Wendy's 2010 Annual Report Download - page 72

Commodity Price Risk
In our restaurant segments, we purchase certain food products, such as beef, poultry, pork and cheese, that are
affected by changes in commodity prices and, as a result, we are subject to variability in our food costs. While price
volatility can occur, which would impact profit margins, there are generally alternative suppliers available. Our ability
to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we
operate. Management monitors our exposure to commodity price risk.
Arby’s does not enter into financial instruments to hedge commodity prices or hold any significant inventories
of these commodities. In order to ensure favorable pricing for its major food products, as well as maintain an adequate
supply of fresh food products, we are members of a purchasing cooperative along with our franchisees that negotiates
contracts with approved suppliers on behalf of the Arby’s system. These contracts establish pricing arrangements, and
historically have limited the variability of these commodity costs, but do not establish any firm purchase
commitments by us or our franchisees.
In 2010, Wendy’s, along with our franchisees, became members of a purchasing cooperative established in
2009 that negotiates contracts with approved suppliers on behalf of the Wendy’s system in order to ensure favorable
pricing for its major food products, as well as maintain an adequate supply of fresh food products. The purchasing
contracts which established pricing arrangements, and historically have limited the variability of these commodity
costs but did not establish any firm purchase commitments by us or our franchisees, were transferred to the
purchasing cooperative in January 2010.
Foreign Currency Risk
Our exposures to foreign currency risk are primarily related to fluctuations in the Canadian dollar relative to the
U.S. dollar for our Canadian operations. Exposure outside of North America is limited to the effect of rate
fluctuations on royalties paid by franchisees. We monitor these exposures and periodically determine our need for the
use of strategies intended to lessen or limit our exposure to these fluctuations. We have exposure to (1) our equity
investment in a Canadian restaurant real estate joint venture (“TimWen”) with Tim Hortons Inc., (2) investments in
a Canadian subsidiary, and (3) export revenues and related receivables denominated in foreign currencies which are
subject to foreign currency fluctuations. Our Canadian subsidiary exposures relate to its restaurants and administrative
operations. The exposure to Canadian dollar exchange rates on the Companies’ cash flows primarily includes imports
paid for by Canadian operations in U.S. dollars and payments from the Companies’ Canadian operations to the
Companies’ U.S. operations in U.S. dollars, and to a lesser extent royalties paid by Canadian franchisees. Revenues
from foreign operations for the year ended January 2, 2011 represented 10% of our total franchise revenues and 8%
of our total revenues. For the year ended January 3, 2010, the same percentages were 9% and 7%,
respectively. Accordingly, an immediate 10% change in foreign currency exchange rates versus the United States
dollar from their levels at January 2, 2011 and January 3, 2010 would not have a material effect on our consolidated
financial position or results of operations.
Equity Market Risk
Our objective in managing our exposure to changes in the market value of our investments is to balance the risk
of the impact of these changes on their earnings and cash flows with their expectations for long-term investment
returns.
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