Wendy's 2010 Annual Report Download - page 20

International Operations and Franchising
As of January 2, 2011, Arby’s had 106 franchised restaurants in Canada and 20 franchised restaurants in 3
other countries. In June 2010, Arby’s announced a new development agreement for Turkey. Arby’s has granted
development rights in the countries listed under Item 2 of this Form 10-K.
Arby’s is also the franchisor for the Arby’s brand in Canada. The rights and obligations governing the
franchised restaurants operating in Canada are set forth in a franchise agreement. This document provides the licensee
the right to own and operate an Arby’s restaurant upon a site accepted by Arby’s and to use the Arby’s system in
connection with the operation of the restaurant at that site. The traditional franchise agreement provides for a 20-year
term and offers a renewal term subject to certain conditions. The franchisee pays to Arby’s a monthly royalty of 4% of
sales, as defined in the agreement, from the operation of the restaurant. The agreement also typically requires that the
franchisee pay Arby’s a franchise fee. The standard franchise fee is currently C$42,500 for the first restaurant and
C$27,500 for each subsequent restaurant.
In 2007, in order to increase development of traditional Arby’s restaurants in selected Canadian markets, the
CIP was introduced. Arby’s franchise agreement for participants in the CIP currently requires an initial C$27,500
franchise fee for the first franchised unit, C$12,500 for each subsequent unit, and a monthly royalty payment equal to
1.0% of restaurant sales for the first 36 months the unit is open. After 36 months, the monthly royalty rate reverts to
the prevailing 4% rate for the remaining term of the agreement. The commitment fee is C$5,000 per restaurant,
which is credited against the franchise fee during the development process. The CIP remains in effect and does not
have a stated expiration date. However, Arby’s has the right to discontinue offering the CIP at any time.
Our market entry strategy and terms for the development and operation of Arby’s restaurants in markets
outside of the United States and Canada vary depending upon market conditions.
General
Governmental Regulations
Various state laws and the Federal Trade Commission regulate Wendy’s and Arby’s franchising activities. The
Federal Trade Commission requires that franchisors make extensive disclosure to prospective franchisees before the
execution of a franchise agreement. Several states require registration and disclosure in connection with franchise
offers and sales and have “franchise relationship laws” that limit the ability of franchisors to terminate franchise
agreements or to withhold consent to the renewal or transfer of these agreements. In addition, Wendy’s and Arby’s
and their respective franchisees must comply with the federal Fair Labor Standards Act and similar state and local
laws, the Americans with Disabilities Act (the “ADA”), which requires that all public accommodations and
commercial facilities meet federal requirements related to access and use by disabled persons, and various state and
local laws governing matters that include, for example, the handling, preparation and sale of food and beverages, the
provision of nutritional information on menu boards, minimum wages, overtime and other working and safety
conditions. Compliance with the ADA requirements could require removal of access barriers and non-compliance
could result in imposition of fines by the United States government or an award of damages to private litigants. As
described more fully under “Item 3. Legal Proceedings,” one of Arby’s subsidiaries was a defendant in a lawsuit
alleging failure to comply with Title III of the ADA at approximately 775 company-owned restaurants acquired as
part of Arby’s July 2005 acquisition of the RTM Restaurant Group (“RTM”). Under a court approved settlement of
that lawsuit, we estimate that Arby’s will spend approximately $1.15 million per year of capital expenditures over a
seven-year period (which commenced in 2008) to bring these restaurants into compliance with the ADA, in addition
to paying certain legal fees and expenses. We do not believe that the costs related to this matter or any other costs
relating to compliance with the ADA will have a material adverse effect on the Companies’ consolidated financial
position or results of operations. We cannot predict the effect on our operations, particularly on our relationship with
franchisees, of any pending or future legislation.
Environmental Matters
Wendy’s/Arby’s and Wendy’s/Arby’s Restaurants past and present operations are governed by federal, state and
local environmental laws and regulations concerning the discharge, storage, handling and disposal of hazardous or
toxic substances. These laws and regulations provide for significant fines, penalties and liabilities, sometimes without
regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of the
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