Wendy's 2010 Annual Report Download - page 44

During the fourth quarter of 2008, Wendy’s/Arby’s recognized an allowance for collectability of $21.2 million
to reduce the then carrying amount of the DFR Notes to $25.0 million. On June 9, 2010, pursuant to a March 2010
agreement between Wendy’s/Arby’s and DFR, Wendy’s/Arby’s received cash proceeds of $31.3 million, including
interest, in consideration for the repayment and cancellation of the DFR Notes. The proceeds represented 64.1% of
the $48.0 million aggregate principal amount of the DFR Notes. Wendy’s/Arby’s recognized income of $4.9 million
during the year ended January 2, 2011 as the repayment proceeds exceeded the carrying value of the DFR Notes. This
gain is included in “Investment income (expense), net.”
Related Party Transactions
Supply Chain Relationship Agreement
During the 2009 fourth quarter, Wendy’s entered into a purchasing co-op relationship agreement (the “Co-op
Agreement”) to establish a new Wendy’s purchasing co-op, Quality Supply Chain Co-op, Inc. (“QSCC”). QSCC
manages food and related product purchases and distribution services for the Wendy’s system in the United States
and Canada. Through QSCC, Wendy’s and Wendy’s franchisees purchase food, proprietary paper and operating
supplies under national contracts with pricing based upon total system volume.
QSCC’s supply chain management facilitates the continuity of supply and provides consolidated purchasing
efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s North
America supply chain. The system’s purchasing function for 2009 and prior was performed and paid for by Wendy’s.
In order to facilitate the orderly transition of the 2010 purchasing function for North America operations, Wendy’s
transferred certain contracts, assets and certain Wendy’s purchasing employees to QSCC in the first quarter of
2010. Pursuant to the terms of the Co-op Agreement, Wendy’s was required to pay $15.5 million to QSCC over an
18 month period through May 2011 in order to provide funding for start-up costs, operating expenses and cash
reserves. The required payments by Wendy’s under the Co-op Agreement were expensed in the fourth quarter of
2009 and included in “General and administrative.” Wendy’s made payments of $15.2 million in 2010. In addition
to the initial funding by Wendy’s, since the third quarter of 2010, all QSCC members (including Wendy’s) began
paying sourcing fees on products sourced through QSCC. Such sourcing fees will be the primary means of funding
QSCC’s operations after the initial funding by Wendy’s is completed. In connection with the ongoing operations of
QSCC during 2010, QSCC reimbursed Wendy’s $0.9 million for amounts Wendy’s had paid primarily for payroll-
related expenses for certain Canadian QSCC purchasing employees. Effective January 4, 2010, the QSCC leased
9,333 square feet of office space from Wendy’s for a two year period for an average annual rental of $0.1 million with
five one-year renewal options.
ARCOP, Inc. (“ARCOP”), a not-for-profit purchasing cooperative, negotiates contracts with approved
suppliers on behalf of Arby’s and Arby’s franchisees and operates under a previously established agreement similar to
the Wendy’s Co-op Agreement.
Revolving credit facilities
In December 2009, and as amended in February and August 2010, AFA Service Corporation (“AFA”) entered
into a revolving loan agreement with Arby’s. The terms of this agreement allow AFA to have revolving loans of up to
$14.0 million outstanding with an expiration date of March 2012 and bearing interest at 7.5% per annum. In
February 2011, the maximum principal amount of revolving loans was reduced to $11.0 million. As of January 2,
2011, the outstanding revolving loan balance was $4.5 million.
Strategic Sourcing Group Agreement
On April 5, 2010, QSCC and ARCOP, in consultation with Wendy’s/Arby’s Restaurants, established Strategic
Sourcing Group Co-op, LLC (“SSG”). SSG was formed to manage and operate purchasing programs which combine
the purchasing power of both Wendy’s and Arby’s company-owned and franchised restaurants to create buying
efficiencies for certain non-perishable goods, equipment and services.
In order to facilitate the orderly transition of this purchasing function for the Companies’ North America
operations, Wendy’s/Arby’s Restaurants transferred certain contracts, assets and certain Wendy’s/Arby’s Restaurants
purchasing employees to SSG in the second quarter of 2010. Wendy’s/Arby’s Restaurants had committed to pay
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