January 2, 2011:
Year End
2010
Wendy’s .......................................................... $24,777
Arby’s ............................................................ 7,660
Wendy’s/Arby’s Restaurants ....................................... 32,437
Corporate ......................................................... 669
Wendy’s/Arby’s ................................................. $33,106
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.
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