Wendy's 2010 Annual Report Download - page 135

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)
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 Companies and their franchisees. These agreements
require minimum purchases of fountain beverage syrup (“Syrup”), by the Companies and their franchisees at certain
preferred prices until the total contractual gallon volume usage has been reached. In connection with these contracts,
the Companies and their national advertising funds (on behalf of the Companies’ 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 Syrup
usage of the Companies, which are amortized over annual usage as a reduction of “Cost of Sales” costs. The
unamortized amounts of upfront fees are included in “Deferred income” and usage that exceeds estimated amounts
are included in “Accounts and notes receivable.”
Beverage purchases made by the Companies under these various agreements during 2010, 2009 and 2008 were
approximately $28,264, $27,932 and $13,908, respectively. Future purchases by the Companies under these beverage
purchase requirements are estimated to be approximately $28,806 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 Companies’ beverage requirements are approximately $227,550 over the remaining life of the contracts. As
of January 2, 2011, $1,001 is due from beverage vendors and included in “Accounts and notes receivables” for the
difference in Syrup usage in 2010 over originally estimated annual usage amounts plus other contract provisions, and
$1,635 is included in “Deferred income” relating to the remaining unamortized upfront fees.
Advertising Commitments
Arby’s had purchase commitments of approximately $2,814 related to execution of advertising strategy,
including agency fees and media buy obligations for 2011. Because most media purchase commitments can be
canceled within 90 days of scheduled broadcast, the Companies do not believe that termination of these agreements
would have a significant impact on the Companies’ operations.All of Wendy’s advertising commitments at January 2,
2011 were incurred by the Wendy’s National Advertising Program, Inc.
Capital Expenditures Commitments
As of January 2, 2011, the Companies have $18,195 of outstanding commitments for capital expenditures, of
which $14,542 is expected to be paid in 2011.
Effective February 2011, certain lenders are offering financing to Wendy’s United States franchisees to purchase
new equipment and smallwares and modify other equipment needed to implement Wendy’s new hamburger product
roll out. Wendy’s has agreed to subsidize a portion of the interest, which is estimated to be approximately $1,500,
that would otherwise be payable by the franchisees participating in this financing program. The program is expected
to end in September 2011.
AFA Dues Subsidy
The AFA Service Corporation (“AFA”), an independent membership corporation in which every domestic
Arby’s franchisee is required to participate, was formed to create advertising and perform marketing for the Arby’s
system. Effective January 3, 2011 and for the remainder of 2011, the AFA Board has approved a tiered dues rate
structure for the payment of the advertising and marketing service fee ranging between 1.25% and 3.5% of gross
monthly sales. In addition, Arby’s agreed to partially subsidize the top two rate tiers in 2011 thereby decreasing the
franchisees’ effective dues contribution rate percentages to 2.6% and 3.1%. This subsidy will require payments by
Arby’s of approximately $2,900 to AFA for 2011. The 2010 subsidy for the top two tiers paid by Arby’s was
approximately $2,635.
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