Wendy's 2011 Annual Report Download - page 120

THE WENDY’S COMPANY AND SUBSIDIARIES
WENDY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
The present values of minimum sale-leaseback and capitalized lease payments are included either in “Long-term
debt” or “Current portion of long-term debt,” as applicable.
(24) Guarantees and Other Commitments and Contingencies
Guarantees and Contingent Liabilities
Equipment for Systemwide Core Menu Initiative
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. As of January 1, 2012, Wendy’s potential recourse for the loans related to this
guarantee program amounted to $1,635 and Wendy’s has accrued liabilities under these initiatives of approximately
$315.
Breakfast Expansion
In order to encourage franchisees to participate in the breakfast daypart, Wendy’s has established the following
programs:
• Wendy’s will continue to lease equipment to certain franchisees that are participating in 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. The total amount of
expenditures for equipment (including installation) leased to franchisees is expected to be no more than
$4,500.
• 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 per
restaurant, carry no interest charge and be repayable in full 24 months after the installation is completed.
Wendy’s will fund a maximum of $20,000 of these loans for early adopters of the breakfast program.
As of January 1, 2012, Wendy’s has purchased equipment with a current net book value of approximately
$2,559 that has been leased to franchisees and has made loans of $2,625 under the above breakfast program. 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. Based on franchisee participation
in the breakfast program, Wendy’s estimates the royalties not to be received under this program will
approximate $4,415 over the three year period through the second quarter of 2015.
• 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 programs.
Other Loan Guarantees
Wendy’s previously provided loan guarantees to various lenders on behalf of franchisees entering into pooled
debt facility arrangements for new store development and equipment financing. Wendy’s has accrued a liability for
the fair value of these guarantees, the calculation for which was based upon a weighed average risk percentage
established at the inception of each program which has been adjusted for a history of defaults. Wendy’s potential
recourse for the aggregate amount of these loans amounted to $12,071 as of January 1, 2012. There remains an
unamortized carrying amount of $1,118 included in “Other liabilities” as of January 1, 2012 with respect to these
loan guarantees.
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