Wendy's 2011 Annual Report Download - page 12

of sales, as defined in the agreement, from the operation of the restaurant or C$1,000, whichever is greater. The
agreement also typically requires that the franchisee pay WROC a technical assistance fee. The standard technical
assistance fee is currently C$35,000 for each restaurant.
In order to promote new unit development, Wendy’s has established a franchisee assistance program for its
North American franchisees that provides (with certain exceptions) for reduced technical assistance fees and a sliding
scale of royalties for the first two years of operation for qualifying locations opened between April 1, 2011 and
December 31, 2013. In addition, Wendy’s Canadian subsidiary has established a lease guarantee program to promote
new franchisee unit development for up to an aggregate of C$5.0 million for periods of up to five years. Franchisees
pay the Canadian subsidiary a nominal fee for the guarantee.
In order to facilitate the purchase and related installation of equipment by franchisees required to implement a
systemwide core menu initiative, Wendy’s initiated incentive programs for franchisees including the partial subsidy of
interest rates and a guarantee program.
In order to encourage franchisees to participate in expanded testing of the breakfast daypart, Wendy’s has
established the following programs:
• Wendy’s will continue to lease equipment to certain franchisees that are testing the breakfast program. At
the time breakfast becomes a required program, the franchisees will be required to purchase the equipment
from Wendy’s based on its then book value plus installation costs.
• Additionally, Wendy’s is providing loans to certain franchisees for the purchase and installation of
equipment required to implement the breakfast program. The loans are expected to not exceed $25,000
per restaurant, carry no interest charge and be repayable in full 24 months after the installation is
completed.
The above programs also have the following additional features:
• For the first three years of an early adopting franchisee’s participation in the breakfast program, a portion
of franchise royalties (on a sliding scale) will not be payable to Wendy’s but will be required to be
reinvested in local advertising and promotions for the breakfast program.
• Contributions otherwise due to The Wendy’s National Advertising Program, Inc. (“Wendy’s National
Advertising Program”) based on breakfast sales will not be made but will be required to be reinvested in
local advertising and promotions for the breakfast program until Wendy’s National Advertising Program
begins to purchase national advertising for the breakfast program.
See “Management Discussion and Analysis—Liquidity and Capital Resources—Guarantees and Other
Contingencies” in Item 7 herein, for further information regarding guarantee obligations.
Franchised restaurants are required to be operated under uniform operating standards and specifications relating
to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance
and cleanliness of premises and customer service. Wendy’s monitors franchisee operations and inspects restaurants
periodically to ensure that required practices and procedures are being followed.
See Note 6 and Note 24 of the Financial Statements and Supplementary Data included in Item 8 herein, and
the information under “Management’s Discussion and Analysis” in Item 7 herein, for further information regarding
reserves, commitments and contingencies involving franchisees.
Advertising and Marketing
In the United States and Canada, Wendy’s advertises nationally on network and cable television programs,
including nationally televised events. Locally in the United States and Canada, Wendy’s primarily advertises through
regional network and cable television, radio and newspapers. Wendy’s participates in two national advertising funds
established to collect and administer funds contributed for use in advertising through television, radio, newspapers,
the Internet and a variety of promotional campaigns, including the increasing use of social media. Separate national
advertising funds are administered for Wendy’s United States and Canadian locations. Contributions to the national
advertising funds are required to be made from both company-owned and franchised restaurants and are based on a
percent of restaurant retail sales. In addition to the contributions to the national advertising funds, Wendy’s requires
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